Learning from China
Learning from China
Dec 24, 2018ERIK BERGLÖF
<https://www.project-syndicate.org/columnist/erik-berglof>
https://www.project-syndicate.org/commentary/impediments-to-exporting-china-development-model-by-erik-berglof-2018-12<https://www.project-syndicate.org/columnist/erik-berglof>
Despite 40 years of unprecedented economic growth, Chinese leaders'
efforts to promote their development model have run up against political
suspicion. But it makes little sense for countries to reject outright
the lessons of China’s economic miracle, and deepening hostility between
China and the West is in nobody’s interest.
BEIJING – Since beginning its reform and opening up 40 years ago this
month, China has been a very good student. And now, after four decades
of rapid development, the country is increasingly presenting itself as a
teacher. As it commits more capital abroad, it has a strong interest in
how countries where it invests are run. But is the world ready to learn
from
it?<https://www.project-syndicate.org/commentary/impediments-to-exporting-china-development-model-by-erik-berglof-2018-12##>
crystal ball reflections
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In recent years, China has been using its more assertive “going out”
policy – most ambitiously expressed in its massiveBelt and Road
Initiative
<https://www.worldbank.org/en/topic/regional-integration/brief/belt-and-road-initiative>–
both to advance its own economic self-interest and to project soft
power. China’s leaders want to restore their country to what they view
as its rightful position in the
world.<https://www.project-syndicate.org/commentary/impediments-to-exporting-china-development-model-by-erik-berglof-2018-12##>
China’s economic weight reached its peak in 1600, when it accounted for
more than one-third of the global economy. Its share of global GDP
declined slowly until 1820, when it began to drop precipitously, owing
to the Industrial Revolution’s enormous impact on economic growth in the
West. By the early 1960s, China’s share of global GDP had fallen below
5%.<https://www.project-syndicate.org/commentary/impediments-to-exporting-china-development-model-by-erik-berglof-2018-12##>
Then Deng Xiaoping initiated China’s reform and opening up, and the
country’s own growth miracle began. Since 1978, China has lifted
hundreds of millions of people out of poverty, and its share of global
GDP economy, now at one-fifth, continues to rise. If China wants to
increase its international influence by holding up its experience as a
model for others to emulate, it must identify the mechanisms that
underlay its success and explain why they are
transferrable.<https://www.project-syndicate.org/commentary/impediments-to-exporting-china-development-model-by-erik-berglof-2018-12##>
This is essentially the mandate of a new center launched by Tsinghua
University in Beijing. The Academic Center for Chinese Economic
Practices and Thinking, with its suggestive acronym ACCEPT, is dedicated
to understanding and disseminating China’s development experience.
Earlier this month, it initiated this process with its firstreport
<http://usa.chinadaily.com.cn/a/201812/11/WS5c0f4ae7a310eff3032905a6.html>,
called “Economic Lessons Learned from China’s 40 Years of Reform and
Opening
Up.”<https://www.project-syndicate.org/commentary/impediments-to-exporting-china-development-model-by-erik-berglof-2018-12##>
The report includes five notable observations. For starters, growth over
the last four decades was spurred mainly by the entry of new firms,
rather than the restructuring of old ones. Moreover, the distribution of
rents from the conversion of agricultural land to industrial and
residential use played a vital role in encouraging investment. At the
same time, financial deepening was essential to spur entrepreneurial
activity and consumption. Opening up also encouraged learning, and,
finally, proactive macroeconomic policy enabled the country to avoid
financial crises and smooth out fluctuations in
growth.<https://www.project-syndicate.org/commentary/impediments-to-exporting-china-development-model-by-erik-berglof-2018-12##>
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One key question raised by the report – and, indeed, by virtually any
analysis of China’s development experience since 1978 – concerns the
relative roles of the state and the market. Was the emergence of new
private firms or the helping hand of the government more important to
China’s
success?<https://www.project-syndicate.org/commentary/impediments-to-exporting-china-development-model-by-erik-berglof-2018-12##>
This is hardly a new question. But, as Harvard economistDani Rodrik
<https://www.project-syndicate.org/columnist/dani-rodrik>pointed out**at
the launch event, the way someone answers it tends to say more about
them than about the Chinese economy. China, Rodrik believes, is like
aRorschach test for economists
<https://twitter.com/rodrikdani/status/1071523634659950592>.<https://www.project-syndicate.org/commentary/impediments-to-exporting-china-development-model-by-erik-berglof-2018-12##>
Yet the ACCEPT report may provide useful insight into the question, by
highlighting how state management and economic liberalization interact.
New private enterprises were key drivers of economic growth, but it was
the state that created strong incentives for market entry. Entrepreneurs
invested heavily in their relationships with government authorities, and
the state used market signals to guide resource allocation and evaluate
experimental
initiatives.<https://www.project-syndicate.org/commentary/impediments-to-exporting-china-development-model-by-erik-berglof-2018-12##>
Beyond encouraging the entry of new firms, the Chinese state mobilized
considerable domestic resources for investment. Even more impressive,
the state ensured constant experimentation and learning at all levels of
government, which will remain essential as China addresses issues like
inequality.<https://www.project-syndicate.org/commentary/impediments-to-exporting-china-development-model-by-erik-berglof-2018-12##>
Yet explaining the main factors driving China’s development is just the
first step. If China is to export its development model in a meaningful
way, it will need to overcome a number of additional barriers –
beginning with growing international mistrust.1
<https://www.project-syndicate.org/commentary/impediments-to-exporting-china-development-model-by-erik-berglof-2018-12##>
Among developed countries, a major complaint is that China has been free
riding on others’ innovations, including by requiring foreign companies
to share their technology with Chinese firms as a condition of market
access. Though it is entirely normal for a country at China’s stage of
economic development to absorb and imitate foreign technologies, its
size and market power dramatically increase its capacity to encourage
technology transfer. And China has been happy to use that leverage,
often in ways that its competitors consider
unfair.<https://www.project-syndicate.org/commentary/impediments-to-exporting-china-development-model-by-erik-berglof-2018-12##>
Meanwhile, developing countries are increasingly questioning whether
Chinese investment is really helping them. So far, China has generally
avoided conditioning its investments on explicit policy requirements.
But, with many of those investments bringing low economic returns, China
can no longer afford to ignore how its resources are used or the
indebtedness of its loan
recipients.<https://www.project-syndicate.org/commentary/impediments-to-exporting-china-development-model-by-erik-berglof-2018-12##>
In persuading other countries to accept its development lessons, China
faces a difficult dilemma. After all, China owes its development success
in part to the fact that it retained full ownership and control of the
process. By contrast, countries in Central and Eastern Europe had
development policies thrust upon them by the European Union – a dynamic
that has contributed significantly to the rise of anti-establishment
political
forces.<https://www.project-syndicate.org/commentary/impediments-to-exporting-china-development-model-by-erik-berglof-2018-12##>
At a time of growing resentment toward its increasing international
influence, China’s ability to promote its development model is being
severely undermined. It does not help that the West remains adamant that
a non-democratic approach should not be allowed to succeed globally. We
are heading for a dangerous clash, not of civilizations, but of systems.
We need to adapt to each
other.<https://www.project-syndicate.org/commentary/impediments-to-exporting-china-development-model-by-erik-berglof-2018-12##>
It makes little sense for developing countries to reject outright the
lessons of China’s economic miracle, and deepening hostility between
China and the West is in nobody’s interest. Instead, countries should be
open to learning from China, which in turn should recognize the limits
of its political model, even compared to the flawed democracies of the
West.2
<https://www.project-syndicate.org/commentary/impediments-to-exporting-china-development-model-by-erik-berglof-2018-12##>
Erik Berglöf <https://www.project-syndicate.org/columnist/erik-berglof>
ERIK BERGLÖF <https://www.project-syndicate.org/columnist/erik-berglof>
Writing for PS since*2008*
*21*Commentaries
Erik Berglöf, a former chief economist at the European Bank for
Reconstruction and Development, is Director of the Institute of Global
Affairs at the London School of Economics and Political Science.
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