Books & Journals (21) (Part 2)

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(XXI) (PART II) N
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china news digest.china net.social culture china.china study forum (1-15-91)

THE WORLD ECONOMIC SITUATION AND THE CHINESE
ECONOMIC PROBLEMS: Chinese Scholar He Xin's Talk
** SPECIAL ISSUE ** with Japanese Professor Yabuki Susumu. Beijing
Review, Nov. 19, Nov. 26, Dec. 3, 1990 (English).
People's Daily, Dec. 11, 1990 (Chinese).

He Xin's Approach for the Future of Chinese Economy

Zhenqin Li (ga1...@sdcc6.ucsd.edu)

He Xin is an author of many publications on various aspects of Chinese
society and culture, and has demonstrated consistent interest on issues
concerning China's modernization. In the last few years, his lone
intellectual journey has led him to a direction which is conspicuously apart
from that of many other Chinese intellectuals.
This latest article of his, entitled "The World Economic Situation and
the Chinese Economic Problems" and edited from a dialogue between him and a
Japanese economics professor Yabuki Susumu, is one of the most detailed and
systematic expositions of his views on the political and economic aspects of
the Chinese society, and has been given rare and prominent coverage in the
official Chinese media. It is possible that his views and opinions have
considerable influence on, or reflect the mentality of, some top Chinese
officials. Without convincing evidence to the contrary, however, I would be
willing to take for granted his intellectual integrity and his sincerity for
the prosperity of China, refrain myself from passing personal moral
judgement, and focus attention on the intellectual issues. It is my belief
that only through sincere and serious investigations, debates and discussions
can our understanding of the Chinese society and culture be constantly
questioned, updated, revised, reformulated and improved. For educated and
open-minded readers, I think He Xin's article could provide some food, or
challenge, for thought; in either case, it could contribute to communication
among people of diverse or opposing views. A thorough discussion on He Xin's
article might give us some new perspectives on or insights into China's
problems, and may point to some alternative directions for China's future.
Given the length and scope of his article, I will concentrate my review of it
on a few major issues. My comments and discussion are intended to question
or complement He Xin's assumptions, rather than to be all-around and
balanced. The readers are recommended to read He Xin's original article to
form their independent judgement.
(I) The International Economic Order
The current world economic order, as He Xin pointed out, is an unfair
one. The prosperity of Western developed countries is largely based on the
influx of cheap energy and natural resources, as well as cheap labor,
provided by the developing countries. However, I think He Xin's article has
not given adequate credits to the role of technological and managerial
innovations in the development of Western societies. In my opinion, the
benefits to the developing countries derived from the Western capital
investment should also be considered in a balanced and scholarly discussion.
In sections 2 and 3 of He Xin's article, when discussing why the
developed countries are rich and why the developing countries are poor, he
presents a very simplistic (if not misleading) picture, based partially on
the calculation that the total money flow from the Western countries to the
developing countries since 1983 is less than that from the developing
countries to the West. I think such reasoning is flawed, since it has not
taken into account the time lag between capital investment and capital return
and does not consider the fact that capital investment is not a zero-sum
game: the total amount of money is not conserved due to the advance of the
means of production. If, for example, the Western investors decide not to
invest in the developing countries, but instead deposit ("invest") their
money in domestic banks, the "net money flow" (capital return-investment)
would be from the banks to the investors because of interest rates. But this
does not necessarily mean that the banks are worse off due to the deposits.
He Xin is correct in pointing out that some developing countries are poor
largely because of reckless borrowing of high-interest loans from the West
and unreasonable high-profit made by the West. But there are also other
equally if not more important factors--such as historical and social causes
of poverty--which should be included in a balanced discussion.
On the possibility of a global economic breakdown, He Xin appears to be
speculative. He seems to have underestimated the adaptability of the
capitalist system, in which the rich and powerful can be pressured to provide
benefits to the poor and powerless at times of impending crisis for the sake
of stability and their own interests. Such benefits can even be
institutionalized as in the case of the New Deals after the Great Depression.
I am not saying "what is good for General Motors is good for the country" nor
"what is good for the West is good for the whole humanity". But no matter
how one dislikes the status quo and no matter how one sympathizes with the
plight, disadvantage, and challenge facing the underdeveloped nations, it is
not in China's interests to see a devastating crisis in the world economic
order: in the prosperity of the global economy, China also has her own
stake.
(II) Socialism and Market Economy
One of the central themes of He Xin's article is his argument for the
advantage of socialism vis-a-vis capitalism in general and the need for a
socialist system in China in particular. As most economic systems in the
world today are "mixed economies" based on a combination of market mechanism
and government intervention, which do not fit exactly into either categories
of capitalism or socialism, the discussion of capitalism versus socialism
would not be too meaningful unless the terms "capitalism" and "socialism" are
clearly defined. It is assumed that in He Xin's article, capitalism refers
to the system of free-market economy in the sense used by the classical
economists. According to He Xin, the major distinctions of socialism
relative to capitalism are: (i) public ownership of natural resources and
materials of production; (ii) the planned nature of social production; (iii)
production for the welfare of whole society rather than for the purpose of
maximization of capital profit.
It is not my intention to argue whether it is morally justified to favor
public versus private ownership and whether one should promote the welfare of
whole society versus that of each (and all) individual(s). A weak point in
He Xin's argument is that he has not discussed how is it possible to
centrally plan ahead the quantity, quality, size, weight, and selling price
of most (if not all) of the thousands of commodities produced by a society,
while maintaining constant dynamic economic equilibrium throughout a country,
and how to prevent the bureaucratization of economic life given the
tremendous interfering power of government officials relative to that of
ordinary citizens. He Xin also mentions the need to combine
market-adjustment and central planning in a socialist economic system, but he
stops short of elaborating on when the central planning should be used and
under what situation a given economic (sub)system should be regulated by the
market. He also does not elaborate on how the combined use of
central-planning and market-regulation he advocates differs from the mixed
economies prevalent in most Western countries.
In his article, He Xin emphasizes the need for underdeveloped countries
to adopt the socialist system as a shortcut to industrialization under the
constraint of limited resources, and to protect their economies and national
interests from being crushed by foreign monopolies.
By the "advantages of socialist system", it is not clear whether He Xin
means to make the weak claim that the socialist system has certain advantages
for some (developing) countries under special historical circumstances, or
whether he implies the strong claim that the socialist system is universally
superior than the capitalist one and should be adopted by all countries in
the world. In reality, the strong claim has already been falsified by
historical evidence, for example, the recent development in the Eastern
Europe. Whether the historical evidence in China, India and other comparable
developing countries vindicates the weak claim, I think, is still an open
question worth comprehensive and in-depth empirical studies. In this
respect, the views put forward in He Xin's article, though sometimes sounding
defiantly stubborn, deserve to be seriously examined and discussed.
(III) The Development of China's Economy
It seems to me that when discussing China's economic problems and future,
He Xin's reasoning appears less defensive, more at ease, and more pragmatic,
than his argument over the world economic situation or the general
(dis)advantages of socialist system.
One of the most interesting points in the article is that, contrary to
the popular theory of shortage by the Hungarian economist Janos Kornai in
discussing the socialist economies, He Xin believes that one of the main
problems in China is economic over-production relative to limited demand of
domestic and overseas markets. He proposed a solution with two aspects to
this problem: One is to expand overseas market for Chinese products; the
other is to further enlarge the domestic market, chiefly in the Chinese rural
area, by using fiscal and other economic means to help farmers overcome
poverty and to increase the purchasing power of rural population. The second
component of his solution is very similar to Keynes' theory on depression and
unemployment, though he did not elaborate on this point. It seems to me that
to realize his ideas, there is a need for more profound institutional change
in rural China, to allow peasants more freedom to move around and to produce
their own products. How to expand employment opportunities in sectors other
than agriculture for hundreds of millions of rural population is perhaps the
most challenging task for China in the future.
Given the contrast between China's variety of consumer products with the
barren markets in the Soviet Union and some other Eastern European countries,
He Xin's idea of economic oversupply in China seems to have certain elements
of truth. However, to be more precise, I think the supply and demand
situation in China is more uneven, which varies from region to region, from
sector to sector, and from one commodity to another. In particularly, unlike
the situation in America, China's economic development is likely to be always
constrained by limited available grain, energy and other natural resources on
a per capita basis. So there is always a latent danger of inflation even at
a time when most other consumer goods are overproduced. This problem is
aggravated further by the current irrational pricing system. In my opinion,
the need for further structural reform in Chinese economy has not been
emphasized and adequately discussed in He Xin's article.
He Xin appears to be optimistic about China's future in an
Eastern-Pacific Economic Community. It is too early to tell if his optimism
is not wishful thinking. In an ever more interdependent world of today, the
future well-being of any one nation will depend on working out integrated
solutions to international problems on the basis of mutual benefit. Even
though one might prefer socialism and hate domination by the rich and
powerful nations, a simple truth is, if we want to expand China's overseas
market and denounce Western nations' protectionism, we would also have to
allow the Western nations to make profit in our own country. In a world
governed less by principles and more by national interests and powers, there
is no such concept as international "affirmative action". At a time when the
ideological fervor of the Cold War is gone, it seems to me that to a large
extent the futures of many nations, whether socialist or capitalist, now
hinge on how to find mutually acceptable ways to resolve conflicts of
economic interests, and how to establish a more fair and stable international
economic order. The future of China is no exception.

Issue Editor: Zemin Zhang csf-...@postgres.berkeley.edu
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