China needs to regain trust in capital to get its economy growing again
- The shift from ideology to pragmatism in economic management by Deng Xiaoping unleashed a boom in private entrepreneurship in China
- However, the confidence that Chinese private entrepreneurs had in Beijing to protect their interests has somewhat weakened in the past decade
Trust between the Chinese Communist Party and capitalists can be fragile, according to orthodox Marxism, because from an ideological perspective, the ultimate goal of all communists is to abolish private property while capitalists want otherwise.
The reality, however, is very different. From an historical viewpoint, ever since Deng Xiaoping decided to embrace economic liberalisation in the 1970s, China has been gradually abandoning ideology in economic management.
The shift to pragmatism unleashed a boom in private entrepreneurship. “To get rich is glorious,” Deng told his country decades ago. Today, the private economy accounts for 80 per cent of jobs and 60 per cent of economic output in China.
A new social class made up of private business owners has emerged, and Beijing has showered them with encouragement. Successful entrepreneurs are absorbed into the legislature and political consultative committees in the municipal, provincial and even national level. Laws and regulations, including the Chinese Constitution, have been amended to give the private economy equal status with the state sector.
Under former president Jiang Zemin, capitalists began to join the Communist Party, with many private company bosses proudly adding “party committee secretary” to their names cards, along their usual titles such as board chairman or general manager.
The party and Chinese capitalists got along exceptionally well in an unlikely, but happy marriage. The ruling Communist Party recognises the role of private entrepreneurship in promoting growth and creating jobs, while private businesses have in turn helped the authorities achieve their strategic developmental goals. This alliance helped the nation rise as a global economic power.
However, the confidence that Chinese private entrepreneurs had in Beijing to protect their interests has somewhat weakened in the past decade.
Private sector fixed-asset investment growth, a monthly indicator released by the state statistics agency, is a rough gauge of private sector confidence. In the first 11 months of 2022, capital spending on machines and plants by the private sector grew only 1.1 per cent, which was far below the 10.2 per cent growth of the state sector. It marked a sea change from a decade ago, when private sector fixed-asset investment rose 25 per cent, way above the state sector’s 14.5 per cent growth.
So why are Chinese capitalists dragging their feet? There are many reasons behind their caution. One is the return of ideological debate in how the economy should be managed.
The word “capital” has once again been used by critics in an unfavourable way and viewed as an untrustworthy force that must be tamed. While what is happening now is still a far cry from the days of the Cultural Revolution, when “capital” was regarded as an evil to be vanquished, the term has sometimes lost its neutrality in official narrative.
For many Chinese entrepreneurs, the implication is worrying.
A few years ago, I moonlighted as a Chinese translator of some chapters of Capital in the Twenty-First Century, a book by French economist Thomas Piketty. The book proved extremely influential among Chinese intellectuals, as it somehow lent support to the perception that capital, or private entrepreneurs, should be blamed for the growing wealth disparity. As the logic goes, if China wants to narrow its income gap, the power of private capital must be suppressed.
Such an understanding of private capital may have neglected China’s unique social and historical context. The role of private capital is always limited, if not discriminated against, under institutional arrangements in China.
In a country where nine out of 10 jobs are created by private capital, it doesn’t sound right to seek social progress or equality by pushing back the role of capital. China’s efforts to curb the “irrational” expansion of capital may have achieved the intended consequences of reducing “chaos” and bringing back “order”, but the country may have much to dread about the harm caused by a “rational shrink in capital”.
China is in need of continuous economic development, and it should treat private capital as a neutral or even positive force.
