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resolute friends that this is a country deeply in the grip of a crisis of vision, leadership and execution. 㰀吀䄀䈀䰀䔀 椀搀㴀吀愀戀氀攀㠀 戀漀爀搀攀爀㴀 挀攀氀氀匀瀀愀挀椀渀最㴀 挀攀氀氀倀愀搀搀椀渀最㴀 眀椀搀琀栀㴀㔀㌀㸀
While Washington sinks further into the morass, conversation in China is becoming more focused on how the Beijing model can be further refined, and where the country's existing development track might have been too heavily reliant on Washington's policy recommendations.
Western understanding of China's internal political dialogue has always struggled to peel away the veil surrounding the Chinese Communist Party's internal workings. This is why, in part, understanding the various ideological camps within the party has been so problematic. But even China's authoritarian grip on information is incapable of completely obscuring the various factions that have proposed their own ideas about how China's politics should change given what the world has learned about capitalism post-2008.
These opposing views are wrestling not only with criticisms of the capitalist free-market model, but the governing realities Beijing is facing: rising income inequality, the dislocation effects of economic development, political unrest, and inflation. For those in China who have the responsibility of governing the country's economic policies, while these are in many ways the problems born of success, they also hold the potential to give rise to the sorts of issues that could destabilize the country.
Within China, two primary political camps exist: the New Left (xin zuopai) and the Rightists. The Rightists have traditionally been the vanguard for the Washington Consensus within China. They believe the country should pursue a path of further economic reforms and political freedom in line with the most common practices of Western governments. In contrast to the Rightists stand the New Left.
According to a July 2011 report published by the Center for Strategic and International Studies (CSIS), written by Charles Freeman and Wen Jin Yuan, the New Left "believes that China should gradually move toward a political system based on 'democracy with Chinese characteristics'; in terms of economics, they think the current economic reform should not only focus on boosting the economic growth but also on establishing a solid social safety net and enhancing social equity."
The New Left, long suspicious of the ability of an unrestricted transition to a free-market economy to address China's income inequality and agrarian poverty, had been limited in their ability to stop Beijing's reform of the State Owned Enterprises (SOE), the smashing of the iron rice bowl, and the elimination of price controls that marked China's economic reforms from 1988 to 1993.
With the collapse of America's economy, the New Left's criticisms have once again been elevated and are now gaining traction in Beijing. As the CSIS report states, "In recent years the New Left's views have gradually become popular with the Chinese people, who are increasingly dissatisfied with the current economic development path and seek alternatives to solve the inequality problem arising from the market reform."
Among the New Left's most prominent criticisms of the Washington model was their belief that a strong SOE sector in China's economy is essential to assuring labor wages remain high and that job security is extremely stable; these both fly in the face of the previous Chinese model which sided with America's view that China should force SOEs to compete for labor, capital and market access.
Perhaps most poignant of all these push-backs may be how Washington's intervention to save certain key industries - automotive, banking and insurance specifically - has empowered China's New Left to argue for the truth behind their particular idea about state involvement in key industries. For the New Left, Washington's decision to nationalize certain companies was an acknowledgement that the free-market is prone to certain ills that require the state to become involved.
The New Left believes that rather than making this engagement only in the throes of a crisis, a government should structure the national economy in such a way as to anticipate which sectors - and even which companies - are the most vulnerable, and ensure they remain under the control of the Party.
Zuo Dapei, an increasingly popular economist in China, is a good example of the New Left's criticism of the American model. According to Freeman and Yuan's analysis of his work, "China's current pro-market economic development model is a blunder since the financial crisis has already illustrated 'the bankruptcy of the privatization idea'; he points out that the advanced Western economies all have had to nationalize their major banks, thus proving that in the current world, China still needs SOEs to serve as the 'pillar of the economy'."
As outsiders attempt to understand how much influence the New Left has on the Party's thinking, policies such as Indigenous Innovation have come into focus. Beijing's Indigenous Innovation policy appears to be a direct result of the New Left's desire to see China elevate technological development ahead of economic policies focused on protecting low cost, labor intensive manufacturing.
According to the CSIS report, "indigenous innovation becomes a national strategy mounted by the Chinese government to enhance the development of technological innovation in domestic firms so they could eventually have the ability to produce high-tech products and no longer rely on the research and development accomplishments of foreign firms."
For a group of ideologues that are heavily reliant on economic nationalism, the indigenous innovation policy offers one way to couple their view of a strong state with their analysis of what is likely to stifle future job growth across China.
In the midst of America's economic problems, it is easy to see the New Left's criticisms as valid, and to take their ideas about what China needs for their economy to continue growing as gospel. But this could well be a mistake, because in the New Left's advocacy for a strong and protected SOE sector, China could be sowing the seeds of a future crisis.
The CSIS report highlights two of these concerns: first, that because SOEs are typically funded by state-owned banks and are the recipients of below-market rates for capital, many of these SOEs have badly over-expanded. Also as a consequence of this, many of these SOE businesses would not be able to pay higher or at-market rates for capital; should a crisis force interest rates up, Beijing would have to directly intervene to capitalize businesses whose profits are not sufficient to make up for the increased expenses.
But a second criticism raised by the CSIS analysis written by Freeman and Yuan is most troubling: that spending by SOEs has been heavily directed towards infrastructure versus stimulus for individual consumer spending. This is because infrastructure remains the best way of creating jobs for China's migrant workers. These protected industries not only stand a very good chance of losing their protected status at some point due to an economic crisis where additional infrastructure simply cannot be justified, but when they do, the economic dislocation the SOEs will spread will be extreme.
In their report, Freeman and Yuan quote Yao Yang, "an economics professor from Peking University ... 'Whereas governments in most advanced democracies spend less than eight percent of government revenue on capital investment, this figure is close to 50% in China ... Residential income as a share of national income is declining, making the average citizen feel poorer while the economy expands'."
The New Left also has some legacy problems with its approach, not least of which is answering the question of whether the SOEs chosen to remain protected are those most critical to China's economy, or simply the most lucrative? For all the ideology surrounding the role of state-owned and state-directed industry, the nagging question of who benefits from this segment being walled off from outside competition is worth considering.
In many ways the political conversation taking place within China between the Rightists and the New Left is not unlike that between the Republicans and Democrats within the US. Both the Rightists and the Republicans want their respective governments to get out of the way and allow for greater competition; both the New Left and the Democrats believe government has a role to play in protecting the interests of the common man through ensuring the viability of key industries.
In this way, the dialogue is a reminder of how much the two countries have in common with one another, but also a warning that any solution to each country's problems is clarity and resolution within your own house before seeking remedies outside our respective borders.
Benjamin A Shobert is the managing director of Teleos Inc (www.teleos-inc.com), a consulting firm dedicated to helping Asian businesses bring innovative technologies into the North American market.