Exploring the Chinese Social Model: Beyond Market and State

By Weidong Liu, Michael Dunford, Zhigao Liu and Zhenshan Yang

The people of China and its (widely differing) regions have not all benefited equally from the country’s rapid increase in prosperity, and the speed and timing of increases have varied across time and space. However, China has managed to help those left behind to catch up. These outcomes reflect a specific social model embedded in China’s cultural and political milieu. Exploring the Chinese Social Model presents new analysis and fresh research on how China deals with unequal development and inequality in the context of its surging economic growth.

The book sheds new light on the workings of China’s social model, going beyond binary notions of market and state, and considers the new facets of its socialist market economy. In exploring these questions, the authors consider what is special about China and what the Chinese model is all about.

• Language: English
• Publisher: Agenda Publishing
• Release date: Apr 28, 2022
• ISBN: 9781788214766

Weidong Liu

Weidong Liu is a Professor in Economic Geography and Deputy Director General, Institute of Geographical Sciences and Natural Resources Research, Chinese Academy of Sciences, Beijing and Managing Editor of Area Development and Policy.

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EXPLORING THE CHINESE SOCIAL MODEL

ECONOMIC TRANSFORMATIONS

Series Editors: Brett Christophers, Rebecca Lave, Jamie Peck, Marion Werner

Fundamental to the Economic Transformations series is the belief that geography matters in the diverse ways that economies work, for whom they work, and to what ends. This series publishes books that evidence that conviction, creating a space for interdisciplinary contributions from political economists, economic geographers, feminists, political ecologists, economic sociologists, critical development theorists, economic anthropologists, and their fellow travellers.

Published

The Doreen Massey Reader

Edited by Brett Christophers, Rebecca Lave, Jamie Peck and Marion Werner

Doreen Massey: Critical Dialogues

Edited by Marion Werner, Jamie Peck, Rebecca Lave and Brett Christophers

Exploring the Chinese Social Model: Beyond Market and State

Weidong Liu, Michael Dunford, Zhigao Liu and Zhenshan Yang

Farming as Financial Asset: Global Finance and the Making of Institutional Landscapes

Stefan Ouma

Labour Regimes and Global Production

Edited by Elena Baglioni, Liam Campling, Neil M. Coe and Adrian Smith

Market/Place: Exploring Spaces of Exchange

Edited by Christian Berndt, Jamie Peck and Norma M. Rantisi

EXPLORING THE CHINESE SOCIAL MODEL

Beyond Market and State

WEIDONG LIU, MICHAEL DUNFORD, ZHIGAO LIU

AND ZHENSHAN YANG

© Weidong Liu, Michael Dunford, Zhigao Liu, Zhenshan Yang 2022

This book is copyright under the Berne Convention.

No reproduction without permission.

All rights reserved.

First published in 2022 by Agenda Publishing

Agenda Publishing Limited

The Core

Bath Lane

Newcastle Helix

Newcastle upon Tyne

NE4 5TF

www.agendapub.com

ISBN 978-1-78821-474-2

British Library Cataloguing-in-Publication Data

A catalogue record for this book is available from the British Library

Typeset by Newgen Publishing UK

Printed and bound in the UK by TJ Books

CONTENTS

Preface and acknowledgements

List of illustrations

1Introduction: the China model as a specific socially embedded market economy

2Governance instruments: the role of the party and the state

3Spatial governance instruments in China

4Special economic spaces in China

5Regional development in China

6Poverty alleviation in China

7Conclusion

References

Index

PREFACE AND ACKNOWLEDGEMENTS

This book forms part of a project conducted at the Chinese Academy of Sciences (CAS) Institute of Geographical Sciences and Natural Resources Research (IGSNRR) in Beijing over the period from October 2016 to October 2020 on the China model, and it was funded by the China National Natural Science Foundation (NNSF: grant number 41530751). The principal researcher was Weidong Liu, and the project involved fieldwork, surveys, workshops and conferences in China and abroad.

As with any volume of this kind, there was a division of labour, in which Weidong Liu wrote the first two chapters, identifying the core economic, political and cultural characteristics of the China model, and the conclusion, with Michael Dunford. Informed by this perspective, Weidong Liu and Zhigao Liu conducted the research and wrote the chapter on China’s special economic spaces, while, in collaboration with Weidong Liu, Zhenshan Yang was responsible for Chapter 3, on spatial governance instruments. Michael Dunford wrote the chapters on regional development and Chinese poverty alleviation.

The authors are grateful to many people for their support with this project. Weidong Liu wishes to extend special thanks to Qiuhui Yao, Wei Xiong, Jingluan Yang, Qidi Ji and Xinyu Yang for their assistance in data collection. Michael Dunford extends his gratitude not just to NNSF but also to the IGSNRR for three one-year visiting fellowships (grant number 2017VP01) during the research on this project. He also thanks Boyang Gao, who provided the results of a poverty survey that informs Chapter 6.

Finally, the authors wish to thank Alison Howson at Agenda for her support and advice throughout the preparation of this volume.

Weidong Liu

Michael Dunford

Zhigao Liu

Zhenshan Yang

Beijing

LIST OF ILLUSTRATIONS

FIGURES

1.1Markets, government and society

1.2A framework for analysing social models

1.3Local revenue and fiscal transfers at provincial level in China, 2019

1.4Chinese infrastructure investments as a percentage of GDP, 1980–2018

1.5Education expenditure in China, 1991–2019

4.1Location of SEZs, OCCs and OCERs, end 1992

4.2Location of inland open cities, border economic cooperation zones and national development zones, end 1992

4.3Location of national-level new areas, end 2020

4.4Location of NIDZs, end 2020

4.5Location of pilot FTZs, end 2020

5.1Chinese economic growth, 1952–2021

5.2Territorial, urban–rural and social inequalities, 1952–2019

5.3Chinese provincial and prefectural disparities in GDP per head, 2018

5.4Areas suitable for development in China

5.5Government revenue and expenditure, 1950–2020

5.6Chongqing: the one-hour drive time economic circle and the two wings

6.1Chinese poverty lines and the decline in extreme poverty, 1978–2019

6.2Age, gender and location of the sample population, 2017

6.3Average household cash income by source, 2017

6.4Traditional and rural–urban household transitions

6.5Fourteen contiguous destitute areas, including Tibet

6.6832 poverty counties: 592 nationally designated poverty counties plus poverty counties in Tibet plus the CDAs and the 52 counties finally lifted out of poverty in 2020

6.7Wuling Mountain Area: core cities and vertical and horizontal development axes

6.8Annual number of work teams and cadres in service, 2014–19

TABLES

1.1Marketization of the Chinese economy

1.2Major Chinese development indicators since reform and opening up

1.3Stages of infrastructure investment

1.4Structure of infrastructure investments, 2004–19

1.5Selected indicators of transport progress, 1980–2019

1.6Education progress of the United States and China

1.7Major components of the Chinese social model, 2020

4.1Taxonomy of special economic spaces

4.2Socio-economic performance of special economic zones, 1978–2019

5.1Inflection points in urban–rural income disparities by province, 2003–09

6.1Counterpart poverty assistance in China

6.2Poverty alleviation finance, 2016

CHAPTER 1

INTRODUCTION: THE CHINA MODEL AS A SPECIFIC SOCIALLY EMBEDDED MARKET ECONOMY

BEYOND MARKET AND STATE: A FRAMEWORK FOR EXAMINING THE CHINA MODEL

Modern capitalism can no longer work, warned French president Emmanuel Macron at the virtual World Economic Forum Davos Agenda Meeting on 26 January 2021. He contended that contemporary capitalism and the market economy, which once provided the middle class with opportunities for upward mobility, has resulted in a downward spiral and confronts a profound moral and economic crisis. As a response, he called on global leaders to make efforts to tackle inequality and climate change. Macron’s words should be understood against the background of increasing social protests in recent years in Western countries, in particular the severe social conflicts and divisions revealed in the 2020 US presidential election, and the inability of many so-called neoliberal economies in containing the Covid-19 pandemic. One cannot help but ask what is going wrong with modern capitalism. Is it a failure of the market, of the state, or of both?

Obviously, calls for more state intervention are resonating around the world. For example, in his recent book People, Power, and Profits (Stiglitz 2020), the Nobel Prize-winner Joseph Stiglitz argues that a society must envisage a role for the state in pursuing sustainable economic development and the orderly operation of a society and the establishment of a balance between market, state and civil society. The role for the state is at least twofold: one is the establishment of the rules and institutions required for the market to operate; the other is state support for and investment in public goods, including research and development, education, health care and basic infrastructure. In this situation a consequential question is: what does more state intervention imply? Does it mean that a different socio-economic system is taking shape? Or does it mean that analytical approaches that treat market and state as antipodes are no longer meaningful?

Indeed, binary distinctions between states and markets and between liberal market capitalism and state capitalism are persistent. The market involves a logic of exchange embedded in private property rights and mediated by monetary relations, and gives rise to greater efficiency, whereas the state is an institutionally ordered domain of governmental practices, mediated by the play of politics and social struggles, and acts as an obstacle (Peck 2021). In the last two decades, however, conceptions of the state and the market as antipodes have been widely challenged and debated, as in the case of the literature on varieties of capitalism (Hall & Soskice 2001; Peck & Zhang 2013) and, more recently, in Peck’s discussion of the cusp of capitalism (Peck 2021), in which he calls for conjuncturally sited investigations of reconfigured capitalisms. In most existing discussions and debates, the scope or the degree of marketization is the principal indicator used to distinguish between different capitalisms and between capitalism and socialism. As a pure market, American capitalism is usually regarded as the truest form, the most capitalist of capitalisms and the rule used to gauge the position of other economies, although its statist elements are intentionally or unintentionally bracketed out (Peck 2021).

A measure of the truest capitalism has also been used by Western observers to examine the study of China and the so-called China model.¹ Central to these investigations is a determination of the scope and extent of markets in China, the question as to whether China is a market economy and the degree to which China has remained socialist or moved away from socialism (Naughton 2017). In most cases, China’s economy is called a variety of capitalism: either red capitalism (Lin 1997), state capitalism (Huang 2012), state-led political capitalism (Milanovic 2019) or Sino-capitalism (McNally 2019). None of these discussions provides a clear and consistent definition of capitalism, however. Instead, the concept of capitalism is often taken for granted as a pure liberal market, although many scholars have already recognized that capitalisms evolve. As argued by Peck and Zhang (2013), modern advanced capitalism is not what it used to be, requiring consideration of further determinations and differences between different societies. For example, in the past state-led development and public ownership were not unfamiliar in many capitalist countries (Breslin 2011), but now statism and the market (capitalism) are considered antipodes. Often, incomplete markets and mixed ownership (with a large share of public ownership) in China are criticized and considered the key features of imperfect Chinese capitalism or the main reason behind China’s status as a non-market economy.

Although Western observers tend to consider China as a sort of capitalism, China calls itself a socialist market economy with Chinese characteristics. Using indicators of capacity, intention, redistribution and responsiveness, Naughton (2017) argues that China has shrugged off its old model of socialism but is moving towards a new version of socialism. Thus, a key question for these confrontations is whether the market still is the true and essential signifier of capitalism. Although most Western observers insist that the market equates with capitalism, the Chinese government has long refused to accept this assertion, insisting that a market economy is not a governance tool that is exclusive to capitalism; indeed, in the opening lines of Capital, Karl Marx said that capitalist economies are market economies but not all market economies are capitalist (Marx 1887 [1867]).

As early as 1979, when meeting Frank Gibney, the vice-president of Encyclopædia Britannica, and Daguang Lin, director of the Institute of East Asian Studies, McGill University, Canada, Deng Xiaoping said that it was not true that a market economy exists only in capitalist countries and that there is only one kind of market economy (Deng 1994). He argued that the embryonic form of the market was found in the feudal society period and that it is just a method of developing the productive forces. In his famous south tour to Shenzhen in 1992, Deng pointed out again that there is no fundamental contradiction between socialism and the market economy, and that the key question is how to develop the productive forces more quickly (Deng 1994: 373). He considered that the essential distinction between socialism and capitalism is not one of more (less) market and more (less) planning (state), and he stressed that the market or planning are both means of developing the economy. Since then the Chinese economy has gradually been marketized, and the idea that the market is a more efficient means of wealth creation is widely accepted in China. Recently, The Economist commented that President Xi Jinping’s new economic agenda is to make markets and innovation work better within tightly defined boundaries (Economist 2020). Since most nations in the world have adopted market mechanisms, it seems that the market itself cannot reveal the particularities of a country, including China. Thus, as argued by Peck (2021), China’s theoretical positionality invites more disruptive questions about the character and constitution of the so-called China model.

There is still no standard definition for what constitutes the China model, however, although many names for it have been proposed. Nonetheless, as Breslin (2011) argues, the China model has become a sort of speech act, that, no matter whether it does really exist or not, people are talking about and defining in special ways, making it real and giving it real power. In April 2020 even the US–China Economic and Security Review Commission (USCC) held a public hearing on the China model, trying to ascertain whether China is promoting alternative global norms and standards (USCC 2020). Apparently, in the West, China has been identified as a counter-model to the standard liberal market version of capitalism, the Anglo-American version (Peck 2021). Now that markets are accepted as major economic governance tools in both capitalist and socialist societies, there must be something else that distinguishes China from other models. In other words, labelling a country as capitalist or socialist does not seem to be a very meaningful way of understanding its particularities (Liu, W. 2015). Instead, one needs to undertake a deeper analysis of market variety and societal context to identify the so-called China model, paying special attention to those factors that make China much more than a market economy. An alternative way of thinking is to put a country into a three-dimensional, continuous space between the market, state and society (Liu, W. 2015). In such a three-dimensional space, there are no antipodes and no static governance systems. Instead, there are evolving positions that are decided by internal reforms, external rhythms, macro-dynamics and expansionary tendencies.

In short, as almost all countries in the world choose to adopt market mechanisms to pursue efficient wealth creation with different degrees of state intervention, this book seeks to go beyond ideas about capitalism and socialism so as to examine concretely what the Chinese social model is and what is special about it. More specifically, it will be argued that development is shaped by combinations of market, state and society (Liu, W. 2015). In accordance with this way of thinking, China (since it embarked on reform and opening up in 1979) should be characterized as a market economy embedded in a particular system of political governance and society. In this system, markets play a central role in the allocation of resources, although resource allocation is also shaped by important and distinctive mechanisms of redistribution and reciprocity (Polanyi 1944). In other words, the identification of a social model involves examining both how the wealth of a society is created by the market and other mechanisms and how it is distributed and redistributed.

The underlying relationships between market, state and society are illustrated in Figure 1.1. Alongside markets and the state, the figure identifies a society or community as incorporating the role of social norms, values, civic-mindedness and institutions such as families and community groups. This perspective suggests that different resource allocation issues are implemented through a weighted combination of government decisions, market incentives and competition and social norms, which, in the Chinese case, will include Confucian ethics. Bowles and Carlin (2020) suggest that these three dimensions interact and can reinforce each other: social norms are vital to the operation of organizations and markets; markets are designed to secure government objectives; and ethical values play a central role in policy models, as in the case of normative commitments to reduce economic insecurity or increase the incomes of less well-off sections of the population.

Figure 1.1 Markets, government and society

Source: Elaborated from Bowles and Carlin (2020).

Keeping in mind that the market is just a means of efficient wealth creation, the development of a market economy in China was designed to enable the country to get rich (more developed) with some people and some places getting rich first, after which it was intended that the living standards of the rest would catch up with the early leaders. This choice meant that inequality and inequity would increase in the early stages and decrease when the poor caught up with the rich. Whether and how the Chinese government (party-state: Communist Party of China [CPC]) keeps its promise to lift the living standards of low-income groups to catch up with the early leaders and to reduce inequality and inequity is key to understanding the China model. Indeed, China has always aimed to improve the livelihood of the entire population. This is an extremely challenging task, however, in the face of which the Chinese government has adopted an evolving attitude towards inequality and inequity. Clearer manifestations of China’s social model are its recent declared ambitions to evolve from quantitative growth and its attendant inequalities and inequities to goals relating to the rejuvenation of Chinese civilization, ecological civilization and the Chinese dream, which will also prove immensely challenging and will no doubt involve further reform.

These aims are associated with aspects of the Chinese social model, namely the party-state’s active efforts to create supporting conditions for economic development by investing in infrastructure and public services, while seeking to ensure social stability (Figure 1.2). In these conditions, most resources were channelled into productive rather than speculative activities. At the same time ownership in China became more and more mixed with the rise of private ownership. As growth occurred, state and society actively shaped the processes of the distribution and redistribution of income and wealth. The distribution and redistribution of wealth/value created by market production guided by the state provide resources for the creation of different supporting conditions for markets to run effectively and can address problems and conflicts that arise.

Figure 1.2 A framework for analysing social models

Indeed, the social side of the China model is attracting more attention from around the world. Although recent publications on the China model are quite diversified, a trend can be observed, namely that discussions are shifting from a concern with the Chinese style of capitalism and market economy to narratives that embrace the social side of China’s development, as well as the challenges it poses for the world, and the United States in particular. Examples are: Sicular et al.’s Changing Trends in China’s Inequality (2020); Harvard University’s China’s past, present and future (n.d.); Bell and Wang’s Just Hierarchy: Why Social Hierarchies Matter in China and the Rest of the World (2020); Mahbubani’s Has China Won? The Chinese Challenge to American Primacy (2020); and Heilmann’s Red Swan: How Unorthodox Policy Making Facilitated China’s Rise (2018). In addition, policy-making in China is receiving increasing attention (see, for example, Heilmann 2018; Lim 2019).

In this volume particular attention will be paid to the way in which, during the reform period as a whole, all incomes have increased albeit at unequal rates, and with much greater emphasis recently on encouraging convergence in incomes through regional development and poverty alleviation, emphasizing the way the China model is designed ultimately to lift people out of poverty and promote equitable growth and territorial development – a subject addressed by relatively few authors (e.g. Lim 2019). In this way it is hoped that this book will provide a new perspective on and understanding of the China model, examining not just how China uses its governance tools to ensure comparatively stable supporting conditions for market production.

Therefore, a principal aim of this volume is to identify the distinctive market, state and societal governance instruments that shape national and territorial wealth accumulation, distribution and redistribution. It is these market and non-market instruments, their territoriality and their evolution that define the China model.

Relevant characteristics include a strong collective ethos and spirit, obedience to authority, guanxi (reciprocity), concepts of administrative status/grade, a cadre evaluation system, mandatory planning, vertical and horizontal government relationships, counterpart assistance, public ownership of land and land control, the hukou system, the system of fiscal allocation, financial transfers, taxation, state ownership of economic assets, state-owned commercial and development banks, privatization and development zoning. It is these governance instruments embedded in China’s political and societal system that largely distinguish the China model.

Attention will be paid to the role of these and other governance tools in creating favourable supporting conditions for market production, social stability and labour quality. These conditions include physical conditions, such as public service facilities and urban and regional infrastructure. The creation of these conditions is closely related to wealth distribution and redistribution, involving channels such as public ownership, government expenditure on education, social security and health care, counterpart assistance, fix point assistance in poverty reduction, personal income tax and financial transfers. These instruments are deployed in the light of the intentions and capacity of governments at different levels, which themselves reflect domestic and international conditions.

MARKETIZING THE CHINESE ECONOMY

Marketization designed to promote the means of efficient production and accumulation has been a key feature of the economic reform path on which China embarked in 1979. Given that planning was a major feature of the pre-reform economy, from a historical viewpoint, the market is a major component of the China model. And yet there are debates as to whether China should be treated as a market economy, especially in the context of the World Trade Organization (WTO). If, however, binary fire or water thinking is abandoned, the market in China is not fundamentally different from markets in many other countries; it is not in opposition, but simply occupies a position with greater state intervention in a continuous governance space. Besides, as argued by Peck and Zhang (2013), marketization defines a direction, not a destination, and thus China’s marketization will continue to evolve within the changing conditions of economic development. Accordingly, the aim of this book is not to enter into debates about the nature of China’s market economy or the various terms introduced to depict a so-called Chinese capitalism. It is meaningful, however, to introduce briefly the Chinese economic market process, in order to lay a foundation for the analysis of the Chinese social model here, as the contemporary Chinese social model could not exist without markets given that the social model has been defined as a system for the distribution and redistribution of wealth created through market mechanisms.

Marketization in China has been taking place gradually, with the role of the market in resource allocation continuously increasing, from playing a supporting role, then a basic role and now a decisive role. Along the way the diversification of ownership structures has occurred, as a means of unleashing the vitality of market entities and increasing efficiency and, more recently, of improving the competitive environment (see Table 1.1). As reforms expanded the scope and extent of markets alongside the opening up of the Chinese economy to world markets, the allocative efficiency of production factors including land, capital, labour and technology greatly improved and the vitality of production and