The New China Playbook: Beyond Socialism and Capitalism
Keyu Jin, Swift Press, £25

KEYU JIN is an associate professor of economics at the London School of Economics and Political Science. She has worked with the World Bank and the IMF, and she is “a global board member” for Richemont, one of the world’s leading luxury goods groups, and for Credit Suisse, the global investment bank. She is Davos Woman personified.

This book is quite useful, both as a survey of China’s economy, and as an insight into the globalist mindset.

She reminds us that 30 years ago, China’s public sector was dominant, but that now its private sector accounts for over 60 per cent of national output, for 70 per cent of the nation’s wealth, and 80 per cent of urban employment. So, unsurprisingly, she concludes that China is a “capitalist economy.”

Governments in the West generally influence the market through fiscal, financial and monetary policies. China’s government does this, but it also applies industrial policies and manages the country’s state-owned enterprises.

China combines political centralisation with economic decentralisation. Central government sets the strategic direction; local officials deliver on the ground: state guidance at the macro level, market mechanisms at the micro level. 

Since the 2008 global financial crisis, China’s growth has slowed sharply as the role of the market has grown. And the economy has had low, or even negative, total factor productivity growth.

There are still around 870 million Chinese with a monthly income below 2,000 renminbi (about £225). 600 million have £115 monthly income.

She acknowledges: “It has become increasingly clear that inclusiveness, fairness, and a high quality of life are not fully amenable to market solutions. Capitalism as we know it can no longer be the dominant force for economic improvement if that growth is going to be equitable. Something has to change.” 

China’s housing market has a growing bubble. There is a dangerous too-big-to-fail mentality in its whole property market.

Because local governments depend so heavily on real estate for their income, companies and households believe that the central government will never let the price of housing fall. This expectation just fuels more speculative follies.

Shadow banking was of course the source of the 2008 crash in the US. Unlike commercial banks, shadow banks are not regulated; they are not subject to liquidity and capital requirements.

Yet China’s government has allowed the country’s shadow banking system to let rip. It has now expanded far beyond its US model. Since 2009, it has grown by 20 per cent a year.

Since 2005, the government has allowed China’s banks to sell new savings instruments called wealth management products (WMPs). The banks were no longer required to guarantee the principal, so they could move the WMPs off their balance sheets.

Funds from corporate and retail depositors poured in. By 2016, these WMPs had grown in worth to 40 per cent of GDP.

By the end of 2017, unguaranteed WMPs stood at 22.2 trillion renminbi (£2.5 trillion). The banks funnelled the proceeds of these WMPs into outside trust companies, which then invested the funds in the bond market and in credit instruments.

By 2022, China’s debt had risen to the record high of 275 per cent, one of the highest in the world. A significant part of this was channelled through shadow banking. The shadow banking system’s hidden debt is, as Jin writes, “a land mine waiting to explode.” 

Yet the author praises this unregulated shadow banking system and wants finance capital to become completely dominant in China.

Between 2000 and 2018, the number of Chinese companies that chose to be listed on overseas stock markets increased fourfold. By mid-2021, US stock markets hosted £1.71 trillion worth of Chinese companies.

But recently the US government has been delisting from US exchanges those Chinese companies operating in sensitive sectors. Dependence on US goodwill is a risky strategy.   

President Donald Trump and others blame China for the US’s economic ills. But, as Jin shows, domestic problems and poor domestic policies, not foreign competitors, are the causes of a country’s lack of competitiveness.

A country has nobody but itself to blame when its industries decline, its productivity falls, and financial crises bring great wealth to a few and poverty to the majority. The US’s problems (like Britain’s) are not China’s fault: China is not our enemy.

A financialised and service-oriented economy on the US model will not ensure China’s, or any other country’s, security and prosperity. Countries should focus on building up the “real economy,” investing in know-how and specialised skills in order to climb up the value chain and become key nodes of the global supply chain. 

China introduced large-scale privatisation in 1978, and extended it dramatically in 1992. This policy has now been enforced consistently for 45 years, far longer than the Soviet Union’s New Economic Policy of 1921-28. This surely raises the question, how can building up private ownership be the way to advance to public ownership?

Jin urges China to give up the capital controls that saved it from the 2008 crash, and to become a global financial centre. She ends with a globalist fantasy: “In this new, networked age, the traditional paradigm of competition needs to give way to complementarity, connectivity, and co-operation. As resilient transnational networks supersede sovereign states, the prevailing concept of economic hegemony may itself become obsolete…”