Economic and political models aside, two characteristics were always remembered when someone tried to explain China’s successful growth: predictability and pragmatism, both qualities achieved (and carefully nurtured) since the death of Mao Tse-tung and the rise of the era of reforms.
Despite the obvious barbarity of the Celestial Square massacre in 1989, there is no doubt about Deng Xiaoping’s success in taking over a miserable country and opening it up to the world. China came from an era of political persecution, traumatized by erratic policies that claimed the lives of millions through hunger, surrounded by a hostile neighbor that put its territorial integrity at risk. Deng dared to break away from the Party’s traditional areas and decided to… experiment.
He established free trade zones in the south of the country, intentionally far from the capital to avoid political turbulence; laid the foundation for a one-party system that allowed for the orderly transition of power and collegiate decision-making; carrying out promotions in the public service taking merit and experience as the main criteria; and said that people could dare to dream of wealth.
When he began to lose power and feared a change of course towards the era of ideological purism of the Cultural Revolution, he traveled to the birthplace of his reforms in southern China and signaled the leadership’s support for the opening to continue. And then he left the scene.
Jiang Zemin, Hu Jintao and Xi Jinping followed, in less turbulent transitions than expected. Liberal democracy may even be the best among the worst systems, as some political scientists like to assert anecdotally, but it was the centralization of power in a single party and the commitment to State policies that gave the market the legal security to begin with. putting money into China.
Capital knew who was in charge — and it also knew that these people weren’t going anywhere for some time. Not only that: the political system proved to be surprisingly flexible in adopting whatever was working, regardless of the “red credentials” of a given project or official.
Cut to 2023, when the economy isn’t looking so good, and it looks like we’re in for a reversal of these advances. Last year, there was no transition of power, and the successive persecutions of sectors such as technology, private education and, more recently, consultancies leave doubts about government priorities. Furthermore, now those who occupy the main positions in the communist hierarchy are subject to disappear without further explanation overnight.
These are legitimate reasons for those who have investments in the pipeline to ask themselves: can the money I put here disappear because the government wants it to? Will the person I spoke to and who authorized my business have the same power tomorrow or could they be purged? What if there is a lack of trust and people decide to stop spending?
This week, the Chinese government was encouraged by the results of retail sales and industrial production — the first sector rose 4.6%, the second, 4.5%. With persistent pessimism, any number in the blue helps. But they alone will not reverse the course of an economy that is more technological, without a doubt, but is losing dynamism.
Addressing this problem would require countering policies dear to Xi, starting with transparency in politics. In such a large State, it will also be necessary to increase the productivity of those who work in state-owned companies and fire employees, if necessary, eliminating redundant or inefficient positions.
As the country ages rapidly and the active population does not have time to think about starting a family because they need to earn enough to support themselves, parents and grandparents, the time is approaching to change the social security system as well. Something that, we know well, is never a popular measure.
But Xi has other priorities. On more than one occasion, it has demonstrated that it is willing to sacrifice growth in pursuit of a very personal interpretation of national security. As long as this mentality persists (and it is too powerful for anyone to contradict it), stimulus may provide survival, but it will not solve the economy.
Perhaps we are entering a new Chinese era, where celebrating lean monthly results is the rule rather than the exception. May the world hold on… and adapt.
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