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A Chinese Model for Global Leadership?

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China Power

A Chinese Model for Global Leadership?

China is emerging as a leader in the economic, technological, and social sectors.

A Chinese Model for Global Leadership?
Credit: Flickr/ Audrey

In October 2017, the front page of a French newspaper exaggeratedly displayed six Chinese characters that could be directly translated as “China, A Rising Superpower” (the actual article title in French was “Chine: Le Retour De La Grande Puissuance”). The article was a rather neutral introduction to the Chinese Dream as an alternative to the American Dream. However, it also reflected on issues that accompany the impressive economic and social achievements of the country and would seem to undermine the Chinese Dream. These include China’s “Great Firewall,” used to censor and partially block the internet, the suppression of different opinions, the further centralization of Chinese Communist Party (CCP) power, and the strengthening of state-owned sectors. The way that the Chinese Dream is unfolding thus looks strange from the viewpoint of Western ideologies.

On October 17, 2017, one day before the opening of the 19th National Congress of the CCP, Xinhuanet (an official news agency led by the party) published an article titled “Enlightened Chinese Democracy Puts the West in the Shade.” According to this article, “Chinese democracy” is rising, while the Western one is declining, increasingly swamped by crises and chaos. The key difference in the Chinese model of governance is that the “CPC-led multiparty cooperation and consultation system” leads to social harmony and political stability and thus “ensures efficient policy making and implementation.”

While it might be too early to judge which of the two articles cited above is right, many fundamental challenges commonly facing global economies seem to call for reshaping the economic and social governance of the world. China’s moves against these challenges make the country look more like a global leader than the United States, in three main aspects.

First, on the economic front, the key challenge is the lack of aggregate demand (total demand for all final goods and services) globally since 2008. China responded in three ways. First, China boosted its domestic aggregate demand through unprecedented levels of quantitative easing and fiscal expansion – especially revealed by the boom in infrastructure investment as well as bubbles in the property market. China also called for deeper globalization and, third, internationalized its currency in tandem with its initiative on the Belt and Road. How extraordinary is this? One should note that currently China’s economy is only half the size of the United States’ in terms of GDP, yet China’s M2 money supply has reached $27 trillion — nearly twice as high as the U.S. M2, which is circulating some $13.6 trillion.

Second, on the technology front, several strands of new technologies are maturing, including A.I., robotics, the Internet of Things (IoT), autonomous vehicles, 3-D printing, nanotechnology, biotechnology, materials science, advanced energy storage, and quantum computing. These developments imply both creative destruction and a first-mover advantages in introducing new businesses, new industries, and new jobs. In this regard, China has responded with the “Made in China 2025” official strategic plan while marshaling an amount of resources that cannot be matched by any other country to invest in these technologies. These resources include generous funds not only for R&D, but also the formation of high-tech companies, as well as acquisitions of foreign technologies and high-tech companies; the recruitment of both domestic and global intellectual human resources, e.g. the “Thousand Talents Program”; and the state-owned sector, which is mobilized by various national and ministerial technological development agendas to acquire advanced technologies and loaded with ample funds from Chinese state-owned banks.

For example, China mobilizes more than $100 billion per year for investment in renewable energy technologies. It thus now stands as a global leader in the development of clean energy. In 2016, the Chinese government announced plans to spend as much as $150 billion to support building its domestic capacity to produce advanced electronic chips. Similar funding support has also been extended to various sectors recognized by Chinese government as strategic, such as A.I., aviation, aviation engines, and related advanced materials. In fact, China will soon overtake the United States as the biggest spender on R&D.

Third, on the social front, challenges include aging populations, an overloaded environment, and the increasing income and wealth gaps. Investing in new technologies will be the key to finding solutions. China is not only spending heavily on R&D, but also quickly turning these latest technologies into infrastructure. For example, China has deployed “Sky Net,” which monitors and analyzes in real-time video data collected from more than 20 million CCTV cameras across the country, reducing crime rates and monitoring emergencies.

China is also amassing the power of IoT and big data in building prototype smart cities, which will be capable of optimally and automatically managing cities’ traffic, utility networks, energy systems, emergency responses, and even medical service systems. Automation of these social services and building them into the infrastructure also improves the standard of living for people at all income levels.

A nation-wide smart power grid is under continuous expansion and upgrade to connect renewable energy from resource-rich regions in the west to the energy consuming centers in the eastern part of the country, spanning several thousands of kilometers. China’s high-speed rail system, the largest in the world, has reduced the time spent traveling from one end of the country to the other from days to hours. These tools help reduce income gaps between regions. As such, massive and continuous investment into future-oriented infrastructure is becoming the key to addressing social challenges in security, accessibility of social services, and income or development gaps.

There are three reasons why China appears to demonstrate world-level leadership in the above-mentioned aspects. First, its huge population and thus market size is a blessing not only due to economies of scale, but also because of its ability to attract the best entrepreneurs, technologies, and capital resources from all over the world. China’s FDI inflow has become the largest in the developing economies, arriving at $130 billion in 2016, or 20 percent of the total FDI received by all developing economies.

Second, China’s political and social institutions allow it to make and implement decisions more quickly and more efficiently than the Western world. There are costs, such as a certain level of sacrifice of personal freedom, the forced relocation of both urban and rural residents, the potential for corruption, and notoriously, the moral hazard of the state-owned banking and enterprise systems. However, the gains at a macro-level, which are exemplified by the achievements listed before, seem to far outweigh the low-efficiency at the micro-levels (namely how resources are allocated at firm, household and individual levels). This macro-level efficiency is why China has so far enjoyed the fastest economic growth on average for the past decades.

Third, in this age of turbulence, the world, especially the developing world, needs deepening globalization, boosted domestic aggregate demand, mobilized resources to prepare for the new industrial revolution, and a wave of infrastructure construction. China has been setting itself as an example in pursuit of these ends, while also calling for globally coordinated efforts to address these challenges together. This perhaps is the true charm of a so-called “Chinese model.” And this charm brings additional benefits, e.g. energy exporters like Russia and Middle Eastern states have started accepting the Chinese yuan for trade settlement while an increasing number of countries are embracing the Chinese Belt and Road proposal and therefore Chinese investment in mega infrastructure projects.

In sum, at least for now, with Chinese leadership appearing on the economic, technological, and social fronts, like it or not, promising Chinese solutions to the current global economic challenges looks sure to emerge. Having said that, we should not ignore the concerns about the losses in micro-level efficiency as well as the possible sacrifices of disadvantaged and minority social groups under the Chinese system, which emphasizes the welfare and benefits of the collective. In addition, the world is also waiting to see how the Chinese economy will make a “soft landing” to a sustainable development path from an unprecedented liquidity-driven and property-driven bubble.

However, as long as a “hard landing” does not happen, with its size of the economy, its ample foreign reserve and continued trade surplus, and its ongoing and unrivaled achievements in domestic infrastructure to support its upgrading of industries, there is still much political, social, and economic room and many policy tools in the Chinese authority’s hands to manipulate. It is better for the world not to see China fail, because even if the Chinese model is only suitable for China, a prosperous China is a relief to the current leadership vacuum in the global economy, while the United States is busy looking inward.

Yanfei Li is Energy Economist and Policy Fellow at the Economic Research Institute for ASEAN and East Asia (ERIA) in Jakarta, Indonesia. The views expressed here are personal and do not reflect ERIA’s position.