China should serve as a textbook case for scholars of political economy. No other major country has an economy so inextricably linked to politics than China. The recent suspension the reform of state-owned enterprises (SOEs) is a good example.
Room for economic reform is shrinking in China. Most of the possible reforms have already been made. Those that have yet to be implemented involve the privatization of SOEs.
With WTO membership, China's SOEs will suffer greater losses. They will bite the dust in the face of aggressive foreign capitalists if they do not receive massive capital infusions. It is for that reason that Premier Zhu Rongji (
To the surprise of many, China's stock markets plummeted immediately after this plan was implemented in July. Such large-scale plunges have been rare in recent years. The market drop exposed the political nature of the Chinese economy. The government immediately announced a halt to its plan to cut its holdings, as well as the trial plan to allow large SOEs to be listed on overseas stock markets.
The People's Supreme Court has ordered all provincial courts not to approve bankruptcy applications by SOEs whose assets exceed 50 million yuan (US$6,048,000), unless they get approval from the Supreme Court.
One order has brought all the SOE reforms to a halt. From this we can see a few characteristics of China's political economy.
First, the authorities are torn between social stability and economic development. In the long run, economic development will inevitably necessitate readjustments in the economic structure. It is impossible for such readjustments not to have on impact on society -- major stock market slumps, for example. When political considerations collide with economic ones, politics usually gain the upper hand.
In analyzing China's economy, those who exclude political factors can only grasp the "unstable half" of the economic situation.
Second, China's economic reforms -- as well as the economic development that they have driven -- are fraught with major uncertainties. On the surface, China appeared to be smoothly implementing SOE reforms and the reorganization of its financial system in recent years. Promises from the authorities were clear and firm. All that superficial determination, however, can evaporates at the first hiccup. What the world perceives as China's reform arrangements are built on the premise that in normal times"everything is going well."
From the above example -- which is by no means an exception -- we can see that the authorities have no concept of crisis management. Once a crisis occurs, the first response is to fall back on the status quo, on "tradition." Optimistic expectations about the authorities' abilities to handle the situation are therefore very unrealistic.
Three, for the above-stated reasons, China's economic development has swung from left to right amid attempts to strike a balance between political and economic solutions. The government's pronouncements of "stable, continuous growth" are simply a myth. As the scope for reform shrinks, fluctuations in growth will become increasingly pronounced. This is because there are no other measures to mitigate the negative effects caused by halting certain reforms.
What the authorities cannot control is the fact that the economic readjustments themselves have become part and parcel of the social instability.
Wang Dan was a student leader during the 1989 Tiananmen Square demonstrations in Beijing.
Translated by Francis Huang
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