Why the 'China Model' Isn't Going Away

From Bangkok to Caracas, Beijing's style of authoritarian capitalism is gaining influence.
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chinamodel.jpg(Bobby Yip/Reuters)

Once considered an awkward, unsustainable blend of authoritarian politics and capitalist economics, China's growth "model" has shown impressive resilience in recent years. In this excerpt from his new book Democracy in Retreat, Joshua Kurlantzick explores why the "Beijing Consensus" has attracted so many admirers in recent years.

The attendees of the annual World Economic Forum in Davos are not exactly used to being told what to do. The Swiss resort draws the global elite: the highest-powered investment bankers, the top government officials and leaders, the biggest philanthropists, and the most famous celebrities, who gather each year to solve the world's most pressing problems and still have time for evening cocktails.

But in January 2009, the Davos crowd had to listen to a blistering lecture from a most unlikely source. The first senior Chinese leader to attend the World Economic Forum, premier Wen Jiabao, some thought, might take a low-key approach to his speech to the Forum. But at Davos, that genial grandpa was not in evidence. Months after Lehman Brothers collapsed, triggering the global economic crisis, Wen told the Davos attendees that the West was squarely to blame for the meltdown roiling the entire world. An "excessive expansion of financial institutions in blind pursuit of profit," a failure of government supervision of the financial sector, and an "unsustainable model of development, characterized by prolonged low savings and high consumption" caused the crisis, said an angry Wen.

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Five years earlier, such a broadside from a Chinese leader would have been unthinkable. Though in the 1990s and early 2000s China had used its soft power to reassure its Asian neighbors and expand its influence in regions like Africa and Latin America, until the end of 2008 nearly every top Chinese official still lived by Deng Xiaoping's old advice to build China's strength while maintaining a low profile in international affairs. But in 2008 and 2009 the global economic crisis decimated the economies of nearly every leading democracy, while China surfed through the downturn virtually unscathed, though Beijing did implement its own large stimulus package, worth roughly $600 billion. China's economy grew by nearly 9 percent in 2009, while Japan's shrunk by over 5 percent, and the American economy contracted by 2.6 percent. By August 2010, China (not including Hong Kong) held over $860 billion in U.S. treasuries; when Chinese leaders returned to Davos the year after Wen's scolding of the West, they came not to chat but to hunt for distressed Western assets they could buy up on the cheap. In the downturn's wake, the crisis made many Western leaders tentative, questioning whether not only their own economies but also their political systems actually contained deep, possibly unfixable flaws. The economic crisis, said former U.S. Deputy Treasury Secretary Roger Altman, has left "the American model ... under a cloud."

These flaws appeared especially notable when compared with what seemed like the streamlined, rapid decision-making of the Chinese leadership, which did not have to deal with such "obstacles" as a legislature or judiciary or free media that actually could question or block its actions. "One-party autocracy certainly has its drawbacks. But when it is led by a reasonably enlightened group of people, as in China today, it can also have great advantages," wrote the influential New York Times foreign affairs columnist Thomas Friedman. "One party can just impose the politically difficult but critically important policies needed to move a society forward." Even John Williamson, the economist who originally coined the term "Washington Consensus," admitted, in an essay in 2012, that the Beijing Consensus appeared to be gaining ground rapidly, at the expense of the Washington Consensus.

"It is very possible that the Beijing Consensus can replace the Washington Consensus."

As Western leaders, policy-makers, and journalists questioned whether their own systems had failed, Chinese leaders began to more explicitly promote their authoritarian capitalist model of development. After all, in the wake of the crisis many Western governments, including France and the United States, bailed out their financial sectors and many of their leading companies. These bailouts made it harder for Western leaders to criticize Beijing's economic interventions. In Beijing, a raft of new books came out promoting the China model of development and blasting the failures of Western liberal capitalism. "It is very possible that the Beijing Consensus can replace the Washington Consensus," Cui Zhiyuan, a professor at Tsinghua University in Beijing, told the International Herald Tribune in early 2010. Suddenly, too, the same Chinese leaders who in the early and mid-2000s still had played the role of the meek learner became, in speeches and public appearances and writings, very much the triumphalist teacher. In one article in the China Daily, one think-tank expert from China's Commerce Ministry wrote, "The U.S.' top financial officials need to shift their people's attention from the country's struggling economy to cover up their incompetence and blame China for everything that is going wrong in their country."

***

In previous reverse waves, eras when global democratic gains stalled and went backwards, there was no alternate example of development anywhere near as successful as China today; the Soviet Union claimed to be an alternate example, but it never produced anywhere near the sustained growth rates and successful, globally competitive companies of China today. In the early 1960s, another time of a reverse wave following the post-WWII democratization in Europe and parts of Asia, the only real challenger to liberal, capitalist democracy was the communist bloc.

Today, China -- and to a lesser extent other successful authoritarian capitalists -- offer a viable alternative to the leading democracies. In many ways, their systems pose the most serious challenge to democratic capitalism since the rise of communism and fascism in the 1920s and early 1930s. And in the wake of the global economic crisis, and the dissatisfaction with democracy in many developing nations, leaders in Asia, Africa, and Latin America are studying the Chinese model far more closely -- a model that, eventually, will help undermine democracy in their countries.

***

In recent years, the "China model" has become shorthand for economic liberalization without political liberalization. But China's model of development is actually more complex. It builds on earlier, state-centered Asian models of development such as in South Korea and Taiwan, while taking uniquely Chinese steps designed to ensure that the Communist Party remains central to economic and political policy-making. Like previous Asian modernizers, China in its reform era has devoted significant resources to primary education, resulting in youth literacy rates of nearly 98 percent; in many other developing nations, the youth literacy rate is less than 70 percent. Like other high-growth Asian economies, China also has created highly favorable environments for foreign investment. Yet in the China model, the Beijing government maintains a high degree of control over the economy, but it is hardly returning to socialism. Instead, Beijing has developed a hybrid form of capitalism in which it has opened its economy to some extent, but it also ensures the government controls strategic industries, picks corporate winners, determines investments by state funds, and pushes the banking sector to support national champion firms. Indeed, though in the 1980s and 1990s China privatized many state firms, the central government still controls roughly 120 companies. Among these are the biggest and most powerful corporations in China: of the 42 biggest companies in China, only 3 are privately-owned. In the 39 economic sectors considered most important by the government, state firms control roughly 85 percent of all assets, according to a study by China economist Carl Walter. In China the Party appoints senior directors of many of the largest companies, who are expected to become Party members, if they are not already. Working through these networks, the Beijing leadership sets state priorities, gives signals to companies, and determines corporate agendas, but does so without the direct hand of the state appearing in public.

Today, China - and to a lesser extent other successful authoritarian capitalists - offer a viable alternative to the leading democracies.

What's more, in this type of authoritarian capitalism, government intervention in business is utilized, in a way not possible in a free-market democracy, to strengthen the power of the ruling regime and China's position internationally. When Beijing wants to increase investments in strategically important nations, such as Thailand or South Africa, it can put pressure on China's major banks, all of which are linked to the state, to boost lending to Chinese companies operating in those nations. For example, Chinese telecommunications giant Huawei, which is attempting to compete with multinationals like Siemens, received some $30 billion in credit from state-controlled China Development Bank, on terms its foreign competitors would have salivated over. By contrast, though the Obama administration wanted to drastically upgrade the United States' relationship with Indonesia, an important strategic partner, it could not convince many American companies to invest there, and, unlike the Chinese leadership, it could not force them to do so.

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Joshua Kurlantzick is fellow for Southeast Asia at the Council on Foreign Relations. He blogs at “Asia Unbound.”

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