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China’s New Era: Ongoing Debates

Feb 02, 2018 09:37AM ● Published by Emily Stevenson

By Xiaobo Hu
Director, Center for China Studies, Clemson University

One of the most important tasks for the New Era in China is to make sure that China will sustain its economic growth. However, there is a debate currently going on in China as to what development policy would ensure such sustainable growth, or, in their own words, what the China model is or should be.

“To be” versus “should be” are two different questions. Yet in the mind of the Chinese, they must be treated as the same. The Chinese have been searching for “models” for development since the 1840s when they first encountered humiliating defeats by Western gun power. That search resulted in the replacement of the Qing Dynasty by the Nationalist Republic in 1911, which was replaced by the communist regime in 1949. After the death of Mao in 1976, China continued to search for viable development models, first from former Yugoslavia and Hungary, then from Japan, Taiwan, and Singapore, and finally from West Europe and the United States.

Through all this searching, China has succeeded in rapid economic development for the last four decades. While the rapid rise of China is factually undisputed, the reasons for such rise, and particularly the question of what the future path for China’s continual rise should be, are still in discussion.

A similar debate took place at the beginning of the post-Mao economic reform four decades ago. However, the current debate is not between the Maoist followers versus liberal reformers. It is between two reform-minded groups, each headed by a leading Chinese economist. On one side, it is led by Weiying Zhang, former dean of School of Management at Peking University; on the other side, it is led by Justin Lin, former director of China Center for economic Research at Peking University and former vice president of the World Bank. Peking University is considered to be China’s Harvard.

While Zhang received his Ph.D. in economics from Oxford University, Lin received his from the University of Chicago. In the eyes of Zhang, the debate is in essence between Friedrich Hayek and Milton Friedman in China, or in his words, a debate between the Austrian school of classical liberalism versus the Chicago school of neo-classical economics.

The debate started in 2016 in regard to new industrial policies for further economic reform. Based on his understanding of Hayek, Zhang argues that China should ultimately limit the government role in further development of its economy. He criticizes the Chinese government’s stimulus package of four trillion yuan to reboot its economy after the world financial crisis and the consequent world recession in 2008. To Zhang, the market did not fail in China, but the government intervention with four trillion yuan distorted the Chinese market, which consequently led China’s economic slowdown in more recent years. Indeed, from 2008 to 2011, China’s annual growth rate stayed between 9.4 percent and 10.6 percent, according to the World Bank.

On the other hand, Lin, a Chicago Ph.D. in economics and former World Bank vice president, insisted on the importance of a nationally-coordinated industrial policy so as to weather through market uncertainties and fluctuations. He believes that this becomes more apparent as the size of China’s economy is ever growing, now the second largest in the world.

Such a debate, in effect, reflects a continual search for the right path for China to further develop. In this latest phrase, China sees no models that other countries can offer, so policy advisors go back to the basic economic philosophies. More interestingly, China’s current policy debate seems to consider choices between Hayek and Friedman. Upon this, China may be able to build its own development model in the new era.
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