Some thoughts on #ChinaMeltdown – and beyond

These days and months, everyone seems to be looking east (Americans: west), trying to figure out what’s really going on inside China’s economy. Or rather inside China’s government, since most are well aware of the fact that after 35 years of “opening up”, the state and thus the Communist Party (CPC) is still the dominant actor in the country’s economy. The Cold War had its “Kremlin astrology”, and the cluelessness of western analysts talking about the CPC’s goals today seems to revive that discipline.

As in Soviet times, the main problem is probably that most “experts” analyze China with an entirely western mindset. They don’t question their own beliefs and basic premises, precisely because they can’t imagine certain of these actually not being universal, but specific to our current western society. In this sense, could it maybe be better to let non-economists talk about China’s economy (and society in general), people who are less tangled up in western economics academics’ way of thinking?

The following twelve theses will probably not find many adherents among economists. They are meant to be controversial, provoke constructive criticism or well-founded complete rebuttal – and will hopefully enrich the debate.

1. The primary forces responsible for China’s development are political, not economic. The latter are only allowed to unfold within more or less clearly defined limits set by the former.

2. The CPC sees private investment and stock/ financial markets as mere tools to further the country’s economic development, something that seems to have been forgotten in the west.

3. Their purpose was to funnel (international) capital into the construction of China’s economy and infrastructure, sector after sector according to plan.

4. State control of the banking sector and the currency market as well as a constant export surplus were vital prerequisites to guarantee CPC sovereignty over the development path.

5. Once the goal of reconstructing the country is largely completed, the financial markets will no longer be of interest to the CPC.

6. As China’s shadow banking sector is mostly (formally) illegal, there is no judicial way depositors and creditors can reclaim lost money in times of crisis.

7. China has positioned itself for the internationalization of the RMB with the new exchange rate regime as well as the AIIB, NDB, Silk Road Fund, BRICS CRA and IMF SDR bid.

8. When a severe crisis hits, the government will save those sectors of the real economy deemed important, not the financial markets and their actors.

9. For this purpose it will use both China’s huge foreign-exchange reserves and the new possibilities of the PBoC (central bank) due to the internationalization of the RMB.

10. The current global fear of a Chinese crisis with its ensuing capital flight is a welcome and long-sought opportunity for the government to reduce the aforementioned reserves.

11. The result will be stronger state/ CPC control of the Chinese economy, though certainly very different from the ‘traditional socialism’ of the 20th century.

12. The emerging new economic model will be shaped by different driving forces from today’s and imply a different role and understanding of ‘money’.

No economic system lasts forever. Each emerges in response to some major societal ‘need’ or challenge that the previous one is unable (or too slow) to adequately fulfill. If the current system does not find a way to answer the urgent questions concerning climate change and global inequality, it is obsolete. The question is not ‘if’, but ‘when’ and ‘how’ a new one will emerge – and what it will look like. It is far from impossible that after more than two hundred years of backwardness, China will once again lead the field towards systemic progress.