Building vs stopping

I read Dan Wang’s Breakneck: China’s Quest to Engineer the Future, which some people I follow (like Henry Farrell and Richard Jones among others) have already reviewed. It is,  as they have said, a very interesting read – much more about China than about America, although the contrast he paints between the two is clear. The core of that contrast is that China’s leadership consists of engineers, and they focus on getting things built, while America’s consist of lawyers, who focus on stopping things.

However, the point Wang makes is subtler than ‘engineering good, lawyering bad’, although China’s success in building infrastructure and developing manufacturing industry has delivered astonishing increases in living standards. For, as a couple of chapters emphasise, the engineering mindset can go badly awry when applied to social issues – the one child policy and the covid lockdowns are the examples.

Nevertheless, there are lessons for the US (and the rest) in China’s approach. He writes: “[China] embraced a vision of technology radically different from Silicon Valley’s: the pursuit of physical and industrial technologies rather than virtual ones like social media or e-commerce platforms. In China. technology is not represented by shiny objects; rather, it is embodied by communities of engineering practice like Shenzen, where technoogy lives inside the heads and hands of the workforce.” This seems spot on in identifying a relative weakness of the US and UK models, both of which overlooked the importance of keeping those communities rooted at home. One of my favourite papers is Gregory Tassey’s in the 2014 Journal of Economic Perspectives, making this point. It also reminded me of Dan Breznitz’s point about the different pathways for industrial policy, and Silicon Valley not being the obvious model to emulate.

Another lesson for both countries lies in their contrasting but equally unappealing urban forms – China with its soul-less new mega-block developments and America with its bland suburbs. Neither seems to manage dense, walkable, attractive neighbourhoods on the whole – in China, Wang lived in the attractive French Concession area of Shanghai, an exception to the rule. Here is one dimension where many European countries do better than either superpower, as Chris Arnade often points out.

My other reflection on Breakout – which is a must-read – is that it already seems dated by recent developments in US politics. There are now many things the lawyers are not stopping, although still much that the engineers are not doing either. In the long run the lessons of both countries’ recent past will be relevant for economic growth and technological advance, but the short run seems much murkier than it did even a few months ago.

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Private revolutions

Yuan Yang’s Private Revolutions: Coming of Age in New China is quietly revelatory. One of the new intake of Labour MPs, the author was born in China, moved to the UK at age 4, and returned to China as an adult when working as a journalist for the FT. The book is a history of four women of her generation who became friends and contacts during that period. It’s a gripping read as the women have extraordinary stories. It’s also a powerful reminder of how much the country has changed within a generation – a rapid transformation that can’t help but have had an impact on people’s psyches. The word ‘revolution’ is not hyperbole. It reminded me a bit of a 1986 book I read decades ago by John Hooper about Spain, in which he pointed out the pyschological impact on young men from conservative villages of going to work as waiters or similar in the new resorts of hte Costa Brava. So I warmly recommend Private Revolutions, a fascinating read and a different perspective on a country we will have to learn more about in the years ahead.

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Financial geopolitics & economic statecraft

Sovereign Funds: How the Communist Party of China Finances Its Global Ambitions by Zongyuan Zoe Liu is a rather detailed book but a fascinating insight into the evolution of China’s financial policy and its strategic investments using leveraged foreign exchange reserves. The book argues that China has created a new type of fund, Sovereign Leverage Funds, created through the use of complicated debt instruments. Unlike Sovreeign Wealth Funds, they do not require a stream of profits from an activity such as the export of commodities. “SLFs are a political-economic innovation because they are the product of the state leveraging its political and financial resources to make it possible to capitalize a fund,” which can then be invested overseas for startegic geopolitical purposes – the BRI. The SLFs can influence their portfolio investments through the use of voting rights – or a threat of disinvestment.

The first part of the book traces the origins of the arrangements in CHina’s historic opening up and accumulation of massice foreign exchange reserves. The Asian Financial crisis of 1997 was a key moment in determining the leadership to ensure China built up massive reserves: “Awakened by the severity of the crisis, CPC leaders realised dor the first time that national security could not be narrowly defined only by military competences … but must also include financial security.” (I was in Hong Kong as a journalist for the IMF/World Bank meetings held there in September 1997 – an amazing experience.) The 2008 crisis was another key moment. The existence of the SLFs has allso given China’s state owned enterprises a ready source of finance for overseas acquisitions and infrastructure investment, putting them at an advantage compared to their competitors.

The book then sets out a detailed account of the SLFs and their evolution through to the post-Covid period. It argues that liberal market economies should follow China’s example and set up their own SLFs to “act as white knight investors to defend strategic industries from unwanted foreign takeovers.” Challenges like investing in the green transition will require leverage, it argues. Such funds are institutions between state and market and “can be powerful tools for the practice of financial statecraft.”

There are loads of interesting details. For instance I had never realised that many of the cities authorised to be new economic zones after April 1990 were former treaty ports: “From the perspective of the Party, its revivial of China’s former treaty ports conveyed a message to the Chineses people: only the Party was capable of leading China’s broader economic revivial and redeeming the country from its prior century of humiliation.”

I know far too little about either international finance or Chinese politics to evaluate the book’s argument, but it seems reasonable. It also seems to be a rosy perspective, given what one reads about over-leverage domestically and problems with some BRI investments. As ever, the capacity of the CPC to take a strategic view is striking  – especially in a country that sometimes seems governed from tweet to tweet. I’ve argued in a recent article for the use of long-term vehicles like soveriegn funds or investment banks to institutionalise learning in economic policy. I found the book fascinating and will look forward to reading some reviews by readers who do have the right expertise.

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China and GDP

I’ve been a bit unwell this week so have been relaxing with not one, not two, but three detective novels – Chief Inspector Chen in the series by Qiu Xiaolong set in Shanghai. They’re hardly action packed but they have a lot about Chinese politics and also the fabric of everyday life, including food. Fascinating.

One of this week’s [amazon_link id=”1473616786″ target=”_blank” ]Don’t Cry, Tai Lake[/amazon_link] has a plot about environmental activism against industrial pollution. Whatever China’s GDP growth has been – much disputed – it has been fast enough to have exacted a serious environmental cost. Inspector Chen reports back to his Party patron: “I focused my research on issues of the environment. … Pollution is so widespread that it’s a problem all over China. To some extent, it’s affecting the core of China’s development with GDP-centred growth coming at the expense of the environment. It can’t carry on like this, Comrade Secretary Zhao. Our economy should have sustainable development.”

I’ve been working on a paper on the political economy of economic statistics, for a conference in 10 days. Many, many people would agree with Chief Inspector Chen, and not just about China, but it’s hard to move from GDP-centred to something else centred without a consensus about what the something else should be. Perhaps China could assist the political economy of such a transition given its need for a measure that can show increasing economic welfare without costing the earth.

[amazon_image id=”1473616786″ link=”true” target=”_blank” size=”medium” ]Don’t Cry, Tai Lake: Inspector Chen 7 (Inspector Chen Cao)[/amazon_image] [amazon_image id=”1473616808″ link=”true” target=”_blank” size=”medium” ]Enigma of China: Inspector Chen 8 (Inspector Chen Cao)[/amazon_image] [amazon_image id=”1473616824″ link=”true” target=”_blank” size=”medium” ]Shanghai Redemption: Inspector Chen 9 (Inspector Chen Cao)[/amazon_image]

Handling policy on the ground

Like all thinking economists, I’ve been fascinated by the transformation of China in our lifetimes and the implications of its emergence as a major economic power. Although no expert, I’ve read quite a lot of the popular books on the country and its economy. Many fall into the hype trap – either China will take over the world, or it will experience a terrible setback because of the many challenges of rapid development on a huge scale.

My favourites have been the books of reportage such as Leslie Chang’s [amazon_link id=”033044736X” target=”_blank” ]Factory Girls[/amazon_link] or Richard McGregor’s [amazon_link id=”0141975555″ target=”_blank” ]The Party[/amazon_link] or even Fuschia Dunlop’s [amazon_link id=”0091918324″ target=”_blank” ]Shark’s Fin and Sichuan Pepper[/amazon_link]. I’m also looking forward to Danny Quah’s forthcoming book on global economic hegemony in the post-US unipolar world  – he recently posted this online.

Meanwhile, this week I’ve read one of the best books so far about the drama of China’s journey – in my lifetime – from the brutality of the Cultural Revolution to the cultural and political as well as economic and social tensions of a society whose average living standards have doubled every seven years but very unevenly distributed. It’s Jianying Zha’s [amazon_link id=”1595588809″ target=”_blank” ]Tide Players: the movers and shakers of a rising China[/amazon_link].

[amazon_image id=”1595586202″ link=”true” target=”_blank” size=”medium” ]Tide Players[/amazon_image]

It’s a slim book, a series of essays focussing on certain individuals in the business and in the cultural worlds. Ms Zha has lived her adult life between China and the US, having grown up with a family sent to work on a farm out of Beijing during the Cultural Revolution, and having made her way out via university as soon as the climate began to change. The dual perspective is illuminating. I particularly enjoyed the chapter about economist Zhang Weiying’s proposals for reforming Beijing’s university – some of the description of the controversy could have been applied verbatim to the UK context. “Like a typical economist, he marches stridently by the logic of the market and tries to turn the university into an efficient production line, a lean and mean academic market. … He sees running the university essentially as a management affair, not a supple and subtle art which requires, among other things, tolerance and the ability to recognize idiosyncratic geniuses who don’t fit a cookie cutter plan.” Are there any universities even in the US that really march by the logic of the market?

The book also furnished me with a bunch of new-to-me Chinese proverbs. My favourite: “When there is policy from above, there is always a way of handling it on the ground.” Also: “Dropping a stone on someone’s head after he falls into a well.” (Equivalent obviously to kicking someone when he’s down.)

It’s beautifully written and illuminating about debates within China, rather than the western debate about China. Highly recommended.