NEW YORK - Can China’s economic policy makers maneuver their way out of this one? Let’s see: there’s a property bubble that’s beginning to deflate, a construction boom that’s now going in reverse and a financial system that’s riddled with bad debts. Oh, and the air is still really dirty.
On the bright side, though, Cirque du Soleil and Segway are coming to China. With the success of the new Asian Infrastructure Investment Bank, the country has established itself as a global economic leader. And the Shanghai Composite Index has more than doubled during the past nine months.
The outside world has a hard time fitting all this evidence together into a coherent picture. Is the stock boom a sign of hope, or a policy-driven bubble? How about that bond default today by state-owned Baoding Tianwei Group — is it an indication of new financial maturity or the beginning of a great unraveling? Is the slowdown in construction, however scary for the world’s metal producers, a welcome signal that the economy is moving away from its dependence on exports and infrastructure to more sustainable consumer-driven growth?
The common thread here is the Chinese government using every tool it has to keep its long growth run going. As the United States and the United Kingdom grew into industrial powers in the 19th century, they were tripped up every 10 to 20 years by financial crises and economic depressions. Measuring from December 1978, when the Chinese Communist Party “shifted its center of gravity from propagandizing class struggle and organizing political campaigns to economic construction,” China is now in its 37th straight year of economic expansion.
That quote is from a new biography of Deng Xiaoping by historians Alexander V. Pantsov and Steven I. Levine. I’ve just been reading the chapter about Deng’s 1977-78 battle with the charmingly named but otherwise not so great Whateverists, which set the course that China more or less still follows. In the months after founding father Mao Zedong’s death in September 1976, the Whateverist motto was:
“We will resolutely defend whatever political decisions were taken by Chairman Mao; we will unwaveringly follow whatever directives were issued by Chairman Mao.”
Mao’s handpicked successor, Hua Guofeng, defended these “two whatevers” even as he tried to tweak some of Mao’s decisions and directives. Deng, just rehabilitated after a year on the political outs, saw this as a disastrous approach to governing, given how often Mao had changed his mind and contradicted himself. He dug up an old Mao slogan to back himself up: “Seek truth from facts.” He then endorsed a polemic by several party intellectuals titled “Practice is the Sole Criterion of Truth” that pushed the two whatevers aside as the party’s guiding line.
With that, China adopted a radically pragmatic approach to governing. If something resulted in economic growth, it was a good policy. The only real limit was that the supremacy of the Communist Party could not be challenged, but for most of the past 37 years that has seemed more a feature than a bug. China’s strange blend of Communist-Party corporatism, Keynesian macroeconomics and Schumpeterian entrepreneurialism has delivered spectacular improvements in living standards and similar gains in national clout.
But still, can a country keep that going uninterrupted for four decades? Is that even a good idea? It feels like the Chinese Communist Party has gotten itself into a position where it can’t even ask those questions. Delivering steady economic growth has become the key source of its legitimacy, so it will keep doing whatever it can to deliver. And, given how painful an outright Chinese recession would be for the sputtering global economy right now, we’re kind of stuck with rooting for it to succeed.
Justin Fox is a Bloomberg columnist who writes about business.