Will China’s communist party complete a second century?

The Economist has marked the 100th birthday of the Chinese Communist Party (CCP) with one of its context-rich historical essays.  It puts its money on the side of the party’s continuing adaptability and resilience.  This is probably the orthodox position.  But, as the Economist’s editorial staff themselves say when hedging their bets, only time will tell.

The more optimistic among us might look beyond the party’s seemingly-monolithic strength and see it – in pleasingly Marxist terms – as a prisoner of its own fundamental contradictions.

As the Economist points out, the CCP has so far escaped the fate of its discarded Soviet counterpart.  Well, yes – strictly speaking.

But looking more closely at today’s Russia and China one sees two post-Marxist imperia with strong continuity in personnel. Both are large; both are poorish, although not abjectly so (Russia’s GDP per capita of US$11,800 is about 40% greater than China’s).  

More to the point both owe their current economic position to having broken with total state direction of economic activity in the 1980s / early 1990s.  While their political paths were very different, in both cases entrepreneurs were empowered to generate and direct capital.

And in both countries, the political leadership has had to address the consequences for their own power of the granting of such independence.

Russia’s approach to this political problem is widely thought to be throttling the economy.  Vladimir Putin used the state apparatus to bring to heel the powerful businessmen whom he saw as a threat to his political grip.  Now he has no obvious answers to the problems of protected crony capitalism and arbitrary interference with property rights that make Russia an insecure place to innovate or do business.

We need to ask if China’s Xi Jinping is pushing – with less public recognition – down a similar path.  Breaking promises not to interfere with Hong Kong destroyed the government’s strongest proof of self-restraint. Now the change in economic policy is sufficient for Reuters to report on what it dubs the “season of regulatory crackdown”.  

But the single event that suggests that Xi is leading a further revolution in the CCP’s relationship with free enterprise is the treatment of irreverent tech / e-commerce billionaire (and party member) Jack Ma. He disappeared from public view (as well as suffering a ferocious onslaught from the government on his business, including a $2.8 billion fine inflicted on his company Alibaba) after making a critical speech last year.  

Xi’s apparent allergy to Ma might be because he challenges the party at two of its weakest points.  First, merely by existing, he is a reminder that China will need a continuing supply of Jack Ma-style entrepreneurs if it is to dominate the tech sectors of the future.  Secondly, Ma’s critique of state banks and regulation implies that to continue growing, China needs to expand, rather than curb, the reach of private individuals into stagnant party-run sectors such as banking which still cover large reaches of the economy.

President Xi must hope that China’s well educated bureaucrats and disciplined party cadres are up to the challenge of delivering the next big wave of economic innovation and productivity growth. 

The tension is acute because looking at Ma’s success, you might conclude that achieving the party’s goals does require a revolution, but in the opposite direction to the one being taken.

Sure one can take China’s high economic growth rates and use them to draw a projection leading to dominance.  That was happening in the 1990s (when Russia and China were breaking with state controls), only then the books had titles like “Why Japan is Still on Track to Overtake the U.S. by the Year 2000”.  

But reaching economic predominance requires adaptable structures able to deliver consistent innovation and productivity growth across most of the economy’s sectors.  Very few countries can match the US’s economic dynamism or the assurance provided by its political system.

So by all means work on the assumption that China’s economy will grow (albeit most likely at a slower rate); expect the challenges of a more assertive Chinese foreign policy; but don’t conclude just yet that President Xi has discovered a world-beating economic model, any more than his neighbour in Russia.

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