Just how communist is Mainland China? The answer seems to depend on the ideology of the observer:
1. (Non-Chinese) Marxists see China as an example of Dickensian laissez-faire capitalism, with private companies owned by billionaires that operate highly polluting factories employing workers at slave wages with poor working conditions.
2. Libertarians agree that China has poor living standards, but attribute its problems to a communist dictatorship that utilizes heavy regulation and other controls, including outright state ownership of the commanding heights of the economy.
3. Some mercantilists are dazzled by double-digit growth rates, and see a successful example of an intelligently planned economy.
Given that I’m a libertarian, you might not be surprised to learn that my view is closest to #2. But I don’t fully align with even that view, as it’s best to divorce one’s ideological preferences from one’s view of the state of the world. More specifically, I believe that China has continued to do reform over the past 10 years and that it’s a bit less communist than many libertarians believe. Here I use ‘communist’ to refer to the economic policy regime. I certainly accept that China’s politics are fully controlled by the Chinese Communist Party, which is highly authoritarian.
It’s not clear what sort of metric we should use to evaluate China, but today I’ll focus on employment shares:
Interestingly, the private sector seems to have grown especially fast since 2012, when Xi Jinping took power. Xi is often seen as someone who has tried to promote the state-owned enterprises (SOEs), which had been declining in importance. While he has indeed taken several steps to promote SOEs, it’s hard to see much impact in the employment data. On the other hand, perhaps this graph is missing something important. After all, it only includes about 187 million workers, whereas total Chinese employment in 2016 was 776 million. So what explains the discrepancy?
The graph only includes a portion of urban employment, and completely excludes the rural sector. But even urban employment is 414 million, more than double the figure in this graph.
The data from the graph seems to have come from this table:
The areas not included seem to be in the private sector, broadly defined. And indeed that’s how others interpret the data as well, as I found a number of graphs showing that SOE employment had fallen to only 15% of urban employment by 2016. Because the SOEs are primarily urban enterprises, the SOE share of total employment (including rural areas) is presumably still lower.
At this point I tried to figure out what sort of businesses were owned by the state. According to the next table, roughly 2/3 of all SOE employees are in just three sectors; health, education and a third called “public management, social security and social organization” (bureaucrats?) Of course many government workers in America also work in those areas. Overall, these traditional government jobs comprise about 10% of China’s urban workforce. In contrast, manufacturing workers at SOEs are about 0.4% of the urban workforce, and similar small shares apply to finance workers at SOEs, utility workers at SOEs, construction workers at SOEs.
To summarize, relatively few workers in China are employed at state-owned enterprises, and the vast majority who are seem to be doing the same sort of work that government employees do in America.
So what am I missing? On the Heritage scale of economic freedom, the US earns 75.7/100, which is #18 in the world (close to Netherlands), whereas China is given 57.8/100, which is number 110 in the world (close to Russia). Why is China widely viewed as being far more communist than the US?
1. China may interfere more with the private sector. Thus even many private firms in fields such as technology have close ties with the Chinese Communist Party. China also has far more heavy-handed economic controls, such as restrictions on foreign investment.
2. On the other hand, Marxists are right that in some respects China is less regulated than America. They really do have fewer regulations in areas such as employment discrimination, working conditions, pollution, etc. (Or at least fewer regulations that are actually enforced, I have no idea what sort of regulations appear on their books.)
3. China may also appear more Communist because control of the economy doesn’t always equate to employment levels. Thus the big four Chinese banks are all state-owned. Ditto for many other major corporations.
Under Chairman Mao, China was almost 100% communist. Everyone agrees it’s now considerably more market-oriented than back in 1976. Where people disagree is on the questions of how much more market-oriented, and has the reform process stopped in the past 10 years. In my view it’s a lot more market-oriented, and
1. There is less freedom of speech than 10 years ago.
2. There is more personal lifestyle freedom than 10 years ago.
3. There is more economic freedom than 10 years ago.
When I travel to China, the people I meet typically do not work for SOEs. Thus my wife’s cousin works for a private sector insurance company, which is a far more typical “finance” job than working at a big state-owned bank. It’s easy for me to see how China has grown fast, as they’ve allowed a big enough private sector to generate huge efficiency gains.
I used to think that lots of Chinese still worked for SOEs that operated in sectors that are traditionally private in the West. Now that I see that is not the case (in percentage terms), it seems like future economic reform will face fewer political barriers than I had imagined. China’s already done the hard part of moving tens of millions of workers away from state-owned firms. Most that remain at SOEs are in areas that are government dominated even in the West. What remains are the much easier reforms, reducing Communist Party influence over private firms, allowing more foreign investment, better property rights for land, etc. That makes me slightly more optimistic about China’s future.
PS. I’m not a China expert, so please let me know where I’ve misinterpreted the data.
READER COMMENTS
Garrett
Aug 20 2018 at 8:16pm
MSCI added A shares (stocks of companies traded on the Shanghai and Shenzhen stock exchanges) to their EM index back in June. I was wondering if you have any thoughts on that change
Jon Hall
Aug 21 2018 at 7:00am
@Garrett, they didn’t add them at full weight yet. The stocks they added are just a really tiny share right now.
Scott Sumner
Aug 20 2018 at 8:57pm
Garrett, It makes sense to me. I suppose the capital controls issue was why it took so long.
Jacob Egner
Aug 21 2018 at 12:09pm
Scott Sumner: If you hit the “REPLY” link next to a person’s comment, your reply will be properly nested underneath their comment, making conversations easier to follow, especially for posts with many comments.
Scott Sumner
Aug 21 2018 at 2:45pm
Thanks.
shecky
Aug 20 2018 at 11:27pm
I find Americans, myself included, to be tremendously ignorant about China. And all too often, belligerently ignorant. For some interesting viewing, I’d recommend the youtube channel, ADVChina. It’s produced by two young men, one from the US, one from South Africa, who’ve lived in China for several years. Their videos are often quite enlightening, with a variety of topics, often discussed while the two ride motorcycles and explore the area. FWIW, they seem to say that Chinese governance is highly repressive and regulated, at least on paper, but in everyday life, authorities generally can’t be bothered, and as a result, there are a great deal of personal freedoms enjoyed by Chinese. Foreigners, such as the two, not so much. It’s often a very fascinating look into what is a very alien culture and society to most of us westerners. And their footage often shows, even if not intentionally, how prosperous China is. However authoritarian it is, it’s certainly no longer Mao’s China.
Scott Sumner
Aug 21 2018 at 2:45pm
I’ve never had much trouble traveling around China–but then I’ve never been to Tibet.
Benjamin Cole
Aug 21 2018 at 1:49am
I venture no Westerner is a “China expert.”
Even more, I venture you could get two highly intelligent people who grew up in the US, lifelong observers of the economy, and they could have wildly divergent views on whether the US is a free market or not, what about the central bank, or ubiquitous property zoning, the VA or the USDA, etc. The topic is too big to handle.
I will note this: In China the government owns all the land and much of the capital, and the Chinese Communist Party (CCP) controls the People’s Bank of China, which can print money (capital) at will.
So even a private-sector employer might be endowed with free land and capital, and a tax holiday (if exporting).
All large public companies in China have controlling board seats set aside for members of the CCP, and have formed internal CCP cadres. The feeling now is the CCP is re-asserting itself in the private sector.
So is the private sector in China merely a creature of the state?
Sheesh, Tencent cannot sell online mobile-games if the CCP blocks it in China (which the CCP recently did).
I think Westerners are aching to attribute Sino economic progress to Westernization and free markets. But in the Far East, commerce is often, perhaps usually, regarded as a marriage between government and enterprise.
Grey paint is mixed black and white. China has a mixed economy. Can you seg out the private sector?
You can if you let your ideology guide you. I think it is a blob.
Benjamin Cole
Aug 21 2018 at 2:41am
Add on: It is gospel among Western macroeconomists that Singapore is a free-market system and wildly successful because of that.
At the Singapore Economic Review are numerous peer-reviewed articles that have exactly the opposite viewpoint.
Here is one:
“Although Singapore labelled itself as a free-enterprise economy, the economic role of government was pervasive. As governing body for both the nation and the city, the government was responsible for planning and budgeting for everything from international finance to trash collection. The government owned controlled, regulated, or allocated land, labor, and capital resources. It set or influenced many of the prices on which private investors based business calculations and investment decisions. State intervention in the economy had a positive impact not only on private business profitability but also on the general welfare of the population. Beyond the jobs created in the private and public sectors, the government provided subsidized housing, education, and health and recreational services, as well as public transportation. The government also managed the bulk of savings for retirement through the Central Provident Fund and Post Office Savings Bank. It also decided annual wage increments and set minimum fringe benefits in the public and private sectors. State responsibility for workers’ welfare won the government the support of the population, thus guaranteeing the political stability that encouraged private investment. In general, state intervention in the economy managed to be pro-business without being anti-labor, at least regarding material welfare3 “.”
Like China, in Singapore the government owns all the land, and provides free capital to select industries or businesses. Oh, 80% of housing is government-built. The government also owns whole business, such as shipyards. airlines and petro-refineries. Government policy has been to target current-account export surpluses.
So is Singapore a free-market miracle?
Westerners insist that it is, because the Heritage Foundation says so. Singapore economic scholars have a different point of view.
Perhaps the “libertarians” at the Heritage Foundation have smoked a lot of pot.
Matthias Goergens
Aug 21 2018 at 8:28am
Benjamin, having lived in eg London, Singapore and Sydney, I can tell you that Singapore is by far the most capitalist of the bunch.
The government really does leave you alone much more than those other places. (Especially New South Wales is a Nanny State.)
By the way, you forgot to mention that the Singaporean government (under some view) owns the right to operate all the cars here, and just licenses them out to the highest bidder. (Look up certificate of entitlement.)
No minimum wage here either.
Pajser
Aug 21 2018 at 2:11pm
It looks to me as more-less typical fascist state, something like Franco’s Spain, pragmatic, mostly capitalist economy + dictatorship + single party system. Not very imperialist.
In Mao’s time, Leninist regime look to me like Ancient Egypt, command economy + dictatorship + single party / religious system. They have stronger cult around leader than fascists, and often mummify him.
Scott Sumner
Aug 21 2018 at 2:48pm
Good analogy.
Lorenzo from Oz
Aug 21 2018 at 6:20pm
And is now a lot more like Chiang Kai Shek’s vision that Mao Zedong.
Lorenzo from Oz
Aug 21 2018 at 6:21pm
“than Mao Zedong’s.” I meant.
Lorenzo from Oz
Aug 21 2018 at 6:24pm
China: a Leninist state with a mixed economy. With some fascinating questions about who the Maoist churn affected the underlying culture(s) and who the regulatory apparatus actually works.
Lorenzo from Oz
Aug 21 2018 at 6:24pm
“and how the regulatory apparatus actually works”. Sigh.
LK Beland
Aug 22 2018 at 9:49am
I didn’t realize that 28% (200+ million) or so of China’s workers are basically still working the fields (i.e. “primary sector employment”). This number is under 5% in developed countries.
That leaves a lot of potential growth–and lots of people that will get out of abject poverty–in China. 200M workers: that’s basically 125% of the whole US labor force!
Mark Brady
Aug 22 2018 at 10:26pm
Thank you Scott for your post that has generated considerable discussion. I have one minor observation. You write,
“2. Libertarians agree that China has poor living standards, but attribute its problems to a communist dictatorship that utilizes heavy regulation and other controls, including outright state ownership of the commanding heights of the economy.”
I suggest that’s not a fair summary of what libertarians think. Many libertarians are well aware of the huge improvement in the living standards of the population, certainly in the cities, and even in the countryside. And they attribute this to the reforms that began forty years ago.
Phil H
Aug 23 2018 at 10:33am
As someone above said, there’s no such thing as an expert on China, but I have lived here for more than a decade. I think one of the main reasons why everyone thinks the state has so much power here is simply because the media talk about it much more. In the news, “State takes action, creates result X” is very much the dominant narrative. There’s never a story about state action failing to be effective, or results being unexpected.
Another reason is that the centralized state has a lot more cultural power here. It starts in school, with the center setting the curriculum. It continues with the controls on the media. And it is reinforced with relatively small but frequent interventions in economic life: actions to prop the stock market up or suppress it; actions to heat or cool housing markets; rezoning of large areas to change their industrial/commercial/residential nature. Also important is the lack of an effective legal constraint on the state, so if “the government” decides that you are a good/bad thing, it can do almost whatever it wants to put that decision into effect. All these create a culture of belief in the infinite power of the government, irrespective of its size.
As to how communist it is, on the ground, people believe in property. I’ve had a couple of people say to me they would like to leave the country specifically because all land is let on a maximum lease of 70 years, and some of the very first property leases are going to fall due soon. They worry that a cash-strapped government will milk property owners for the right to stay in their own houses.
Comments are closed.