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Have a look at China @ 2049

Chen Zhiwu, a professor at Yale University School of Management, Tsinghua University Visiting Professor of Humanities and Social Sciences.

Published in “Chinese entrepreneurs” in October 2009 Issue

We are very glad that they can live in 2049 in China, not only the total size of the economy has surpassed the United States, and that ordinary people share the real “state ownership” benefits.

Today is already in 2049, since 1949 it has been a hundred years, gone through several different stages during the period China has experienced several crises, including domestic and international. Nevertheless, China’s economy may count on a per capita GDP is still lagging behind the United States and other Western countries, but in the overall scale comparable with the United States has two strong world economy.

Looking back at the past, in the Chinese economy to achieve such a state before 2049 is not so smooth as it was expected, the original always feel that China is different from other countries. Only now look back, we found that the decision of the law of human nature in China is no exception.

I remember when, from 1978 to 2008 of the reform and opening up the Chinese economy growing at a rate of up to three decades more than 10%, in that on the basis of the economic miracle, but also added in 2008 – 2009 world financial crisis , because then the government sweeping bailout, let the Chinese economy would soon emerge from the crisis, so that China’s economic success amazed by the world, which of course is not surprising.

Recalling the 2009 – 2019 History

Can be derived from this problem precisely because of that crisis, complacency prevail, people become too confident that China’s economic growth momentum can not possibly be sustained, turned upside down has been transferred to China. As a result, before the financial crisis, intending to carry out many of the basic institutional reforms have been postponed indefinitely, including land reform, property rights reform of state-owned enterprises, financial democratic reform, political reform of the mechanism of checks and balances, after the crisis had been postponed. It was said that the decision-making, intellectual, and the industry generally that there was no need to change the previous system, no need to change there had been overwhelming, “the country back into China,” the trend, they feel kind of government is strictly controlled, state-owned enterprises led the economic system was not only the rapid growth of China’s economy three decades, but also to its very high resistance to the crisis shocks.

In this way, the reform momentum in 2009 after rapid degradation, structural reform is the case, fall behind, specifically in the following aspects. First, the “wealthy and poor,” the situation continues to deteriorate. This is not surprising, since during the financial crisis in 2008-2009, on the one hand the government trillions of “Iron Kimimoto” project mainly by the large and medium state-owned enterprises to undertake the other hand, a few trillion in 2009, “days the amount of credit” is also the main the flow of state-owned enterprises, private enterprises in the large-scale private enterprises in at most only get some, but thousands of small and medium private enterprises are not 10000, not to mention that such a multi-bank deposits, loans to state-owned enterprises, the SMEs so that the original had been “financing difficult” the problem worse. As a result, state-owned enterprises have rich resources in all sectors to attack, many private enterprises have been squeezed out, cessation of business to close. See a number of private enterprises either closed or operating difficulties, and many people do not realize that this is the financial resources and national policies due to discrimination, but rather the impression that “private enterprises unreliable, can only rely on state-owned enterprises” Development of China’s economic conclusions. Thus, from 2009 to 2018, financial resources and policies continue to focus on favoring state-owned enterprises.

A strong state-owned enterprises, private enterprises squeezed, in 2015, there is no state-owned enterprises which are not a complete monopoly. Government-owned property rights and other forms of wealth, the proportion of return to the early 1990s level. In other words, from the economy as a whole property income, the government received the share of state-owned property back to level before the reform, the share of private families have hit a new low.

The second performance is the financial and tax accounting for GDP ratio continues to rise. In 2007-2008, the GDP, the proportion of income people is also only slightly lower than 50%, but by 2018, then dropped to less than GDP, 40%. The reason why the expansion of the financial revenue can be achieved because of the democratic constitutional reform has not been enough pressure, therefore, restricting the expansion of tax rates and taxes over a chance to become a foothold. Of course, one reason is the tax revenue growth after 2005, greatly improved the efficiency of tax collection, but more important reason is that needs-based. That began during the 2008-2009 financial crisis, so many “iron Kimimoto” project, forcing investment in all levels of government continue to drive a few years, otherwise there are too many unfinished projects, so the government needs a lot of money. In addition, local governments can rely on the original “land finance”, for example, in 2007, many municipal spending about 80% of the land transfer from the gold, therefore, that time, there are many incentives to local governments to “protect” prices. After several rounds of administrative control only after 2015 or so, real estate is already sky-high price. At that time China’s urbanization rate is close to 60%, not into the town because prices were so high, can not enter the city, while the investment in the city to house more people who can not buy them. Moreover, cities and towns can be the government sold the land has been depleted. In this way, price ceiling, “land finance” the road is getting narrower, in order to support the expenditure needs, local governments had no choice but to abandon the “extra-budgetary income” to shift to rely more on formal taxes.

Third, the domestic private consumption demand continues to decline, to 2018, household consumption accounted for only 30% of GDP. On the one hand, due to the “wealthy and poor” and growing trend in 2009, though many economists and officials have stressed the importance of expansion of private consumption, but in the private possession of wealth and income ratio of assets Yue Lai The lower case, which of course is just aspiration. On the other hand, private enterprises in 1978, when barely a few, to 2008 when more than 6000 million, while in 2018, left more than 5000 million. This result of the financial resources and policies of discrimination resulting from the outcome of state-owned enterprises out of private enterprises, for social employment dealt a severe blow in 2008 before the Chinese experience are: investment in state-owned enterprises is four times that of private enterprises, but state-owned enterprises does not increase employment opportunities, and private enterprises for more than five million annual increase in employment. However, these data did not alter the allocation of resources favoring state-owned enterprises in China’s basic pattern, but in 2008-2009 the world financial crisis be strengthened. Therefore, since then, employment demand is greater than the supply of employment situation continues to deteriorate, so that the people of income labor costs continue to decline, which in 2018 resulted in GDP, household consumption accounted for only 30%.

Growth in private consumption can not be too many cases, China’s economic growth can not be the transition to reliance on domestic demand, but can only continue to rely on export markets. However, by 2009 China’s share of the global market for many commodities have been close to capacity, to increase again after 2009, and its growing political resistance in various countries, especially in countries that the global financial crisis on the impact of employment, after Even U.S. politicians could not withstand the pressure from industrial unions had to give way to trade protectionism. In 2013, the Chinese government has tried every means to China’s export growth in every year a bit reluctantly, but in 2015, exports have not increased.

Thus, since 2008, when the global financial crisis began to “re-nationalization” and “Iron Kimimoto” movement after-effects of 2015 has been fully exposed, not only in social and serious unemployment, and many infrastructure projects after the completion of the low utilization rate of state-owned enterprises 1970,80 era began as a loss of less serious, which are converted into a bank’s bad debts. Coupled with falling prices since then, the banks housing loans bad debts become increasingly serious. A banking crisis is imminent.

However, because commercial banks are state-owned or state’s absolute control, so the bank’s problem is the Government’s problems, that is, there is no problem as long as the Government’s finances, the Treasury will be able to foot the bill for banks, bank insolvency crisis can not happen.

Is, as described above, by 2015, all levels of government revenue has become increasingly tight. Although the “land finance” there are a few, all kinds of tax is already high, but the growing loss of state-owned enterprises, the government needs to subsidize the amount of which more and more banks are also expanding bad debts, which forced the Government to increase tax and treasury bonds issued by the bank finance, with a view to tide over the challenges.

That by 2018, in the strict sense of the financial crisis has not occurred only in the state-owned economy of the arrangement, the potential financial crisis has been transformed into a financial crisis. While continuing to increase taxes may increase social discontent, while government debt has been a lot of cases, or choose to print more money to the financial crisis, inflation will be transferred to the community people. The results, or lead to a strong social discontent, there is no turbulence.

Thirty years after the crisis of reform

Past is not always bitterly painful. From 1978 to 2008 three decades of reform and opening up economic miracle came too easy, so even if people did not figure out the logic behind it does not prevent China’s economic growth for so many years. In particular, after the 2008-2009 global financial crisis, China’s economic performance, many people even do not recognize: the results of China’s reform and opening up, precisely because the original control of the economy away from the farther the farther away from the monopoly of state-owned enterprises, relying on economic freedom closer, relying on the private economy closer due to, rather than due to a high proportion of state-owned economy.

Self-confidence and complacency prevail at the time of the situation, many people find it difficult to rationally understand the reasons for the original Chinese economic miracle is difficult to choose to basic reform. So, after 2009, but had chosen to strengthen the “National Progressive people back.”

Therefore, in this sense, 2018 years after the crisis and turmoil in the brief is not purely a bad thing, because no matter how society Ye Hao, too, after a successful, especially after the success for too long, will become too self-confident, and then on the way to go toward the irrational difficult to self-back. As the saying goes, “the sight of coffins were moved to tears,” it seems that only a crisis can be forced social correction.

After 2019 the community was experiencing a period of analgesia. However, the painful lesson that the leaders of that time advocate for a fundamental reform of the system created a social base. That is why after the beginning of the public a genuine reform of state-owned assets, land property rights trading market reform, taxation, the right to restrict institutional reform, fiscal reform, democratization, and so on, these are the Deng Xiaoping era, but also considered premature until the reform In the past three decades has finally happened.

1978-2008 year is “economic” reform and opening period ,2019-2049 was also the thirty years of reform and opening, but the focus is on institutional. Two phases together, until the completion of China’s “gradual” reform of the entire path. Looking back, when people say Eastern Europe’s “shock therapy” approach to reform how how inappropriate, and China’s “progressive” is just how superior. Only now look at this issue, the difference is that Eastern Europe was completed at the time, they already talk about the topic of reform, because reform is far from something right that they have; while China’s “progressive” to today, to 2049 realize in the past. Life, there are several seventies!

However, we are very fortunate that he can live in 2049 in China, not only the total size of the economy has surpassed the United States, and that the people from the state-owned assets in direct ownership of the national interests of the Fund’s shares, share the real “state ownership” of the benefits of and the government of all walks of life access control greatly reduced, even if the executive branch would like to expand the power, but also not so easy, will be the NPC Standing Committee’s hearing on the professional oversight and accountability. More importantly, the various sectors are no longer monopolized by state-owned enterprises, but Gejia free competition in private enterprise, whether young or old, and regardless of its origin or educational background, were able to free enterprise, access to full development prospects industry. Since there is not much state-owned enterprises, and financial resources no longer have a discriminatory bias to some companies, ignoring the other businesses, therefore, in the development of more equal opportunities, and even business rules, industry laws and regulations are more embody the “equality before the law” principles.

Today’s China is more commercial, market-oriented, and so the family interests of the exchange functions are diluted, the kind of interoperability through family blood ties to the interests of the traditional arrangements have become increasingly lighter. Many people say that the humane society, light, high divorce rates, health less the number of children, etc., this is not a bad thing, because in the financial markets and other markets to replace the family, social relations, economic transactions feature, marriage and family the basis of more of the feelings, rather than the interests of individuals for themselves but for others no longer alive. Therefore, once no feelings, there is no basis for marriage, and divorce is a reasonable choice. With the financial market to solve the economic security of invalidity pension arrangements, they naturally do not need to rely on more children “adopted son of old age”, and people’s lives so from a utilitarian tool is intended to be liberated. Life and how precious ah, is it so for decades, is this not the full enjoyment of life, freedom of flying body to understand it? The market eventually developed a “54″ campaign by the pursuit of individual freedom and personal liberation.