Yao Yang on China's New Era: A Return to a Planned Economy? (Part 1)

"Government officials at all levels no longer have the space to make decisions on their own, economic activity is constrained and less dynamic and social freedoms have been squeezed."

Today’s edition begins with an introduction by David Ownby. David is currently a research associate at the Max Planck Institute for Social Anthropology and was until recently a professor of history at the Université de Montréal. He is also the founder of a blog which continues to serve as a major source of inspiration for this newsletter and which I highly recommend subscribing to: Reading the China Dream. — Thomas

When I gave a talk on the Reading the China Dream project in Paris last November, I was criticized – practically ridiculed – for talking about public intellectuals in China and for including Yao Yang in that category. My detractor argued that China is a totalitarian society and thus has no public space, meaning that there can be no public intellectuals. I understand the logic, and I too wish that Ai Weiwei could speak his mind in China, but at the same time I don’t believe this logic gives Chinese intellectuals, or Yao Yang, their due. 

One of the unexpected outcomes of 40 years of reform and opening in China is an intellectual pluralism that blossomed particularly in the 2000s and in the early 2010s, before Xi Jinping came to power. To a certain extent, we might identify two parallel universes in China, that of Xi Jinping and the Party-State with its propaganda organs, and that of Chinese intellectuals who value a relative independence and attempt to write for whatever public reads them (other intellectuals is my guess). This second universe is clearly at the mercy of the first and challenges or speaks truth to it at its peril, but the writings of this second universe are not propaganda and are worth reading because what China thinks matters.

Yao Yang is an excellent example of the sort of paradox the two parallel universes can produce. Yao is – among many other things - head of the China Center for Economic Research and, until recently, was Dean of the National School of Development at Peking University. He is the ultimate insider, surely a Party member, and he benefits materially from his status. When we met in China last May he drove me to dinner in his Tesla (I didn’t have the wit to ask, “Why not a BYD?”).

As the same time, Yao has been an engaged intellectual throughout his career, and has spoken out on the issues of the day in the discourse available to him. The text discussed here is of a piece with Yao’s engagement. He is both proud of what China has accomplished and concerned with where China finds itself. He seeks to provide an explanation of how China has reached this point, why the measures taken by the Xi regime have been inadequate and even counterproductive even if grounded in certain political and economic realities, and he offers hints at solutions to problems which are basically ideological. My Parisian detractor wants Yao to say, “Leninism must go before China can be free” and refuses to read him if he doesn’t, which to my mind is simply playing the ostrich.       

David Ownby

Key Points

1. After four decades of reform and opening (1978-2017), China has entered a new era whose aim is to correct the problems accumulated since the country began to liberalise.

2. These include five main areas: corruption, fragmentation of power, state capture, income inequality and the over-liberalisation of certain sectors.

3. The new era has thus been marked by a re-centralisation of power, strong state intervention and a curtailment of both economic and social freedoms.

4. Although necessary in part, corrective measures have gone too far, leading to a number of new problems.

   1. Beijing’s anti-corruption campaign and increased political supervision have encouraged officials throughout the country to avoid taking risks and thus to “lie flat”.

   2. Conversely, fear coupled with an urge to demonstrate their loyalty towards Beijing has led to the over-zealous implementation of directives coming from above.

   3. For instance, Beijing’s crackdown on the over-liberalisation of China’s economy has had a dire impact on China’s stock market, real estate sector and private enterprises in general.

   4. Such stringent measures coupled with Beijing’s recent zero-Covid policy have not only impacted business confidence and pushed foreigners to leave in droves, they have also undermined Chinese people’s confidence in the CCP. This will require a long time to rebuild.

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5. The stark disconnect between the Party’s official Marxist-based ideology and its economic policies has only exacerbated China’s recent woes.

6. Moreover, “old leftists” have been using Beijing’s recent curbing of the economy and pursuit of common prosperity to promote their own political agenda. This has led to a small come-back of Marxism in China.

7. As a result, both capital and the wealthy have been trying to leave the country.

8. That being said, China’s recent problems could simply be explained by the laws of history.

9. Indeed, the country may have recently entered a cyclical twenty-year period of difficult readjustment. Once over, much brighter skies may lie ahead.

10. But for this to happen, Beijing must break with its ideological past and come up with new political doctrines. Confucianism and moderate left-wing liberalism could provide a good starting point.

* Today’s post is too long to be sent out all in one go. Part two will follow tomorrow.

Name: Yao Yang (姚洋)
Age: 59 (Nov. 1964)
Position: Director of the China Centre for Economic Research and executive director of the Institute of South-South Cooperation and Development, Peking University
Formerly: Dean of the National School of Development, Peking University (Nov. 2012 – Jan. 2024)
Research focus: China’s economic development and political economy
Education: BA Peking University (1986); MA Peking University (1989); PhD University of Wisconsin-Madison (1996)
For a more detailed overview of Yao’s career, interests, awards and publications, see here.

FROM REFORM AND OPENING-UP TO THE NEW ERA: HOW IS CHINA CHANGING? (Part 1)
Yao Yang (姚洋)
Published by Twenty-First Century (二十一世纪), vol. 200, Dec. 2023
N.B. The following is a summary of Yao’s article interspersed with quotes. If you have the time, I recommend reading his piece in full.
(Illustration by DALL·E 3)

China’s reform and opening-up period can be divided into two phases:

1. 1978-1997: characterised by political devolution, economic liberalisation, ideological flexibility, a return to Chinese traditions (be they political, economic, cultural or philosophical) and so on.

2. 1998-2017, distinguished by the reaping of phase one’s dividends, the continued expansion of individual freedoms, fragmentation of power and China’s return to the “normal state” of a developing country as characterised by such features as the presence of a political oligarchy (寡头政治), nepotism, the emergence of a politico-business alliance (政商联盟), corruption and high income inequality.

By 2001, most of China’s major political and economic reforms had been completed. “Reform fatigue” (改革疲劳症) ensued.

Contrary to conventional wisdom, China’s post-Mao era is perhaps best understood as a return to traditional Chinese ideas rather than simply one of learning from the West. The country’s shift to Chinese-style pragmatism is one such example and its return to meritocracy is another.

• On Chinese-style pragmatism: Since Mao’s death and in the absence of any guiding religion such as Christianity in the West, Beijing has shifted its ideological focus from class struggle to pragmatism characterised by the mottos “seeking truth from facts” (实事求是) and “practice as the only criterion for testing truth” (实践是检验真理的唯 一标准) as well as the notions that there are “no eternal truths” (没有永恒的真理) and that the “legitimacy of the means derives from the suitability of the ends” (手段的合法性来自于目的的合意性).

• On Chinese meritocracy: “Generally speaking, the selection and promotion of the best and brightest officials [选贤任能] was most evident in the 1990s, before entering an ambiguous decade at the turn of the century. Personal relationships became more important after the 18th National Congress.” Furthermore, the Chinese leadership is now “willing to sacrifice the selection and promotion of the best and brightest officials for the sake of party purity [党的纯洁性].” This was not the case during the reform and opening-up period.

Although the 18th National Congress of the Communist Party of China (CPC) in 2012 is now the official starting point of China’s new era, the 19th Party Congress in 2017 is in fact a more suitable marker of China’s transition from its reform and opening-up period (1978-1997) to this new era. Not only have the characteristics of the new era been a lot more evident since 2017, but the 19^th Party Congress also marked the point at which power became increasingly concentrated in the hands of its leader(s) (新领导人定于一尊).

“The primary task of the new era is to rectify the negative consequences arising from China's emergence as a normal developing country, in particular corruption, collusion between businesses and officials, Party disorder [党组织涣散], income inequality, excessive marketisation and so on. Accomplishing these tasks requires the strong intervention of the state. Thus, [China’s] new era possesses features that are similar to those of its planned economy era. But can the new era be one of construction, as was the case during the planned economy era? As things currently stand the answer is no, because construction requires a theory that is both logically consistent and in line with practice. However, such a theory has yet to emerge [in China] … This is not to say that the new era no longer needs reforms or no longer needs opening up, but that these are no longer the main tasks of the new era.”

I. China’s Fight Against Corruption

“Over the past ten years of [our] fight against corruption, the number of officials who have been investigated has reached five per cent of the total number of Party members nationwide. This is a shocking figure. The primary purpose of this anti-corruption [campaign] is to clean up the ranks of the Party [纯洁干部队伍]. But it is also a means of changing [China’s] model of governance and asserting the authority of its new leader(s) [确立新领导人权威的手段].”

However, after more than decade of fighting corruption, the numbers of those being disciplined in China continue to rise. In the first half of 2023 alone, 258,000 civil servants were sanctioned.

“As the rule of law remains relatively weak in China [中国的法治水平仍然较低] and as there is neither a material nor a political basis for [providing] higher salaries as a means of discouraging corruption, [our] fight against it will probably continue in the form of campaigns for some time to come.”

II. Addressing the CPC’s Fragmentation of Power [中共权力碎片化]

To address this problem, political and economic powers have been continually recentralised, the authority of China’s leader Xi Jinping has been raised to new heights and inspections of lower ranking officials have intensified and are now not merely focused on corruption but also on political rectitude.

“The above measures have largely fulfilled the original intention of [our] policymakers, but they have also brought about serious problems. First, government officials at all levels have lost their autonomy [自主性] and thus their motivation [积极性] to do things. Worse still, some officials, in anticipation of their superiors' intentions, deliberately adopt measures that might please those superiors but are harmful to the interests of the economy or society as a whole. Second, in order to prevent [their] competitors from stirring up trouble and lodging complaints against them behind their backs [打小报告], officials have become overly cautious [谨小慎微] and are taking all possible steps to stay clear of risks.

“For example, to avoid being suspected of accepting bribes, officials have preferred to award government procurement [contracts] to state-owned enterprises (SOEs) with no expertise, allowing them then to subcontract to private firms rather than award [these] contracts directly to private firms. This ends up supporting SOEs at the expense of private enterprises [‘国进民退’]. As a result, ‘lying flat’ [‘躺平’]; i.e. not doing much] has become the norm not only for many officials, but also with regards to China's economy.

“More seriously, if things continue this way, a third problem will arise, namely, political life within the Party returning to what it was before the reform and opening-up period: lying and doing fake things and with colleagues taking precautions against each other becoming the norm [说假话、做假事、同事之间相互提防成为常态]. How to balance [the quest for] intra-party unity and the dynamism of both the economy and all levels of government is a question that must be answered in [China’s] new era.”

III. Preventing “State Capture”

Over time, some officials in China have been “hunted down” by unscrupulous businessmen and become their willing agents (商人的代理人). Others have been more pro-active in their search for rich entrepreneurs with the aim of expanding their political powers.

“Fragmentation of power within the CPC has provided the conditions for the formation of such alliances between government officials and businesses [政商联盟), which has in turn further encouraged this fragmentation.”

The dismantling of such alliances has therefore become one the new era’s main priorities. This involves not only cracking down on corrupt officials, but also tightening the reins on Chinese businesses. The recent crackdown on China’s financial, real estate and tech sectors and the subsequent impact on the country’s economy are directly related to this.

“This has led some to believe that the Party's goal was to shrink or even eliminate large private enterprises. However, after the 20th Party Congress, this ‘rectification’ came to an end and the Party began to issue a series of documents to encourage the development of private enterprises and the platform economy. This showed that its goal was not to eliminate large private enterprises, but to remove the political basis for them to form politico-business alliances [消除它们形成政商联盟的政治基础] … However, following years of rectification, the confidence of private enterprises has dropped sharply. Relying simply on the issuance of a few documents by the central authorities can hardly change this state of affairs.”

IV. Dealing with the Issue of “Excessive Marketisation” in China

“The fourth task of the new era is to correct the problems caused by [China’s] excessive marketisation [过度市场化]. Market[isation] brings prosperity, but not all of its outcomes are in line with societal goals [社会目标]. This is especially true in a China under the leadership of the Communist Party of China. The CPC is a political party with a strong sense of mission and the creation of an egalitarian society is one of its missions. This inevitably determines that it will not tolerate the excessive development of the market [不会容忍市场的过度发展]. During the reform and opening-up period, market[isation] was used as a means to improve efficiency and its negative effects were temporarily put aside. With the advent of the new era, correcting its negative effects was brought to the forefront of the Party's agenda. The financial and educational sectors are two typical examples of this.”

On the one hand, the rapid development of private education and shadow banking in China were a boon to China’s economy and provided its citizens with a range of options not previously enjoyed. On the other, it led to educational inequalities and to the pervasiveness of business-government collusion in the financial sector.

It is against this backdrop that one should understand Beijing’s recent moves to address the issue of over-liberalisation of China’s economy.

Although measures from the top were necessary to correct some of its adverse effects, those adopted have been too harsh and their impact on China’s economy and society as a whole has been dire. The stock market and the real estate sector have suffered dearly. Scores of private firms have gone bankrupt or been forced to merge into SOEs. As for Beijing’s crackdown on private education, it has led to overcrowding in state schools and made private tutoring only affordable to a select few.

“Judging from its negative impact on the economy and society, the rectification of this over-marketisation has clearly gone too far [走过头了]. An important reason for this lies in [our] bureaucracy's over-amplification [层层放大] when it comes to the implementation of [such] measures. This is one of the negative consequences of the leadership’s centralisation [of power] and the regular [anti-corruption/political] inspections. To demonstrate their loyalty, the rational choice of officials at all levels is to over-execute the directives of their superiors. When policies end up being actually implemented, they are bound to be done so recklessly [蛮干].”

V. Eliminating Poverty and Achieving Common Prosperity

Since the reform and opening-up period, China has made leaps and bounds when it comes to poverty alleviation. In 2021, Beijing announced that it had eradicated “absolute poverty” (绝对贫困) and was now shifting its attention to achieving “common prosperity” (共同富裕).

“This should have been a good thing, but when the concept of ‘third distribution’ [第三次分配] was introduced in official documents, some old leftists took the opportunity to put forward the ‘private enterprises exit theory’ [民营企业退场论]. As a result, entrepreneurs and the wealthy [began to] worry about the safety of their assets. Public debate was so heated that, as the architect of this policy, the Central Leading Group for Financial and Economic Affairs [Note: Yao meant its successor, the ‘Central Financial and Economic Affairs Commission’], had to convene a press conference specifically to clarify the issue. The reason why it came to this stems from the fact that the Party lacks a theory on the advancement of common prosperity in the context of a market economy. It is unable to clarify [无法说清] the relationship between common prosperity [on the one hand] and the protection of property rights and market principles [on the other]. But such a theory is possible. Both Confucianism and moderate left-wing liberalism in the West provide effective ideological resources.”

Recommended: Yao’s presentation of his views at Harvard University’s Fairbank Center for Chinese Studies on 5 October 2023

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