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KP Chinas – From great power comes great responsibility

By Nancy Qian
Nancy Qian is a professor at the Kellogg School of Management at Northwestern University in Evanston.

“Over the past 100 years, the Chinese Communist Party (CCP) has united and led the Chinese people to write the most glorious chapter in the millennia-long history of the Chinese nation,” President Xi Jinping said in a speech at the CCP’s centennial celebration, highlighting the party’s role as the engine of China’s success as well as economic advancement. But the CCP’s economic record is actually mixed, and even those who are aware of it often overlook the fact that the party’s successes and failures are based on the same economic fundamentals.

Xi is right to state that under the leadership of the CCP, China has made the “historic leap” from being one of the world’s poorest countries with “relatively backward productive forces” to a middle-income country and the world’s second-largest economy. He concealed, however, that this record is marred by colossal failures, such as the Great Leap Forward (1958-1962), which led to the greatest famine in human history, or the decades of strict family planning laws that contributed to an escalating demographic crisis.

Because the CCP is capable of effectively mobilizing resources, the Party was able to provide public goods on a large scale, which in turn helped to drive development. In particular, the Party invested heavily in public health and education from the early 1950s. As a result, China managed to achieve one of the most rapid increases ever in life expectancy at birth, from 35 to 40 years in 1949 to 77.3 years today. Enrollment rates also soared. At the primary level from 20 to nearly 100 percent and at the secondary level from six to 88 percent. Literacy rates registered an increase from 20 percent in 1949 to 97 percent today.

2035: a quarter of the energy mix from renewables

In the post-1978 reform era, the state also invested in transportation and renewable energy. Between 1988 and 2019, the length of China’s entire expressway network increased sixfold; they now surpass the interstate highways in the United States in total length.

In addition, China has built 50 third-generation nuclear power plants and six to eight new reactors are approved each year. Recently, the construction of an ultra-high voltage grid was also announced. These efforts are guided by the ambitious commitment to cover a quarter of China’s primary energy consumption by wind, solar and hydropower by 2035.

This ability to mobilize resources for investment in public goods on such a large scale is one of the CCP’s greatest strengths. The party has the political power to impose economic policies for the benefit of overall growthin areas where private investment would be suboptimal.

Healthcare, education, renewable energy and infrastructure undoubtedly contribute to economic growth and create significant social value. However, the people who pay for them are not always those who benefit from these achievements. While educated and healthy people are more economically productive, parents do not necessarily reap the rewards of the investments they make. Renewable energy sources benefit future generations but hurt local economies now dependent on coal. Highways benefit newly connected populations, but farmers lose their livelihoods as their land is claimed for new roads.

Government incentives can have disastrous consequences

These are textbook examples of how the divergence between private and social value can lead to suboptimal investment. Without government intervention, there is not enough investment. But while private interests can prevail in some countries, in China the CP has the power to enforce its strategic choices. And while decisive political leadership often promotes progress, the scale and intensity of policy implementation in China means that if policymakers back the wrong horse, the consequences can prove disastrous.

This occurred during the Great Leap Forward, when peasants were forced to farm without financial compensation or private property rights as part of the collectivization of agriculture. The distorted incentives made it difficult to maintain production on the one hand and to track regional production and capacity on the other. The ensuing great famine in China resulted in 22-45 million deaths in just two years. The economy stagnated, with China experiencing zero or negative annual growth for the next two decades.

Chinas Familienplanungspolitik droht ein weiteres gravierendes Problem heraufzubeschwören. Zum Zeitpunkt der Gründung der Volksrepublik im Jahr 1949 lag die Einwohnerzahl des Landes bei 540 Millionen. Daraufhin setzte die KPCh eine geburtenfördernde Politik um, wie etwa die Einschränkung des Zugangs zu Verhütungsmitteln, und die Bevölkerung wuchs bis 1971 auf 841 Millionen an.

But shortly after the famine, the CCP decided to curtail the pro-birth policy. The extreme one-child policy then lasted from 1979 to 2016, during which time the population continued to rise and now stands at 1.4 billion. However, the one-child policy resulted in a significant increase in the old-age dependency ratio and the gender distribution shows a pronounced male preponderance.

Success through grassroots mobilisation

The implementation of the CCP’s Great Leap Forward and family planning policies-as well as its investments in health, education, renewable energy, or physical infrastructure-relied on the party’s ability to drive grassroots mobilization, persuade supporters, and coerce laggards. Yet there is a key difference in terms of economic fundamentals.

The greatest benefits from agricultural production and pro-birth policies are derived by those individuals who also pay for them; social and private values thus show great similarity. If the interests of the individual are aligned with societal needs, there is no need for government intervention. However, when challenges to implementation arise – such as estimates of how much a farmer should produce or how many children a family should have – these interventions are not only unhelpful, but also exceedingly costly.

In his 100th anniversary speech, Xi comprehensively addressed the Party’s future plans and its goal of “building China into a great, modern, socialist country in every respect” by 2049, the 100th anniversary of the People’s Republic. To succeed in this endeavor, the CCP will have to use its political power to enforce economic policies. It is to be hoped, however, that it will exercise its power wisely, focusing on public goods whose social value is much higher than their private value, and leaving the rest to the Chinese people.

Nancy Qian is a professor at Northwestern University’s Kellogg School of Management and founding director of the China Econ Lab and the China Lab at NorthwesternUniversity. Translated from the English by Helga Klinger-Groier.

Copyright: Project Syndicate, 2021.
www.project-syndicate.org

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