Many of us comment on China by reading the second-hand literature published in English. Yasheng Huang is Professor of Global Economics and Management at MIT’s Sloan Business School, who came from China to the United States in the 1980s and has thus had the freedom and a front-row seat to study China’s evolution since then. Tyler Cowen has one of his “Conversations with Tyler” with Huang “on the development of the Chinese state” (March 8, 2023, audio and transcript available). Much of the discussion is about how the tradition of China’s civil service examinations evolved over the centuries, and the effects on literacy, creativity, and commerce. Here, I’ll focus on some of Huang’s comments more related to current events:
What is a big misconception about China’s economy?
[O]ne of them is that they look at the Chinese R&D spending, and they look at, for example, some of the impressive technological progress the country has made, and then they drew the conclusion that the Chinese economy is driven by productivity and innovations. In fact, studies show that the total productivity contributions to the GDP have been declining in the last decade and even more. As China has begun to invest more in R&D, the economic contributions coming from technology, coming from productivity have been actually declining. In the economic sense, it’s not a productivity-driven economy. It is an overwhelmingly investment-driven economy.
I think that’s one of the biggest misunderstandings of Chinese economy. It entails implications about the future prospects of the country, whether or not you can sustain this level of economic growth purely on the basis of massive investments.
Huang also offers some thoughts on the nature of political protest in China and how the Communist Party shapes the form of protests in a way that helps the Party hold on to power.
There’s a difference between a civil society consisting of isolated individual actions and a civil society that consists of organized activities that have a program, that have financial support, that have the capability to operate independently. By the second criterion, China has none of that.
If you look at the recent protests against Zero-COVID controls, let’s keep one number in perspective. By various estimates, in 2022 there were probably 400 million people under some sort of long-term quarantine. And let me just concretize that word quarantine. That means you’re essentially locked up in your home, sometimes for weeks, and in some cases, for two months. That’s the level of the suffering, and sometimes you can’t get food. Sometimes you cannot get patients into the emergency room because the hospitals also shut down, refused to take in patients who are tested positive or who cannot show a negative test on COVID. Some people have died. There are suicides, there are fires, and all these collateral damages from the Zero-COVID control.
Relative to that, China experienced a wave of protests — by one estimate, in 17 cities. I don’t really have a good idea how many people were involved, but we are not talking about millions of people. We’re talking about maybe 10,000 people, or tens of thousands of people.
Contrast that with Iran. In the case of Iran, one woman died in the hands of the moral police. There were other grievances, but that was the trigger. The protests are still going on. Millions of the people took to the street. … If you look at the color revolution in Tunisia, it started with a peddler whose assets were confiscated by the government official, and then he committed suicide. That sparked the color revolution.
Those kinds of brutalities toward small peddlers happen almost on a daily basis in China. It’s very important to specify, relative to the grievances and the level of the misery . . . We’re not talking about large-scale social movements here. These are individual actions. …
If you look at what the CCP has been doing, it is actually quite clever. It’s not the case that they don’t take input from the society. They create portals, they create websites, and they create phone numbers for the citizens to call in. They also do surveys. What they want to do is, they want to solicit opinions and information from the citizens without creating conditions for the citizens to get organized. If you think about all these opinions expressed to the government through the government control portals, you are doing it as an individual. You’re not doing it as a member of a larger group. The CCP has no problem with that, and sometimes those opinions can be quite negative. The CCP has no problem with that. …
Yes, China has had a lot of protests, but those protests tend to happen in rural areas, in less urban settings, in isolated situations, and on single issues. Usually, in the 1990s, it was about the land that the government took away. And then it was about the salary, that employers were late in paying my salary, so there were protests about that — very single-issue, very focused.
This time around, you’re talking about people demanding the CCP to step down, demanding Xi Jinping to step down. That’s just something entirely different from what we saw before. …
The reason for that is, I think — although it’s a little bit difficult to generalize because we don’t really have many data points — one reason is the charisma power of individual leaders, Mao and Xiaoping. These were founding fathers of the PRC, of the CCP, and they had the prestige and — using Max Weber’s term — charisma, that they could do whatever they wanted while being able to contain the spillover effects of their mistakes. The big uncertain issue now is whether Xi Jinping has that kind of charisma to contain future spillover effects of succession failure.
This is a remarkable statistic: Since 1976, there have been six leaders of the CCP. Of these six leaders, five of them were managed either by Mao or by Deng Xiaoping. Essentially, the vast majority of the successions were handled by these two giants who had oversized charisma, oversized prestige, and unshakeable political capital.
Now we have one leader who doesn’t really have that. He relies mostly on formal power, and that’s why he has accumulated so many titles, whereas he’s making similar succession errors as the previous two leaders. Obviously, we don’t know — because he hasn’t chosen a successor — we don’t really know what will happen if he chooses a successor. But my bet is that the ability to contain the spillover effect is going to be less, rather than more, down the road, because Xi Jinping does not match, even in a remote sense, the charisma and the prestige of Mao Zedong and Deng Xiaoping. There’s no match there.
I always gain some additional useful perspective from reading Huang’s work. Back in 2012, he wrote “How Did China Take Off?” for the Journal of Economic Perspectives, where I work as Managing Editor. He made a persuasive case that most of us tend to see China’s economic takeoff as a matter of foreign trade and exports. However, he argues that the early stages of China’s burst of economic growth, through the 1980s and 1990s, were actually led by rural industry in the form of “township and village enterprises” that were led by private entrepreneurs in the context of a high degree of financial liberalization. At this time, China’s economic growth was driven primarily by a rise in China’s domestic consumption, not by export sales. However, in the early to mid-1990s, Huang argues, China’s leadership switched from a rural to an urban focus, took over the financial sector, and essentially drove the rural-based township and village enterprises out of business in favor of expanding state-financed and -controlled urban enterprises.