In China The Economy Is Still Run By The State The Economist magazine discussed economic reforms without even mentioning the Chinese Communist Party


WASHINGTON – The highly regarded The Economist weekly magazine has a Leader (we call it Editorial in America) about economic reforms in China, (The quiet revolution, April 18th, 2015). Leaving aside the analysis on recent and announced changes, what is most extraordinary is what the Leader does not say.

Is China a capitalist country?

I do not know whether this is due to a deliberate attempt at obfuscation, sudden amnesia, or stupidity. But the fact is that The Economist never mentions in its Leader “China’s Communist Party”, “state controlled economy”, “state-owned enterprises”, or “party’s control over economic policy”.

In other words, if you did not know anything about China’s post war history and current politics, by reading this Leader you could very well think that China is just another capitalistic country now undergoing some reforms aimed at creating a more sustainable foundation for future economic growth.

And yet we know that this is not the case. China is not another capitalistic country. And it can be argued that China’s current economic problems are in large part due to its unwillingness to become a “normal” capitalistic country.

The party controls the economy

And why is China reluctant to “go all the way”? Because true capitalism is founded on real economic and political freedoms. There is no doubt that China changed a lot during the last 30 years. There has been immense liberalization. The previously non-existent private sector has been allowed, and it has become an impressive force for wealth creation and modernization.

But none of this occurred spontaneously. This transformation happened because the Communist Party permitted it. It has been clear from day one that the entire economic change process, while broad, was not and is not open-ended. It has taken place and it will continue under the direction and within the limits imposed by the ruling Communist Party.

The political role of State Owned Enterprises

And here is one gigantic limit. Whatever some honest reformers in China may say, for the time being, the state will continue to control the economy, while running directly some of its most strategic sectors via its own State Owned Enterprises.

For the time being, the party-state will not privatize the public sector. And here is the clear political reason. Despite well documented malinvestement and inefficiencies, the publicly owned strategic sectors, (banking, insurance, telecoms, energy, steel and more), allow the party to retain control over the rest of the Chinese economy, and therefore over China.

Deliberate obfuscation?

All this is to say that any analysis about “reforms” in China that does not refer to the broader political and policy context outlined above, (a one party state, not another capitalistic country), is either meaningless, or a deliberate attempt to obfuscate.

Either way, given its reputation, The Economist could and should do better.

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