Review: Alvin Y So and Yin-Wah Chu,The Global Rise of China

China is the second largest economy in the world, and the largest reservoir of foreign currency. It has a global presence and is in the process of global economic expansion. However, its meteoric rise raises many questions in the context of China’s burgeoning economic growth. What are the factors responsible for the emergence of China as an economic power? Is it state driven or market driven? What is the role of the Communist Party in shaping the nature of economic development? What domestic and global factors drive development?

The Global Rise of China, by Alvin Y So and Yin-Wah Chu, is an attempt to examine the above-mentioned questions. They stress that China’s economic development is the product of the idea of ‘state neoliberalism.’ State neoliberalism is different from the ‘neoliberal state.’ Neoliberal state is based on a limited role for the state and a maximum role of the market. The market determines the nature of the economy. However, state is the preeminent actor in formulating and implementing economic policies in the context of state neoliberalism. Whether economic policies are market or state oriented, they are decided by the state. Thus, the state is the essential and staple force of economic development. Considering the case of China, the authors argue that ‘state’ implies the Communist Party-state because the country is ruled, controlled, and dominated by a one-party system.

The Communist Party–state is the major and decisive actor determining China’s economic growth. However, before going into the details, it is worth mentioning some of the fundamental characteristics of China’s economic development as outlined by the authors. First, China’s economy is state directed. It means the state is instrumental in shaping local, provincial, national, and international economic policies. Markets are at the mercy of state. Second, China’s economic reform has been gradual, not sudden and context driven. This incremental policy is helpful both in rectifying incorrect economic policies and giving domestic industries time to compete in international markets. Third, due to economic reform, socioeconomic inequalities, air and water pollution, deforestation, and environmental degradation are entrenched problems. Fourth, in order to legitimize its regime or to protect itself from any kind of threat to its survival, the state uses arbitrary and preemptive measures to quell anti-government forces and formulates policies to attenuate socioeconomic and political alienations. Finally, before the beginning of economic reform, the period of state socialism (1947–1978) was instrumental in promoting state neoliberal policies. For example, during the Cultural Revolution (1966–1976), the government invested enormous amounts of money in building infrastructure such as building of dams, roads, irrigation, and so on, and created a strong managerial group at the village level to deal with financial and administrative issues. This infrastructure development and the managerial experiences that followed were utilized after economic reform when the Chinese government gave a free hand to provincial and local governments to invite foreign investment and generate revenue for local economic development. Local economic development ultimately serves the economic development of the country.

The authors analyze different stages of the rapid economic development in China. These stages are ambiguous and not defined by particular time periods. However, to get a comprehensive idea of the book, economic development in China may be divided into various phases: postsocialist, post-Tiananmen, balanced development and harmonious society, and the post-2008 global economic crisis. Each phase of the economic development is an integrated process.

The transition from state socialism to state neoliberalism took place in December 1978. This was postsocialist phase. China opened up its economy under the leadership of Deng Xiaoping. After 1978, the Communist Party supported neoliberal policies such as marketization, privatization, deregulation, and overseas investment in China. The government introduced the household responsibility system, which provided a free hand to households for taking initiatives in crop production and selling surplus production in the market, and farmers were responsible for their own losses and gains. Relaxation of the hokou system allowed rural workers to get permission to work temporarily in urban areas. Financial decentralization provided ample leeway to town and village enterprises (TVEs) to independently develop their market strategy in order to increase their revenue and to spend that money for local development. The central government was not responsible for their rescue if they suffered any kind of financial insecurity or loss. The self-sufficiency method encouraged or forced local enterprises to be more competitive and innovative. It also led to the interlocal competition, which is fundamental to the shaping of competitive local markets in the neoliberal state. In 1985, out of the 12 million TVEs, 10.5 million were private. The Communist Party is also considering reentering the capitalist world economy in order to get overseas investment, accessibility of sophisticated technology, and expansion of domestic and global markets.

Although economic development was high and industry was growing during the socialist period, what factors led the Communist Party to replace state socialism with state neoliberalism? According to the authors, economic reforms were initiated to reduce the shortcomings of the socialist phase, such as low productivity in agriculture and industry, urban-oriented policy, the expropriation of agricultural surpluses from peasants, suppression of the capitalist class, and the nonavailability of foreign technology. In addition, political, economic, and cultural factors were responsible for the opening up of the Chinese economy. Both internal and external political dimensions promoted the state-directed economy in China. Internal factors included the death of Mao Zedong and the emergence of new communist leaders; external factors included the defeat of the United States in the Vietnam War and the friendly engagement between the United States and China. In terms of economic factors, the declining hegemony of the United States and increasing competition from Japan and Germany in the 1970s forced the US government to move towards China for economic engagement, especially given the internal economic condition of the newly industrialized economies (NIEs) such as Singapore, Hong Kong, and South Korea. The success of NIEs led to rising demands from trade unions, a shortage of labor, increasing wages, and the issue of environmental degradation. NIEs found China a suitable destination for investment because of cheap labor and geographical proximity. Both China and NIEs were comfortable with the economic engagement because they shared a common identity: Confucian culture. As a result, China set up four special economic zones in 1979, opened 14 coastal cities and Hainan Island in 1984 and three delta areas in 1985 for foreign investment.

The start of economic reform created new socioeconomic problems in China. Administrative and financial decentralization led to unfair profiteering by private enterprises, tax evasion, and growing economic inequality. Dissatisfied and discontent, people protested against the government’s neoliberal policy. This dissatisfaction was manifested in the form of the serious and intense political protest in Tiananmen Square in 1989 and the ensuing killing of protestors by the state. Realizing the gravity of the problem and the potential threat, the Communist Party–state halted the economic reforms. It undertook measures for checking corruption, opening up the channels of communication between people and government, and created a cadre-based system to regulate and monitor local government.

Despite the brief halt in reform, the post-Tiananmen period led to the state initiating more neoliberal policies after 1992. State enterprises were encouraged; workers were instructed to pay for their own pensions, medical care, and unemployment insurance; less efficient or money-losing enterprises were privatized; subsidies were reduced; and telecommunication, banking, and insurance sectors were opened to foreign investment. China’s joining of the World Trade Organization (WTO) in 2001 also compelled it to adopt more pro-liberal policies. China revised its constitution in 2002 to invite all sections of the society to become members of the Party, including private entrepreneurs. However, allowing private entrepreneurs party membership was a landmark decision, and they legitimized the state’s neoliberal policy.

One-sided economic reform policy was replaced with an emphasis on balanced development and harmonious society when President Hu Jintao came to power in 2003. His neoliberal policies were based on ‘building a new socialist countryside’ and ‘a harmonious society’. They focused on ‘environmental sustainability and social development’ (p. 80). The new regime took some important socialist measures such as the abolition of agricultural tax, an increase in rural expenditures, an increased healthcare budget, guaranteed minimum living allowances, increased subsidies, and so on.

The state’s capacity was reinforced after the world economic crisis of 2008. There were three major implications of active state intervention. First, the state infused a deluge of money promoting state organization enterprises (SOEs), especially for highways, railways, green industries, and so on. At the local level, the government set up 8000 SOEs in 2009, and invested US$31.6 billion for developing green industries. Second, transnational companies were frustrated as the state arrested members of different companies, imposed taxes, lodged false allegations, and made following the rules of Indigenous Innovation Accreditation (IIA) mandatory. Under IIA, a company is eligible to be licensed if it registers its intellectual property right (IPR) in China before registering elsewhere. Extensive regulation by the state led to many companies either shutting down their operations or threatening to leave the country. Third, the state became more pro-worker and pro-peasant. The government announced US$59 billion for building rural infrastructure and another US$59 billion for affordable public housing in rural areas. The Chinese government also instructed Japanese companies operating in China to increase the wages of their workers. These all became possible because of the large size of liquidity reserves, and the government’s fear of potential internal or external socioeconomic threats.

The policy of excessive state intervention was reversed when Premier Li Keqiang came to power in 2012. He favored a more open economy; stopped all stimulus packages; and opened up sectors such as finance, energy, railways, and telecommunication to private investors. However, these neoliberal policies were rolled back when President Xi Jinping supported an excessive role for the state with a resurgence of Maoist ideology, emphasis on the integrity of bureaucrats, urbanization, and nationalism – including highlighting efforts to promote domestic industries against foreign companies. However, China’s overseas investment was also crucial for economic development. Overseas investment increased after 2005, and China invested in resource-rich countries such as Australia, the United States, Germany, the UK, and Africa. The major share of the investment went to energy and power sectors and the acquisition of foreign companies.

The authors’ major question is: What is the driving force of economic development? The answer is the Communist Party–state. Sometimes the state has promoted neoliberal policies; sometimes state policies are restrictive, regulative, and protective. However, the authors argue that China faces many challenges in the process of economic development. A wide range of socioeconomic inequalities and massive environmental damage put a question mark over the legitimacy of the Communist Party. For example, China lost around US$54 billion due to water and air pollution. In terms of external factors, economic growth in tandem with a massive expansion of the military in and around China has engendered insecurity among its neighbors. Countries are skeptical and chary of China’s claim of a peaceful rise. China’s military budget, territorial conflicts (particularly with India and Japan), the aggressive nature of the Chinese state, and the deteriorating relationship between the United States and China are worrying security concerns. China also faces the challenge of technological upgrades. The country has been trying hard to increase its share in global research and publication, generating an increased number of domestic patents, and more indigenous innovation. The onus lies with the communist state to contend with these challenges in consonance with economic growth. This book provides a detailed analysis of the state’s role in economic development and the challenges to that development. The analysis is supported with substantial data and information. In the end, this book will be useful to those who want to explore the nature of the state and its role in economic growth.