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The Chinese Regulatory State Debate: Competing Models of China's State-Economy Relations

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The Chinese Regulatory State Debate: Competing Models of China's State-Economy Relations
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    The Chinese Regulatory State Debate: Competing Models of China’s State-Economy Relations   Spring 2007 Matthew G. Ferchen Ph.D. Candidate Department of Government Cornell University   2 The Chinese government has…steadily boosted its regulatory capacity to sustain and police the markets and cope with various forms of market failure (Yang 2004a:183) The Chinese reform experience suggests that, while decision makers have been remarkably successful in creating the conditions for a basic market economy, they have been far less successful in changing the functions of the state to actively monitor markets for goods, services, and capital to ensure that they  perform competitively and effectively (Huang 2004:56-7)  Introduction How should we understand the relationship between the state and the economy in contemporary China?  1  Is Chinese state regulation of the economy becoming more modern, rational and efficient as Yang would have us believe or is Huang correct in  pointing to China’s stalled and incomplete reforms? These are questions of vital importance not only to academics but also to policy makers and businesspeople across the world and, as the quotes above demonstrate, are increasingly the subject of intense debate. On one side of this debate are those who claim that China is developing into a “regulatory state,” with American Progressive Era regulatory reform often serving as a model. 2  On the other side of the debate are three different groups of scholars who for a variety of reasons find fault with the claim that China is becoming a regulatory state. The first group of critics argues that in important ways China looks more like an East Asian 1  I will sometimes refer to “state-economy” relations and at others to “state-market” relations. I mean the former in the most general level of abstraction between the Chinese state and all aspects of the economy, whereas by the latter I mean state regulation of specific markets. I also purposely do not refer to “state- business” relations as my focus in the dissertation is not on the firm per se while such a focus is at the heart of other state-business studies. For more on the state-business literature related to China see Kennedy (2005) and for an important comparative study using this framework see Maxfield and Schneider (1997). 2 As I will explain in more detail below, many China scholars who have employed the concept of a regulatory state have failed to rigorously define or apply the term. However, what advocates like Yang Dali and Wang Shaoguang mean by a regulatory state is a system populated with regulatory institutions that are rational, modern, and independent of direct private or political influence.   3 “developmental state,” with Japan and South Korea serving as the classic examples. A second group, focusing on a variety of mostly domestic economic, social and political dilemmas, claims that China is a case of “partial reform” reminiscent of other developing and post-socialist countries. Finally, a third group of scholars rejects all-inclusive efforts to categorize state-economy relations at the national level and instead emphasizes that local geographic differences, combined with variation across economic sectors, create a wide variety of state-market interactions at the sub-national level. There are two key reasons why this is an important debate not only within the field of China studies but for international political economy as well. First, one of the main intellectual projects of the past three plus decades among scholars of international and comparative political economy, the analysis of state-economy relations among capitalist nations, has rarely included China. 3  As the world’s fastest growing economy over the last 20 years, the second largest trading country in the world next only to America and as the world’s largest recipient of foreign direct investment (Bergsten, Gill, Lardy and Mitchell 2006), it increasingly makes sense to view China as a market economy and to analyze China’s state-economy relations against the experience of other capitalist countries. This wide-ranging body of literature has traditionally focused on the different “varieties of capitalism” (VoC) that have emerged among the world’s wealthiest nations. One of the key questions posed in this literature is the extent to which the domestic institutional frameworks of capitalist countries tend toward a common model (a 3  One recent exception is a chapter entitled “China’s Transformation towards Capitalism” (Wilson forthcoming) in a soon-to-be-published edited volume (Lane and Myant forthcoming) on different forms of capitalism in the post-communist world.   4 convergence theory) or whether important variations continue to exist and flourish. 4  If different, stable types of capitalism can co-exist, then important normative questions emerge about how countries can “choose” among different systems of social welfare, how income is distributed and how public goods are provided. 5  If one of the key aims of the VoC literature is to highlight the possibility of alternative forms of capitalism and the different social and economic alternatives inherent within those forms, 6  then the second and closely related reason for a more complete understanding of Chinese state-economy relations is to better explain whether China fits into any of the pre-existing capitalist models or whether it provides a new and unique alternative model of capitalist development. Since the most recent turnover of top Chinese state and party leaders, which was completed in early 2003, Chinese and international observers have renewed discussions about how to define the Chinese developmental model and how it compares to the existing alternatives. One of the boldest arguments is that a “Beijing Consensus” has emerged to replace the 1990s orthodoxy of the “Washington Consensus.” The Washington Consensus, which became synonymous in the 1990s with market reform  policies espoused by the international financial institutions like the IMF and World Bank and which in turn was often associated with global financial liberalization and the “shock 4  One of the key claims of authors like Hall and Soskice (2001) is that different varieties of capitalism (for them the two key varieties include Liberal Market Economies (LMEs) and Coordinated Market Economies (CMEs)) are equally capable of producing economic growth. However, different types of capitalism  produce different social tradeoffs and entail a range of technological innovation capabilities. For a recent convergence argument that specifically refutes Hall and Soskice see the edited volume by Soederberg, Menz and Cerny (2005). 5  See Goodin (2003). 6  Mark Blyth (2003b:217) argues that the VoC literature, especially as presented by Hall and Soskice (2001) is not agnostic as to which form of capitalism is best, but rather implies that the “Coordinated Market Economy” (CME) model, with Germany as a prototype, is superior to the “Liberal Market Economy” (LME) model, with America as the prototype.   5 therapy” structural reforms in much of the developing and post-socialist world, is said to  be a dead letter. 7  In place of the Washington consensus, argue certain observers and Chinese government officials, a Beijing Consensus has formed and is increasingly gaining influence. The Beijing Consensus, a concept first proposed by a former Time  magazine editor named Joshua Cooper Ramo and later endorsed by Communist Party Secretary Hu Jintao himself, 8  is defined by China’s unique approach to economic development, including the country’s role in international affairs, and China’s increasing status as a model for other developing countries. The Beijing Consensus boils down to two key propositions. The first is that China has adopted a novel, evolutionary approach to economic development and to the transition from a planned to a market economy. This approach stresses equitable growth and rejects many western economic orthodoxies, especially those embodied in the Washington Consensus. The second proposition is that much of the world, especially the developing world, has not only taken notice of this unique Chinese development and transition model, but also seeks to emulate it. However, neither Ramo nor those writing in Chinese about the Beijing Consensus provide much if any detail about the institutional and regulatory structure that has given rise to this so-called consensus. It is to this question of how to best understand the nature and direction of state-economy relations in reform-era China that this dissertation is concerned and in 7  The term “Washington Consensus” is associated with a paper written by John Williamson (1990) of the Institute for International Economics in which he detailed ten economic policies that Latin American countries had begun to pursue more or less in common in order to recover from the debt crisis of the 1980s. As Williamson later acknowledged (2003), there were certain components of the Washington Consensus that were disputed (including the desirability of market-determined as opposed to fixed exchanged rate  policy). Williamson is critical of how opponents of certain or all aspects of the Washington Consensus willfully misrepresented his srcinal arguments in order to bolster their anti-globalization agenda. Williamson notes that under the George W. Bush administration the correspondence between official US  policy and the policies of the international financial institutions is far from complete and has since revised his own viewpoints about the initial reform package presented in his 1990 essay (see Williamson 2003 and Kuczynski and Williamson 2003). 8  Hu Jintao, on a state trip to Europe in 2003, became aware of Ramo’s formulation of the Beijing Consensus and soon began to refer to the concept in official statements (cite?) .  
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