A new book by London-based academic Dr Keyu Jin argues that the popular perception that China still relies on technology transfers, industrial subsidies and unfair trade competition for its economic success is outdated and exaggerated and that a changed perception could revolutionise how companies do business there. Paul French finds out more
For decades, it’s been an easy and throw-away shorthand to talk of either socialism or capitalism with “Chinese characteristics”, but Dr Keyu Jin, associate professor of Economics at the London School of Economics (originally from Beijing and also an adviser to the China Banking Regulatory Commission on fintech), sees the current Chinese system as neither capitalism nor socialism but rather a wholly Chinese system filled with paradoxes and conundrums.
London-based Keyu’s new book, The New China Playbook: Beyond Socialism and Capitalism (Viking Press), argues that what may appear to be contradictions to the Western eye can, if understood better, be opportunities.
If this is the ‘new’ China playbook, what was the ‘old’ China playbook, and are many of us still stuck in an old way of thinking about China?
The popular perception in the West that China still relies on technology transfers, industrial subsidies and unfair trade competition as a means to its economic success is outdated and exaggerated. The idea that China’s domineering state is driving out private businesses and will prevent China from becoming an innovative country is also misplaced. Yes, there are deep flaws in China’s economic system, as my book points out. But it’s not the ones we read in Western media. China’s innovation is a consequence of its ferociously competitive landscape.
At the root of China’s past success as an exporter is its cheap and hard-working labour, paired with efficient infrastructure and logistics and a large market where learning by doing takes place quickly and at scale. But the labour advantage is part of the old playbook. The new playbook shifts from “GDP worshipping” to a softer development metric, from monstrous expansions to a more equitable form of growth, from industrialisation to innovation, and from a risk-averse older generation to a cosmopolitan and consumption-bound new generation. The challenges are also new: how to manage an increasingly complex and demanding society. Innovation is a marathon, not a sprint like industrialisation. Paradoxically, China must now slow down and become more ‘patient’.
In a recent interview with the New York Times, you commented that China’s current economic challenge is to escape the middle-income trap, when wages rise but then stall as a result of higher costs and declining competitiveness. Is this where China is at now? And how can it escape that trap?
China still has 600 million people with a monthly income of less than US$300. This group of people need to reach middle income by international standards, and after that, the whole country has to rise from US$10,000 to US$30,000 (£8,000–24,000) income. For that to happen, China needs to liberalise further by opening up the service sector so it can create more jobs, reforming the financial system so that it can be a vibrant marketplace for innovative and small companies, and reducing geographical disparities by allowing more flow of goods and people. The state needs to meddle less with the private sector and instead concentrate efforts on delivering credibility and commitment to a stable macroeconomic environment.
We are seeing a lot of tension right now between China and the US, and perhaps to a lesser degree with the European Union. Where do you see the UK as positioned at the moment regarding China?
The UK has the option to retain some strategic autonomy vis-à-vis the US, and carefully craft a separate relationship with China. At the moment, it is following US policies too closely, and with Brexit and internal economic challenges, I’m not sure it can afford to be non-pragmatic. It’s important to carve out areas that are true national security threats and avoid having these issues corrode other areas of competitive collaborations. China has huge investments in the UK, and I think that what are seemingly intractable issues can be discussed, and tensions can be mitigated. The UK does not see China as a major economic rival like the US does, so there is scope to improve relations and win some economic interests.
And what do you think Beijing’s view of the UK is at the moment?
China’s relationship with the UK has deteriorated in part because of the high-pitched tone of UK officials against China. Still, China’s view of the UK is not all that bad — although perhaps this is worse — because the UK has simply become unimportant from the Chinese perspective. The Chinese see more active engagement from the likes of Germany and France, and the UK risks falling off the map. Whether that is desirable for the UK or not is a question to be deliberated. Still, many wealthy Chinese now prefer to send their children to the UK rather than to the US because of perceived security. But if anti-Asian attitudes rise in the UK, that may change as well.
How fast do you think the Chinese economy is bouncing back following the sudden end of zero Covid?
The economy is recovering, but slower than many had hoped for. The problem is the severe lack of confidence in the economy. This is part of the new playbook – how to sustain confidence and manage expectations in an economy where capital markets are vibrant, the private investors do the heavy lifting when it comes to consuming and investing and where expectations are instantly reflected in capital markets. The lesson here is that confidence is easy to kill but takes time to rebuild.
And finally, I think the aspects of your book that will most intrigue UK business readers is where you talk about creating a system that will support and encourage innovation while enabling solid intellectual-property protection and rule of law. Do you think China’s current administration can finally establish clear and transparent policies?
As to where China is going, going from US$10,000 dollars to US$30,000 annual income will be more difficult than getting to the first US$10,000. The UK has an amazing environment for start-ups and boasts fantastic entrepreneurs. But why does the country not produce as many unicorns as it should? Part of the reason, in my opinion, is that the lack of industrial capacity, infrastructure and innovation ecosystem to grow start-ups to multi-billion companies. China has that but has weaknesses in IP protection. This is improving over time, as IP enforcement has become a top priority for the government. Chinese IP law is now one of the most comprehensive in the world, but it comes down to implementation.