Advertisement
Opinion | China owes its rapid economic rise not to state control, but to its unique form of fiscal federalism
- Beijing’s willingness to liberalise and reform has allowed local-level competition and experimentation to flourish into the fiscal federalism that is the main driver of its economic rise
Reading Time:3 minutes
Why you can trust SCMP
China’s rapid economic rise in recent decades has astonished the world. Yet the reasons behind the country’s success are often misunderstood and misinterpreted.
Advertisement
The rise of China is widely attributed to its state capitalism, whereby the government, endowed with huge assets, can pursue a wide-ranging industrial policy and intervene to mitigate risks. Accordingly, China owes its success, first and foremost, to the government’s “control” over the entire economy.
This explanation is fundamentally wrong. True, China has benefited from having a government with the capacity to implement comprehensive and complementary policies efficiently. With leaders not subject to the short election cycles that characterise Western democracies, China’s central leadership can engage in visionary and comprehensive long-term planning, exemplified by its five-year plans.
Moreover, the Chinese state’s power has buttressed its implementation capacity, which dwarfs that of most developing and transitional economies. A strong state — and the social and political stability that it underpins — has been essential to China’s rapid advancement in areas such as education, health care, infrastructure, and research and development.
It is telling, however, that China is using its long-term planning and robust implementation capacity not to entrench state capitalism, but to advance economic liberalisation and structural reform. It is this long-term strategy — which has remained unswerving despite some stumbles and short-term deviations — that lies at the heart of the country’s decades-long run of rapid economic growth.
Advertisement
Advertisement