Simon Wren-Lewis — How China beat the Global Financial Crisis

by
Mike Norman
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Basic macroeconomic theory says that a negative shock to GDP, caused for example by falling exports, can be completely offset by a monetary and fiscal stimulus. China is a good example of that idea in action. What about all the naysayers who predicted financial disaster if this was done? Well there was a mini-crisis in China half a dozen years later, but it is hard to connect it back to stimulus spending and it had little impact on Chinese growth. What about the huge burden on future generations that such stimulus spending would create? Thanks to that programme, China now has a high speed rail network and is a global leader in railway construction.

Now of course people will say that China is not like an advanced democracy, and it was not part of the global banking network that caused the GFC. But the US and UK stimulus programmes could and should have been larger. Those close to the action tell me that the UK was running out of things to spend more money on in 2008/9, but I cannot help think this amounts to a failure of imagination: it is not as if UK infrastructure is great, there are no flood defence projects left to do etc. Above all else China’s example tells you what a huge mistake 2010 austerity was.

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The strongest argument for the adoption of any governmental system is success and the potential for greater success in the future. This is what the history changing Chinese reformer Deng Xiaoping meant when he stated, “It doesn’t matter whether a cat is black or white, as long as it catches mice”. Deng’s adoption of Market Socialism With Chinese Characteristics looked to bring the values of his predecessors into the future by creating an industrial revolution in a primarily agrarian economy which during Deng’s initial period in power had a poverty rate of 88%.

Today, Xi Jinping Thought on Socialism With Chinese Characteristics For a New Era looks to reduce an almost all rural poverty rate of 2% to 0% over the next two years while in the next decade China looks to become a moderately prosperous society for all its citizens. Furthermore, the drive to Create in China seeks to transform the country’s economy from one aimed at efficient production to one where production is increasingly mechanised and guided by artificial intelligence while Chinese entrepreneurs are encouraged to pioneer the next great leaps forward in technological, pharmaceutical and transport innovation on Chinese soil.

At a fundamental level, market socialism combines the individuated penchant for innovation in both utilitarian and luxury sectors that is associated with capitalism while regulating the inflow and outflow of capital in order to re-invest the proceeds of wealth back into the people and infrastructure of the nation. The result is a win-win internal developmental model which since 1978 has helped China to bring more people out of poverty in the shortest period of time in modern history.