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Beijing has doubled down on its industrial policy (Wei Dongsheng/VCG via Getty Images)
In the five-year political cycle of the Chinese Communist Party, the Central Committee’s Third Plenum is often considered the most important for the setting out of transformational and strategic economic goals. In reality, there have only been a couple of such Third Plenums, and none since 1993.
Just after Xi Jinping came to power, the 2013 Third Plenum provided an ambitious programme of economic and policy reforms, but much was diluted or ignored. Xi largely paid lip-service to market-related reforms, but was more interested in Party discipline, greater centralisation of political power, and cracking down on dissent and the free spirits of entrepreneurs and private firms.
But last month’s Plenum came at a time when China’s economic bliss had started to wane. In recent months and years, even allowing for Covid, the nation’s economic growth has slowed significantly, productivity growth has stalled, and the country has experienced the adverse effects of rising misallocation of capital, over-investment in infrastructure and housing, and a rising burden of debt. The property market boom, which lasted for a couple of decades, is over, and youth unemployment has dramatically soared. Despite calls from economists, including some in China, for measures to strengthen household income and consumption, the government has preferred to prioritise industrial policy and national security. In short, even as previously successful companies like Huawei, Alibaba, Tencent, and now electric vehicle and battery firms such as BYD and CATL, have risen to global prominence, a macroeconomic malaise has descended over the economy.
Last month’s gathering was, therefore, awaited eagerly. What would the Party say about the trenchant and inter-related issues concerning its faltering economic development model at home, rising trade tensions with the US, the EU and other countries, and the ubiquitous significance of national security and geopolitics?
As usual, the Third Plenum documents, which have since been released, heap praise on the Party for its successes and guidance over the last several years. They proposed 300 or so measures, which the Party hopes to have completed by 2029, and which will help to steer China to become a “high-level socialist market economy” by 2035, en route to becoming the dominant global power by 2049 — to coincide with the centenary of the founding of the People’s Republic.
One could imagine that great ambition would focus the minds of the leadership on addressing many of the most pressing economic problems, such as job creation for young people or a financial package to stabilise the real estate market and encourage home-buying optimism. In practice, though, the government doesn’t see things this way. At the Plenum, as before, its central message was that national security is as, if not more, important as economic policy, and that the two are inseparable. In one document, Xi expanded on the Plenum’s deliberations by saying that “higher priority to national security provides a pivotal foundation for ensuring steady and sustained progress in Chinese modernisation”, and that China’s industrial system, which is already such a large part of the Chinese economy and global manufacturing, suffers from “over-reliance on key and core technologies controlled by others”.
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SubscribeWe have little (actually, No) control over China’s domestic policies. But the countries of the west have, for some years now, played into China’s hands when it comes to their relationships with the rest of the world.
Our political parties, our cultural institutions, our universities and our media, have all sought to benefit from a relationship with China – yet few seem to question what they expect in return. We are not alone. For all the public protestations, most European states (including the UK) are completely in thrall to Chinese money. What price European solidarity? Well the Chinese know the price to undermine it and are more than willing to pay it.
The EU issued warnings against any member nation getting “gently ensnared” by BRI – China’s Belt and Road Initiative, the massive global infrastructure program that will trap signatories in unsustainable debt and thus give Beijing crushing leverage and influence over them. For all the united face the EU (laughably) presents to the world: Austria, Bulgaria, Czech Republic, Greece, Portugal, Hungary, Poland and Slovakia and Italy all signed up to the BRI, in the hope they may see some crumbs fall from Beijing’s table.
But aside from the brute force approach of buying their way into controlling a country’s critical infrastructure, there is the more subtle and insidious element to the Chinese Govt’s reach and power. Political and business leaders who wish to benefit from a relationship with China know the best way, the only way, to achieve it, is to cosy up to the regime and speak and act on their behalf.
Beijing have willing shills aplenty. When News Corp was seeking to develop business interests in China, Rupert Murdoch knew he had to toe the line and so started undermining the toast of New York & Hollywood elite, the Dalai Lama. Murdoch did, admittedly, come up with a pretty good line, calling him “a political monk in Gucci slippers”.
Our universities, since deciding they were to be run as businesses rather than places of scholarship, need Chinese students and Chinese sponsorship – and thus any lecture or research that is critical of China is practically banned. China’s influence over Cambridge University is so deep that Madeline Grant over at the Telegraph rather amusingly asked “how long until Jesus College is renamed “Xi-sus”?”
China only allows 34 western-made films to be distributed there each year. Despite that, as of last year, the Chinese market officially overtook the US as the world’s largest box-office, all but guaranteeing that studios will continue to do everything they can to get access to that market. Any plotline or content that might offend the Chinese Govt is removed – or the studio loses the chance to put any of its films into their nearly 80 thousand screens. (The US, by comparison, has just over 40 000)
For the last 10 years at least, we’ve read in the Liberal western media the bleating about China’s (or Russia’s) unhealthy influence and designs on the West – But such pleadings are printed right alongside editorials that repeatedly refuse to support any Western counterweight to it. They recognise the danger but insist we cravenly appease them – just to avoid appearing belligerent – imagining that if we don’t poke the bear, or pull the dragon’s tail, then maybe they won’t eat us!! We’ve been on the menu for a while.
If you can influence our educational institutions, the media and the movies then you can tell whatever story you want.
Five year plans are as nothing …. As ever, China plays the long game, and plays it well.
A large, export economy guided by a mercantilist policy is and always was a recipe for widespread economic dislocation in the World. Pity that the rest of the World has taken 20 or so years to work it out. Like anything, the longer you leave it the harder it gets.
Back in 1990 the US pres.and our PM I think it was Dave, they were rubbing their hands and licking their lips, they saw a huge new market for our produce opening up. All those Chinese people wanted to eat beef and own a car. We’ll flog both to em. Well I think British beef goes down well in China,but as for the rest, they turned it on its head,they captured the market and sold it all to US! Those politicos definitely thought we would rip off the Chinese but it turned out the other way round. Ha ha
Germany has been doing it for 70 years…
Mangus says the CCPs ‘century of humiliation’ is incomplete. So is his comment that: “foreign imperial powers, such as Britain, Japan, France, Germany and the US, carved up China”. The key miscreant missing is Russia. Its land grab in western and northern China dwarfs all others combined and brought 3.3 million square kilometers of land, the equivalent of modern day India, under Russian/Soviet control. Of course Russia is China’s best friend these days so it has been airbrushed out of the CCPs authorized history of modern China. Oh, and the Manchus were foreigners too and they ruled China from the mid-17th century. Lots of Chinese found that humiliating well before they saw a westerner.
Yes, carved up China and in the process shocked an advanced medieval society into the modern world. Maybe should have left China as a stagnant advanced/backward country. China has to use Western tools and technology to try and humiliate the West. It’s certainly trying to.
That’s a fairly standard argument used to justify colonialism.
The problem there is, it assumes that countries need to be colonised anf looted, as some sort of prerequisite to be “civilised” by the noble West.
China and India were scientifically and technically well ahead of the West till recent centuries, and colonialism robbed them both of a century of social and economic progress, if anything.
Japan were relatively backward, and their track record shows the benefit of not having to suffer a couple of centuries of “Western civilization”.
Or take the West itself. They were an utterly backward cesspool until the renaissance. They didn’t need to be conquered and colonised to be able to use the knowledge gained from the East as a springboard for their momentous scientific progress in the next few centuries.
I don’t agree with your comments about the much maligned (often by westerners themselves!) Western medieval period (“cesspit”!). There was actually a lot of innovation over this period, even advancing over the Romans and Greeks (who potentially had the technological nous but could always resort to mass slave labour). This included the use of the heavy plough, the stirrup, and the widespread use of water and eventually windmills. There was also significant improvement in agricultural systems and techniques.
What happened is that the “West” (essentially then Western Christendom) effectively developed and made far more productive use of technologies, that may have originated in China, than the Chinese themselves did, the printing press and gunpowder being the most obvious examples. I believe think there were also significant innovations in the Muslim world (the astrolabe?) but they may have acted more as transmitters of knowledge, such as what were called Arabic numerals (originally from India). There is no discredit or dishonour in that. I certainly don’t blame the Chinese today from adapting and using Western technologies, (although they are everybody’s technologies now), perhaps we should draw the line at industrial theft.
The most obvious single explanation is that the West was politically divided and that there was a huge amount of competition between different polities. (Especially after the Ottoman advances it also felt itself later on to be hemmed in by Islam there was a strong desire to break out). In the East there was far more emphasis on stability and stasis in the large Eastern dynastic empires. In the early 15th century the Chinese had an impressive fleet which sent missions to many parts of the world (though not Europe!). But when imperial court policy changed they simply abandoned this exploration. Any attempt to do this would have been simply impossible in Europe – look at Columbus’ career for example – he hawked his services around various countries until being accepted.
Quite obviously neither China nor India nor Japan were “ahead” of the West by, say the mid to late 18th century – otherwise they would not have come under such strong military political pressure which in India’s case resulted in it actually being colonised!
Of course India had already BEEN previously colonised by the Mughals and China by the Manchus. You might say they were in demographic terms a very small group of people, but the British were an even smaller group.
Woo Hoo,go Russia.
Thanks for your informed and interesting contribution! I do wonder whether at some point Russia will come under pressure for some kind of Chinese economic suzerainty, if no more over some of those lost territories, Russia now being in a far weaker position then it’s Chinese ally.
The US and China have declared themselves enemies, but, as the saying goes, the real enemy lies within.
In China, the main enemy is extreme state control which suffocates individualism, entrepreneurship, and ambition. That’s a recipe for a moribund society.
In the US, we’re being taught to denigrate our own society and drive a wedge between racial groups. That’s a recipe for a dysfunctional society.
I suspect both countries are on the road to decline and it will be a self-inflicted wound.
I think there is a key difference with the US though. Over time it can course correct because power isn’t completely kept within a single party system. This the US has a greater likelihood of recovery.
The illusion here in the US is that we have a two-party system and our votes determine outcomes in major elections.
The fact is, both parties are owned by the donor class and the country is run by various unelected, unaccountable agencies. The politicians are there to pretend we have a choice.
That’s been true in the recent past, and the question is whether the current disruptors can provide the political discontinuity for others to follow.
We live in interesting times.
So unlike many of the commenters here you include Trump in this?
Extreme state control. That’s what is being constructed around us. Sir Smarmer is licking his lips. Luvverly.
Agree – The West’s elite have their eyes fixed on China’s way of controlling and managing a society.
And who are these elite? Keir Starmer – what is a WEF puppet? What about Donald Trump? Giorgia Meloni?
I have absolutely no love for the modern Labour Party, but this is a truly silly and childish comment, not worth the effort of writing it down. Embarrassing.
By the way, on a specific policy, do you prefer that the water company’s remain under private ownership?
Well,they’ve done pretty well so far just by selling us endless piles of plastic crap. Go to any old style non-glamorous street market,the sort that sells polyester clothes,household cleaning items,and out of sell by date cakes (love those).see the crowds around the stall selling.cheap plastic toys,trinkets and gadgets all of which will break before you even get them home. The British public seems to have an inexhaustible hunger for useless cheap bits of plastic and China has got rich by feeding this need. Of course most manufacturing in China now is sophisticated and excellent,and even items not “made in China”,well most of the component parts are and just assembled somewhere else. In the 1970s and up to now I remain staggered by my fellow country peoples magnetic attraction to bits of cheap and quickly broken plastic. It’s not even old rope,lol!
This is a daft and outdated comment. China has an absolutely enormous economy and industrial capacity, and no doubt produces some plastic “tat”, as Britain did before it. (“Tat” also very often signifies a middle class snobbish disdain for any useful product that is cheap and available to poorer people!). And, dare I say it, some modern made artificial materials used in clothing are better than the natural alternatives – just look at technical clothing used by mountaineers. Nor, except in a tiny niche way, are not going to back to a world of growing our own food, knitting our own clothes, building our own furniture whatever, Thoreau style – because that would be a road to absolute penury, albeit supposedly “self-sufficient” penury! Capitalism has made the world rich.
China also produces most smartphones on sale in the world and advanced industrial products. And most of the components are not “made elsewhere”. In the electric car industry China is completely dominant. Whether we think this is an industry that should have been promoted quite as much as it has is a different issue, nevertheless the Chinese have done brilliantly in developing it.
To achieve global hegemony a nation doesn’t need to have the right policies or the best policies, it only needs policies slightly less bad than its competitors. We cannot judge the Plenum and China’s policy trajectory in isolation. We have to look at what the other big powers are doing.
Economic growth has slowed. Yes, but it remains the fastest growing large economy, by a long shot. In purchasing power terms China’s economy passed the USA’s several years ago and in dollar terms the USA estimates China will still overtake it by 2035, just a decade away.
Poductivity growth has stalled… That’s actually incorrect. In the last 4 years it’s been above 6%, which is higher than any other major economy.
Over-investment in infrastructure. Absolutely. But this is less bad than chronic under investment as demonstrated by the USA and India etc. Take California’s electricity supply: expensive, blackouts in summer, and only set to get worse – this is impossible for manufacturing, bad for services, and data centre managers are now all distracted from data services by building power plants to cope.
Rising burden of debt. Absolutely. But not quite as burdensome as any other major economy.
Youth unemployment. This was always an odd one because China’s National Bureau of Statistics counted students as unemployed until recently. China’s youth NEETs (not in education, employment, or training) is about 13%. Not great. It’s twice as high as the USA’s is today but the same as the USA’s through the 90s and 2000s, relative boom years compared to today.
Allocating state capital towards new technologies and advanced science. The champion of this today is the USA. 40% of basic research in the US is federally funded and the rest is mostly matching funding. Thus research is indirectly controlled by federal bodies. China is raising its budget to spend match the US government. Efficiency and profitability are subordinate objectives in basic research everywhere. In fact, this is one thing the USA excels at. At later stages of technology readiness, US capital markets throw trillions at inefficient and unprofitable ventures such as AI in the hope something vaguely profitable might come from it in the future.
Push-back from other countries — not just the US and EU but also Turkey, Brazil and Indonesia — against the mercantilist trade consequences of its industrial policies. The EU is choosing to deindustrialise and promote Chinese designed and Chinese built technologies so there’s no push back there. The US has pushed back but not because of China’s mercantilism but basic national security – it was facing the loss of native capability to build and maintain an advanced military, and its most sensitive digital networks were being built with Chinese technology. As for Indonesia, China / Hong Kong is the largest foreign direct investor as China seeks to find its own cheap offshore labour – there’s no push back there.
Wholesaling, retailing and distribution. I presume the author hasn’t been to China. Wholesaling, retailing and distribution is what China excels at, it is how its East coast thrives, serving both exports and local consumption. The large private saving rate of China means plenty of private capital is available for private investment even though the state pursues national champions.
Countries excel in various forms of industrial and scientific endeavour but are undone eventually by macroeconomic imbalances, debt capacity constraints and inflexible institutions. Agreed. But the country with the worst macroeconomic imbalances today is the USA, saved only by the dollar barely hanging on to being the West’s reserve currency. And the major power with the most obviously strained institutions is the USA, struggling as they are to deliver reliable infrastructure, decent education, functioning healthcare, mitigate deprivation, and offer effective regulation, let alone foster a broad consensus on the basic constitution of the state.
I make these criticisms not because I believe China in any way offers a better model, but because forecasting China’s failure is somehow inevitable is a huge distraction from our own increasing number of disfunctions. China might fail, but that’s a moot point if we fail first.
Smart commentary as always.
The difference seems to be that China believes in the benefits of having an industrial strategy and invests time and trouble in having the best one available to it. As you note, that certainly doesn’t mean that it has the best industrial strategy that it could have but it means it does have one.
In the UK, by contrast, we face a choice between two political parties, one of which is actively hostile to the very concept of industrial strategy and another which can be induced to abandon even the rough outline that it had developed in the face of mild opposition whilst 20 points ahead in the polls.
I’m sceptical about industrial policy, which after all was tried in the UK in the 1960s. How competent is the state to be making these major decisions? At what level should the state be intervening and what level of detail should it be getting into? Mandating the use of electric cars for example, even if you agree with the aspirations of Net Zero, is just a stupid policy. And forcing businesses to relocate somewhere where they don’t want to be is probably not a good idea either
Industrial policy is just a political agreement about what we, as a country are going to try and do to improve our lot and keep the lights on. We took it seriously in the postwar period. and then it was felt to have failed in the 70s.
That gave rise to a rejection of the idea of any sort of state planning although, in fact Thatcher did have an industrial policy of her own – financialisation and the Big Bang plus the windfall from the North Sea. Reject heavy industry and focus on services. This was a policy – and ruthlessley conducted – even if it didn’t speak its own name.
However, post Thatcher, when the democratic state refuses to lead at all and, instead limits itself to what “business” demands, what you end up with is not an organic, market-driven industrial policy but state capture – a state entirely in hoc to corporate interests and increasingly corrupt. Sound familiar?
Does that feel like a left wing critique? It shouldn’t, you can read it as a restatement of the case for Hobbes’ Leviathan.
These are very interesting and informed comments. I don’t think it is correct to say accept that “the EU is choosing to de-industrialise and promote Chinese designed and Chinese built technologies”. The Germans aren’t trying to destroy their car industry and remain one of the world’s leading exporting nations.
There is the specific issue of “Net Zero” being very unequally (and naïvely) applied between different competing powers, which, yes, is adversely impacting on Europe. Without getting to the merits or demerits of NZ itself, this could be addressed by counting emissions, wherever they happen to be produced, as long as they’re consumed in your own country. So Chinese imports would then be much more heavily, but legitimately taxed, and not just as a matter of “t*t for tat”.
According to this article, China is pursuing a suboptimal strategy of pursuing international objectives rather than switching to domestic ones.
And yet, it is still wiping the floor with the West. If that strategy fails, it will, of course have the domestic option to fall back on (assuming it can make the switch in time).
In other words China with its single party authoritiarian rule appears to have more and better genuine political options than our own multiparty democracies can provide.
The US has single-party authoritarian rule (the Obamaite Democratic party), which is completely aligned with its “whole of society” corporate, media and cultural production sectors. The difference is that the US regime is devoted to whacko religious-ideological fantasies, while China has a mission of success.
By moving our manufacturing to China we have become too dependant upon the Chinese Communist Party for our basic material needs.
It’s interesting that discussion of Chinese Marxism sounds more like Mussolini’s fascism than any effort to achieve a new soviet man who will lead to the withering away of the state.
What I don’t see enough of in the continuing concerns about Chinese policy is that country’s demographics. China’s population continues to decline from its high in 2014. This decline will accelerate in the coming decades. If present trends continue, and there is no evidence to the contrary, by 2100 China’s population will be around 500 million, a drop of 65%. More importantly, half of those remaining will be 65 years of age, or older.
In the coming decades, as much as Xi might wish otherwise, China’s population will continue to shrink, meaning fewer young men for the armed forces, and industry. This disastrous trend may well force China into taking aggressive action along its borders, and elsewhere while it still has the manpower to do so.
In olden days the Chinese were reputed to take the long view, regarding patience as their best weapon to defeat their enemies. Time is distinctly not on China’s side today, and the rest of the world ought to incorporate Chinese desperation into their calculus of engagement–or face the consequences.
Maybe China will look at the great success of Europe and import millions of African and Middle Eastern immigrants!
Yeah but we know they’re not that stupid, unlike the baizuos who run our Western societies.
You win some,you lose some.
Population decline is a problem in many developed countries, including Japan, Korea, most of Europe, and it’s probably coming to the US too if they limit immigration. Lots can change between now and 2100. Even if they reduce to a billion, that is still lots of people in China. Thankfully they were able to limit their population growth, otherwise they would have even worse problems with two billion people. It actually makes things much more manageable to have fewer people, besides with technological change and productivity growth, AI etc, they will probably need alot fewer workers in the future. Countries like India, Pakistan and most of Africa face disaster if population keeps growing. The demise of China predicted due to population decline is grossly exaggerated, they can offset that somewhat by increasing the retirement age gradually, they may need to work longer like people in most developed countries. Retirement systems everywhere were never designed to support people for 25 years or so, that will have to change.