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The irony of China’s rise: It’s fueled by capitalism

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In the last decades, China has lifted nearly 800 million people from poverty, an achievement that the head of the World Bank has called a “great story in human history.”  

When we talk about the rise of China, fundamental to that rise has been an amazing economic success story. At a time where American criticism and even demonization of China is rampant, this is a fact that any fair-minded person should recognize and honor, a fact not noted nearly often enough in the American debate about China. Chinese accounts note the high degree of trust in the Chinese government that Chinese people have. Chinese sources state that “the rate of public trust in the Chinese government was 90 percent in 2020, while “over the same period, Americans’ trust in the U.S. government ranged from 37 to 40 percent.” These numbers are accepted by Harvard’s Ash Institute, which studies contemporary China. 

But there is also a “but” here. Official Chinese accounts give credit for this development to the Chinese Communist Party. One recent pronouncement from the government stated, ”Under the leadership of the Communist Party of China, the world’s largest developing country has achieved a complete eradication of extreme poverty, raising more than 770 million poor people from poverty since its reform and opening up in late 1970s.” When China’s international propaganda presents China as a model for poor countries, the story is that China’s success is thanks to the Communist Party. 

But even as we recognize China’s achievements, we need to understand how they came about. For the first 40 years of Communist China’s history, China’s economy was a largely state-run version of the Soviet model, with fits-and-starts economic growth, traumatic famines and periodic economic crises associated with party political campaigns such as the “great leap forward” and the Cultural Revolution

This dramatically changed, first tentatively with the announcement of “reform and opening up” in China in 1978 and then for real after 1992 when Chinese leader Deng Xiaoping unleashed private enterprise. There are still many state-controlled companies in China, but McKinsey & Company estimates the private sector now accounts for 87 percent of urban employment in China, compared with 18 percent in 1995. 

With these changes, China has actually been innovative in a number of areas. Probably the single area where China has been most-innovative — even compared to the U.S. — is in developing mobile payment apps where Chinese use their phones and QR codes to buy products, and with peer-to-peer communications platforms such as WeChat and Weibo that most Chinese use, rather than email, to be in touch with each other. Most Chinese are constantly connected to their WeChat account. Chinese beggars even use phones — where they press their screen up against another phone of the passer-by — to panhandle. The innovativeness of TikTok — the Chinese version is called Douyin — is demonstrated by their huge and rapid success in the U.S. market, something every parent with teenagers understands. China has also become a world leader in lithium battery technology, another industry of the future. 

However, crucially, these innovations have all been developed not by state-controlled companies but by private firms that have been founded and grown astoundingly in the last 20 years. The two companies behind mobile payments and peer-to-peer communications were founded in 1998 and 1999, and the company behind TikTok was not started until 2012. The lithium battery company was started in 1999. The two mobile payments companies are now the highest and third-highest capitalization stocks on the Chinese stock market, and the lithium battery company is fifth. (TikTok is still privately held.) 

By contrast, the other most-valuable companies on the Chinese stock market are a bunch of stodgy state-controlled banks, the state-controlled Mao-era manufacturer of China’s leading tipple (served at business banquets and receptions for foreign leaders), the Army-affiliated legacy cellphone carrier and a government oilfield exploration and production giant that was started as an offshoot of the Ministry of the Petroleum Industry. None would be accused of being sources of the dynamism of the Chinese economy. 

The irony is that a rise that was based on abandoning communism has now become central to China’s effort to glorify communism. 

So let’s not bash or diminish China. Its achievements are real. But let’s also understand that those achievements came out of the element of China that is most like the West and the least like the communism that the country still enshrines as its ideology. Keeping both of these things in mind will help us both appreciate what is positive in China and also how those positive things come from being more like the West.

Steve Kelman is the Weatherhead Professor of Public Management at Harvard Kennedy School and editor of the International Public Management Journal.

Tags Bill Clinton China Chinese economic reform Economic history of the People's Republic of China Economy of China Lithium Tencent TikTok WeChat

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