Chapter 1 – China’s Political System

The three main features of the governance system of China

1) China’s system is bureaucratic-authoritarian
 This means that it is not a democracy, like the United States and most other high-income
developed countries. But it also means that it is not a dictatorship
 Ultimate authority resides not in the individual leader but in the Communist Party, which sits
atop the political system; directs the operations of the government and military; and selects
leaders who are subject to term limits, mandatory retirement ages, and more or less formal
requirements to obtain consensus from the rest of the senior leadership group
Why the transition of the power is difficult
These transitions are complex because the top Chinese leader holds three concurrent positions:
General Secretary of the Communist Party, Chairman of the Central Military Commission (which
controls the army), and State President (a mainly ceremonial role that confers ultimate control of the
government).

2) China is a one-party state

Rather than a tiny cabal of secretive leaders, it is a vast organization of some eighty-six million
members (more than 5 percent of the nation’s population) that reaches into every organized sector of
life including the government, courts, the media, companies (both state-owned and private),
universities, and religious organizations.

3) China is formally centralized, but in practice highly decentralized

The formal centralization is easy to see. Unlike a federal system such as the United States, there is no
division of powers between the central and provincial governments; the same party controls the
bureaucracy at all levels of government; and the party’s central Organization Department in Beijing
appoints the senior leadership of all provinces and many cities.
One measure of decentralization is the share of government expenditure that takes place at the
subnational level. A 2004 International Monetary Fund (IMF) study found that, in the period 1972–
2000, this figure averaged 25 percent for democracies and 18 percent for non-democracies. For
China, the average figure for 1958–2002 was 54 percent; and by 2014 it had risen to a staggering
85 percent.

What Has China Learned from the Failures of Other Communist Countries?

China is as a “transitional” post-Communist economy: it is making a transition from a centrally planned

economy to a more market-driven one. It does not necessarily mean that the Communist Party gives up
political power. By 1991 the economy was picking up steam again, and in early 1992 Deng launched a
masterstroke with his celebrated “southern tour.” beginning with the special economic zone of Shenzhen,
right next to Hong Kong, which had been the laboratory for his boldest experiments. Deng bluntly declared,
“Whoever is opposed to reform must leave office”. An old revolutionary, Deng was as committed as anyone
to the preservation of the party’s monopoly on power. But he gambled that the best way to preserve that
monopoly was to run a dynamic economy that boosted living standards at home and raised China’s
international prestige and leverage. He reasoned that a better-fed population, proud to live in a China that
was once again “standing tall” in the world, would in the long run be more supportive of Communist Party
rule than people living in a stagnant economic backwater. Unlike Western analysts, who see a fatal
contradiction between a dynamic economy and a tightly controlled political structure, Chinese leaders see
the two as complementary. Tight political control provides the stability within which economic activity can
be decentralized; and the resulting rapid economic growth in turn enhances the party’s legitimacy for having
“delivered the goods” of higher living standards. With strengthened legitimacy, the party’s grip on power
becomes more secure, and most people find the risk of switching to another, untried system to be
unacceptably high.

Deng believed that economic reform must come first and political reform come second.
What Has China Learned from the Successes of Its East Asian Neighbours?
China had fallen far behind not only the established Western powers but also several smaller neighbours in
East Asia: Japan, South Korea, and Taiwan. Therefore, China adopted the East Asian Developmental model.

“Land to the tiller” agricultural reform.

- Breaking up big estates or plantations and creating a class of rural smallholders
- Land reform assigns land to small owners and small owners-cultivated farms are more productive
than plantation tilled by tents
- Higher yields create a significant agricultural surplus, and since farm ownership is fragmented, it is
much easier for the state to capture a large share of this surplus

Export-oriented manufacturing. T
- To get rich, poor countries must therefore undertake a process of “technological catch-up,” in which
they acquire technology from rich countries and use it to accelerate the productivity of their own
workforce
- Exports help this catch-up process
o Exports (initially of agricultural products, handicrafts, and cheap manufactures) can earn the
foreign exchange needed to buy the capital equipment that enables higher-value production
o Efforts to improve their technology by learning from other countries

Financial repression.
- Refers to a set of practices to control financial markets so that the state can direct capital to the
sectors favoured by its development strategy. These typically include:
 Regulated low interest rates
 A tightly managed and typically undervalued exchange rate to make the country’s exports
cheaper on global markets
 Capital controls, to prevent companies and rich individuals from investing abroad and
instead to compel profits to be reinvested in the domestic economy

How China’s Developmental policy differed from its neighbours

1. China has relied far more heavily on state-owned enterprises (SOEs). In postwar Japan the state set the
rules and controlled the resource flows, but most of the companies and banks were privately owned. South
Korea’s banks were mainly owned by the state, but most of its large companies were private chaebol
conglomerates. Taiwan had a much larger stable of companies owned either by the state or by the ruling
Kuomintang Party; all the big banks were (and still are) state-owned. But there was also a very large body of
private small- and medium-sized enterprises (SMEs) that spearheaded the island’s drive into export markets.
And many of the state- and partyowned enterprises were privatized in the 1980s and early 1990s. Because of
its Communist heritage, China began its high-growth era in 1979 with virtually all assets in state hands, and
thirty-five years later China still has by a wide margin the biggest state sector of any major economy. As
noted above, China’s political system hinges on the Communist Party having an outsized influence on all
organized activity, and corporations are no exception. A secondary factor is that economic officials of the
reform era inherited a country virtually without legal or regulatory systems. They therefore found it
convenient to regulate via the enterprises they controlled, rather than through the impotent regulatory
agencies.

2. The second big difference between China and its East Asian models lay in the extensive use of foreign
direct investment (FDI). FDI played virtually no role in the postwar development of Japan, South Korea, or
Taiwan.
What Influence Do China’s Size and Population Have on Economic Development?
“When you multiply any problem by China’s population, it is a very big problem. But when you divide it by
China’s population, it becomes very small.”
This observation illuminates a common feature of China’s economy in both the Maoist and reform eras: the
main goal throughout has been to mobilize resources. Maximizing the efficiency with which those resources
are used has always been a secondary concern. The point is simply that China’s enormous size gave its
leaders the option of a high-speed growth model that emphasized quantity over quality.

When Leaders Must Choose between Boosting Economic Growth and Maximizing Political Control, Which
Do They Choose?

Chinese leaders see economic growth and political power as complementary, not contradictory. The
uncontested power of the party makes possible vigorous economic development policies that would be hard
to sustain in a more open system; in turn, economic success is the main source of the party’s legitimacy.
Moreover, party leaders have long recognized that in the international arena, national power is a direct result
of economic might.

- Sometimes, leaders choose erosion of the state power to keep the economy humming.
- Sometimes the government sacrifices the economic growth of the political control