January 03, 2006

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Control freaks

China's major problem is it is ruled by control freaks. The relentless need to remain in control will inevitably be the source of the CCP's fall, because human affairs are ultimately not even controllable by Communists.

There are several telling examples. Firstly today's (still unlinkable) SCMP reports on the government's back to the future attempt to close the rural/urban income gap, and finds the biggest problem is land reform:

The government is planning to bridge the widening income gap between urban and rural areas by introducing a raft of initiatives to invest more in the countryside over the next five years. Absent from the plans, however, were any moves to adjust land policies, though land disputes were seen as the main source of discontent behind the series of violent clashes in rural areas during the past year.

A new movement, entitled the "new socialist countryside", will be the focus of rural development during the 11th Five-Year Programme. A similar slogan, "building socialist rural areas", appeared in the 1950s, but was later dismissed as part of propaganda about building a utopian society. The latest campaign draws comparisons between the situation on the mainland and South Korea's experiences 30 years ago...

According to state media, Beijing's vision of a "new socialist countryside" consists of five components: production growth, affluence, rural civilisation, a clean environment and democracy in the management of local affairs. The vision may look like a holistic approach, but scholars are worried that it may turn into another white-elephant construction spree.

Likely problems include the usual: corruption, political point-scoring for provincial officials by wasting funds on "showcase" villages, increased financial strain on villages as local governments tax to spend. And the program largely misses the point - money alone isn't the solution to rural poverty. Proper land reform, well-deliniated land rights, open and honest courts that will defend the poor from developer and government land grabs and cops that don't shoot those defending their patches of earth are all vital. But the control freaks demand progress, and progress can only come with control. The true beauty of the capitalist market system is it works with a minimum of control, not a maximum of it.

Another example is China's banking sector. With many banks of various sizes swamped with bad debt, China is experimenting with taking in foreign capital in the sector. But now the dam wall of control has been slightly breached, you can expect a flood to soon follow. China is delicately trying to leverage foreign money and experience to resolve its financial system problems (bad debts, poor management and poor controls) but without giving up control. But foreigners are not going to give over huge sums of money, time and expertise without getting some say over what happens to it all. China's government will be expected to cede control in return for these things.

This leads to an interesting consideration - China's currency policy. If you view that policy through the prism of control, then China's reluctance to make changes to either the level of the yuan or to its capital account (allowing the free flow of capital into and out of China) makes sense, even though it defies economic wisdom. This is the dimension that is often missing from economic commentary on China's economic policies. Economics is better considered as "political economy", especially when dealing with a government such as China's where the control premium is so large it often outweighs economic logic. And this concept extends past the world of economics - much of China's actions can only be considered through an understanding of the relentless need for the CCP to retain control at all costs.

The CCP's problem is the reforms of the past 25 years have unleashed growth and social changes that are beyond even the best abilities of government's to control. China's government relies on brute force and technology to control the internet, only to find SMS and mobile phones outstripping their control. Information is difficult to control; economies are difficult to control; people are difficult to control. The best systems allow these forces to flow of their own accord, sometimes stepping in when they fail or lead to adverse results but otherwise leaving things to find their own equilibrium. Imposing solutions doesn't work because (and this may be a shock to many) some people do not know better than others.

Equilibriums are a balance of dynamic forces, sometimes assisted by catalysts. They are not brought about by control freaks wishing it is so.

Related reading

Mark Thoma links to an IHT article on rural China's ticking time bomb.

posted by Simon on 01.03.06 at 10:18 AM in the China economy category.China politics category.


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Well said. I agree completely.

posted by: Nathan on 01.04.06 at 02:31 AM [permalink]

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