Hello everyone!
The last episode of Beijing Baselines probably puzzled some: a question was raised but the answer left, as in a maths class, as homework. I’ll give a sketch answer for now, because this is a Rubik’s Cube with a few twists to go to get the facets all of a single colour.
The question was, what to make of recurrent Chinese interest in home-grown hypocrisy, seemingly claiming an Olympic gold medal in the sport?
The episode was titled ‘cats and dogs’, animals on whom human characters of hypocrisy and sincerity are often projected. Due to Deng Xiaomang’s long essay, the nice pics found for this took up too much space, so were deleted. This episode’s text is shorter, so here they are:
But our point was that this is exactly the wrong kind of contrast to make. Deng Xiaomang carries on the tradition of Tan Sitong, tarring Confucianism with the brush of the xiangyuan ‘village good guys’, and of the ‘spiritual victory’ tactic lampooned by Lu Xun. He doesn’t spare a thought for the myriad Western (and other) cats in dog’s clothing. Cultural autocritique is the actual Olympic event, in which China deserves a medal, though maybe not the gold.
Equally important is Deng Xiaomang’s biography. In the Cultural Revolution (1966-76) he and his family were stigmatised as ‘Rightists’. He saw unspeakable depths of human suffering close-up, along with unfathomed depths of deception, hypocrisy and double-think. The times were out of joint, but was the culture? Deng can be forgiven for thinking so, even if we know better.
Yet there is a more general takeaway. ‘Culture’, a boa constrictor in the psychic chandelier, was perhaps partially or circumstantially to blame. Not everyone is convinced by Deng Xiaomang’s wheeling in the elaborate doctrines of Immanuel Kant, deemed eccentric in Köningsberg, his hometown. But Deng’s point is the need to make it in a society fixated on ‘face’. In a meritocracy, one might say.
Below is a suggestive essay by a genuine meritocrat, former professor in and President of the Financial Science Institute of Beijing’s Ministry of Science, Liu Shangxi 刘尚希.
Professor Liu’s recipe for sustainably developing China is to support the ‘citizenisation’ (shiminhua 市民化, literally ‘townsfolkisation’) of the peasantry. Holding back their urgently needed social transformation is a raft of factors, but archaic social stigmata, by-products of meritocracy, are certainly in the mix.
About ‘peasant’ and ‘peasantry’: these terms are sometimes thought abusive. So the Chinese term, nongmin 农民, even when used as a neutral label like ‘employee’ or ‘worker’, is often translated as ‘farmer’. But social science applies ‘peasant’ and ‘peasantry’, not as terms of abuse, but as technical labels for social strata that were traditionally building blocks of land-based empires and early modern nations. And unlike today’s ‘farmers’, they generally did not own their own farms, or rely on bank capital to operate them.
Liu Shangxi
How to build the certainty of sustainable development in China
The current economic situation can be summed up in one word – uncertainty. The Central Economic Work Conference (December 2021) proposed that the economic work in 2022 should 'seek progress while maintaining stability, and make stability the top priority'. How to stabilise China's economy and the momentum of its development amid the uncertainties of the world? It entails reconstructing the certainty of China's development.
1. Superimposed structural and institutional issues built up in history
(1) Uncertainty is the essence of the world
Let us first attend to conceptual changes, 'uncertainty is the nature of the world' being a basic one. Uncertainty can’t be understood otherwise. Certainty is built, not discovered. In the face of various uncertain risk events, we must first 'stabilise', i.e. gain certainty by preventing and resolving risks.
Stepped-up evolution of major change creates conditions for uncertainty continuing to spread. COVID-19’s constant spread is superficially the result of nature, yet is in fact a by-product of human civilisation. Economic globalisation has formed a global division of labour and cooperation: the global epidemic can only occur when such factors as personnel and capital flow worldwide. In this sense, it seems to be uncertainty brought about by the mutation of the virus in the objective world. In human civilisation terms, it is an endogenous result. The uncertainty of economic development is even more so. Building economic certainty, like epidemic prevention-and-control, depends on systems, policies, state action, and grasp of concepts.
(2) 'Threefold pressure' is the interweaving and superposition of uncertainties
The most basic way to observe the economic situation is 'risk-cost (benefit)' analysis. Risk due to uncertainty will translate into costs for governments, businesses and individuals, changing current and future benefits.
The threefold pressure China currently faces is actually threefold uncertainties and risks, intertwined and superimposed.
'demand contraction' is a very typical endogenous factor, which is caused by structural distortion and system failure.
'supply shocks', from a national perspective, have external factors and more internal factors, but from the perspective of the development of global and even the entire human civilization, they are all endogenous.
'Weakening expectation' too is endogenous: impacts of large and small business environments, and of changes in economic growth.
The economy has both grown and contracted, but we focused only on growth and did not see contraction. The economy alternates between growing and shrinking. Developed countries have more time to grow and less time to shrink; while countries that fall into the middle-income trap and backward countries have more time to shrink and less time to grow.
Superposing these three uncertainties can actually be attributed to risk being publicised and globalised. Various risks are superimposed, entangled, manifesting as a 'virtual reality': it is difficult to have an intuitive and clear feel for them. Hence it is not that the more accurately enterprises, residents and localities predict or prevent risks, the more they can be reduced. On the contrary, risk can sometimes accelerate publicisation and globalisation. 'Beggar-thy-neighbour', the 'compositing fallacy' and 'decomposition fallacy' are all generating mechanisms of risk diffusion and superposition. That risk cannot be eliminated is at odds with the logic of traditional classical scientific thought. It hence is necessary to re-examine the uncertainty and risk. Only in this way can we truly see the inherent uncertainty of the modern economy and the characteristics of the current economic situation.
(3) Structural distortion is the source of the 'threefold pressure'
In the medium and long term, the problems China is currently facing are directly related to structural distortions, which are embodied in the following aspects:
social transformation lags behind economic. The latter, with market-oriented reform, take the lead; social transformation lags. In the past, there was not only a planned economy but in fact a 'planned society' with control characteristics. Planned economic reform had remarkable results, but planned social reform was laggard. For example, the hukou system, a product of urban-rural dualism, led to unequal social basic rights, a classical reflection of lagging social transformation restricting economic. Citizenisation restricted marketisation, with increased risk of misallocated resources—not only of material but of human resources as well. The related risks are rising sharply, resulting in rising costs and falling efficiency.
economic lags green transformation, which is a global action. All countries in the world, developed ones above all, are at the forefront. Trying to catch up, China put forward its '30·60 goals'. But given the 'three highs' (of consumption, emission and pollution) adjusting production, product or consumption structures is very tough; people's needs for a better life are constantly increasing, and with constant rise of the green threshold of developed countries, the risks and challenges brought by it, grow daily.
state transformation lags development. General features are ever more evident of the new high-quality development stage, in which pursuing multiple goals is a new requirement. State adaptation to the needs of high-quality development and multi-objective coordination is work in progress. While the PRC stresses, with some results, makeovers pf state functions, the pace has fallen behind what is needed for development and transformation
The digital revolution above all pushes industrial society to become digital without delay, posing huge challenges. overall costs are pushed up by system and mechanism blockages, and poor circulation. Risk mounts with the uncertainty, leading in turn to overall cost increases for different levels and entities, hence increased economic and social vulnerability. So to improve economic resilience, we must reduce public risks via reform, rebuilding certainty of development with an innovative spirit.
Entering a new stage of development, a new development pattern needs to be built. Only by using new development concepts that speed up state transformation and make governance more efficient can we do more to hedge uncertainty and risks, build new certaintt, and stabilise the economic status quo.
2. Improve governance efficiency with risk thinking
(1) System and mechanism reform and innovation run ahead of risks
The logic of economic operation and of development have seen fundamental changes: how finance relates to the real economy, and the currency, banking and financial markets need to be re-thought. Direct financing was stressed in the past, why has its development been unsatisfactory? This is closely related to institutional mechanisms. The current macro uncertainty has changed how economic variables are logically related. If you adjust the system, formulate policies, and think about countermeasures according to relations between the original economic variables, ‘carving on the gunwale of a moving boat’ is sure to occur.
The basic logic of policy is to weigh different levels and types of risks and then hedge them. Now is a high-risk era. The seven major policies proposed at the late 2021 CEWC corresponded to seven major risks in the background. While using these policies to hedge risk, more to the point is to curb the publicising risks via innovations in institutional mechanisms. System and mechanism innovation is to create new certainty for development. This requires weighing, transforming, hedging and reducing risks, constantly strengthening risk governance in the development process to prevent the 'base plate' of PRC development from piercing the base itself.
(2) Transforming governance concepts to resolve overall and long-term risks
For medium and long-term goals, we should pay more attention to overall and long-term risks, which are public risks. Since short-term policies cannot solve long-term problems (and resolving long-term risks is even harder), all policies should have mid-and long-term considerations. As is required for governance, a holistic and dynamic view is needed, paying attention not only to the operational risks of the current economy and society but also to the sustainable risks of economic and social development. For governance to be efficient, we must pay attention to the joint participation of multiple subjects; a 'sense of participation' is more important than a 'sense of gain. We must meantime focus on the medium and long-term, and keep deepening and coordinating the promotion of various reforms. Only by focusing on preventing and defusing strategic and long-term risks can new certainty be established, and greater uncertainty and risk to policies in various fields be avoided.
In 2021, the PRC's urbanisation rate will exceed 64 percent according to the permanent resident population, but it will be about 45 percent according to hukou. The gap is even greater in developed regions, reflecting change in employment structure. The pattern has changed: those engaged in non-agricultural industry have greatly increased, while the social identity structure has changed slowly. This distortion represents a problem of three dual structures, namely, the dual structure of the economy, of society, and of public ownership. Of these, that of ownership is not only the problem of state- vs. privately-owned but also that of state- and collective-owned within public ownership. As far as the land factor is concerned, there is both state- and collectively-owned land. How then can land form a unified market? Peasants live on collective land, while townsfolk live on state-owned land. The property rights of the peasantry are tied to the collective economy and collective land. How do they become townsfolk? Becoming townsfolk is a matter not only of moving into the city, but one of exiting the village. For example, carriage and transfer of peasants’ property rights now faces institutional obstacles.
Going by the hukou population, some 55 percent of Chinese are peasants and only 45 percent townsfolk. China remains in this sense a peasant society, yet this is often ignored when analysing economic development.
To realise people-centered modernisation, we must first solve the problem of peasants moving to the city and their equality of basic rights. The all-round development of human beings can be truly realised only if the number of peasants is reduced and that of townsfolk increased. Conferring townsfolk status is a transition from rural to urban civilisation, and one of human modernisation. Breaking the urban-rural duality and stepping p the getting to people-centred urbanisation is a major strategic issue that needs to be focused on at present and in the future.
(3) Using ideas of uncertainty to improve expectation management
Macro uncertainty has brought confusion, leaving everyone at a loss as to what to do. Needing to stop to wait and see, we must at this time build new certainty, finding new coordination via policy and related institutional innovations.
Targeted measures should be taken for different subjects.
citizenisation expectations are more important than consumption expectations and investment expectations, and more related to the long-term and the overall economic and social situation. The importance of such expectations is difficult to see in the short term. Yet they are crucial to China's long-term sustainable development. Peasants’ vision for a better life is more about their children. They don't want their children to continue to be peasants. They hope that they will be better educated in the city and become townsfolk. Expectation of citizenization is hence related to social vitality and the continuous expansion of domestic demand.
predictability of public policies and regulatory policies. New certainty can be built from uncertainty only via the timeliness of state action. If you start from certainty, you may often get uncertainty. Some policies are at present imperfect, and there are issues in their operation.This may be due to certainty that there is no problem with the policy, no pre-assessment of the policy, and no in-depth risk assessment or analysis of the rollout. Poorly designed policy has led to bad outcomes. In this sense, the state’s grasp of timeliness must be based on new thinking, starting from uncertainty, and constantly adjusting and improving policies and systems with a risk approach in order to build new certainty.
(4) Straighten out the underlying logic of fiscal and financial coordination
Fiscal policy and finance make up two interconnected levels. Finance is the blood of modern economies while finance is that of social communities, but the two are different levels of [a single] issue. In terms of the right to issue currency, it comes from state credit, which derives from the state’s taxation power. The right to issue currency in this sense derives from the state's fiscal power. From this, it is inferred that state fiscal power is the foundation of finance. As for national debt, it is also the pricing benchmark of the financial market. Currency is the virtual debt of the state to the people, which is not the concept of debt usually under discussion. When interest rates are zero, national debt is equivalent to money. How to make good use of the two instruments, national debt and currency, is a key issue of current macro policy and the core issue of fiscal and financial coordination. How national debt relates to currency is the main content of modern monetary theory. Related to the underlying logic of modern fiscal, economic and financial operation it deserves serious attention.
Source: Liu Shangxi, "How to build the certainty of sustainable development in China”, 21 March 2022 [刘尚希:“如何构建中国持续发展的确定性”,爱思想,2022年3月 21日 (in Chinese).].