No more Beijing ConsensusLooking at two contradicting images of China, I thought the country was at a turning point. One image was the spectacle of the Victory Day military parade and the other was the Chinese economy facing a crisis of international confidence.
As the second-largest economy after the United States, where is China headed? Is China capable of managing the turning point? Can China accomplish its vision? And what are the bridges it needs to cross to attain the dream?
On Victory Day, President Xi Jinping was like an emperor, and the invited foreign leaders climbed up the Tiananmen Gate through the path of ambassadors from the old dynasty. What captured the eyes of the audience was not the parade of the latest weapons but the blue sky over Beijing created by the Communist Party of China and the elite soldiers marching in perfect angles.
But the other faces of China overlapped the celebration. Chinese authorities attempted to control the fallout from the Black Monday stock market crisis. Also, the Chinese government has been promoting heavy and chemical industry, but the excessive and redundant investment lowered the operation rate to 50 percent, and the industry is mired in debt.
The international community is worried about the two faces of China, where extreme competency and incompetency coexist.
The international financial market is cast with fears for the future due to lost confidence over the Chinese economy and an imminent interest rate increase by the U.S. Federal Reserve.
The first is the fear that potential risks may become a reality as the Chinese economy begins to reveal its naked face. The second is the fear that the risks from China spread across emerging markets and trigger a global crisis. The third is the fear that the Chinese Communist government could aggravate the situation with excessive confidence and ineffective responses.
What are the causes of the lost trust and fear? In this century, the Chinese economy was faced with the complicated market economy at the productivity stage. Communist Party leaders had doubts and fears about the market, and instead of eliminating the internal risk factors, they responded with excessive redundant investment packages. Bubbles popped in the end, and the Chinese economy is waddling with a heavy load. This time, China is swept up in the global capital countercurrent, and in the process, the growth-obsessed authorities clashed with the market.
As the Chinese economy shows its limits, signs of irregularities in China’s economic governance have begun to show. The party-controlled market economy is getting out of the control. The mismatch of market mechanism and policy mechanism has led to the early signs of an economic governance crisis.
The current state of China is similar to the situation of Korea in 1995. When the ebb and flow of the international finance capital market happened, the Korean government failed to keep up with the flow of the market, and political control of the economy made a response impossible. In the end, Korea switched to a market system after experiencing the foreign currency crisis.
In the past few decades, Chinese policy makers displayed outstanding talents in deploying labor and capital. So what was it that made them so incompetent? They have become skilled at shooting an arrow at a fixed target. But the target is now moving constantly, and they are powerless because of the big margin of error.
A friend, who is a professor at Tsinghua University, said, “No more Beijing consensus.” The Beijing consensus, a growth policy under the Communist Party’s control, is no longer gaining support. Now, the Chinese economy can only survive if it removes the load of redundant investment and insolvency of state-run companies and follows the rules of the market.
At the crossroad, the Chinese economy is waiting for political decisions. The Chinese government must have learned that trust of the market is just as important as trust of the people, and the market is not something it needs to overcome but to live with. We hope the Communist government is not vulnerable and weakened, but a more powerful partner in the market.
China will be a river flowing towards development as it clashes with the market, swept away and hurt.
In the meantime, China will have to cross four bridges: the bridge of social transparency and laws, the bridge of a balanced relationship between the government and the market, the bridge of international standards and universal values and the bridge of advancement in the financial sector. China is hesitating before the bridges. It is time to have real courage.
Korea is moving closer to China, and we need to look directly at China. We need to understand China’s intention and observe its changes. We should have reasonable expectations, as well as reasonable doubts, while at the same time, maintain a sense of balance.
Translation by the Korea JoongAng Daily staff.
JoongAng Ilbo, Sept. 16, Page 32
*The author, a former minister of commerce, industry and energy, is the chairman of the North East Asian Research Foundation.
by Chung Duck-Koo