‘China model’ fallacies

ECONOMIC discourse in this country, especi­al­­ly with folks in governance circles, can throw up some very interesting — as well as disturbing — insights. A recent conversation brought up the int­e­­resting case of a preference for the ‘China model’. What is their conception of this model? Briefly, the belief is in an all-powerful centre that forces its economic commands through long-term plans across the entire country, whips up economic growth through major government interventions, and leaves a limited role for the lower tiers (local) of governance. It is worth contemplating whether these views align with ground realities. A good place to start is the recent paper by Fengming Lu and Xiao Ma, ‘The rise of China’s electric vehicle industry’, which helps demolish several myths. Champion EV firms like BYD and NIO are all private firms that did not get a single penny in state grants, which, instead, went to SOEs for EV research. Even more astonishing, these firms rose in cities the state apparatus did not identify for EV cluster development. How, then, did these firms accomplish this feat? The short answer: mayors of the cities that were left out teamed up with entrepreneurs, helping them usher in the latest achievement of China’s stellar development story. Notice that city mayors have the authority to act as they please within their locality. In this case, their initiative and actions undermined the SOEs. Yet, the central government never intervened to prevent it, thus demolishing the myth of an all-powerful centre that micromanages everything and does not tolerate local authority. The Chinese state mainly acts as a facilitator for development in any way it can. In Pakistan, it’s the opposite. China has a highly competitive and well-established local tier system. Passage to the higher echelons of the central party is possible only through performance at this level. Unlike in Pakistan, there is no chance of attaining a prominent party position merely by being a scion or progeny of a party head. (Interested readers can look up President Xi Jinping’s road to the presidency.) Second, it demonstrates that the state is willing to tolerate ‘creative destruction’, a term coined by economist Joseph Schumpeter, to describe how competition and creativity can render some businesses useless. This is classic capitalism, not socialism or communism. In the race for EVs, private competitors left state-run SOEs far behind, but the centre never intervened to prevent their slide. In fact, competition is so intense that it has led to price wars, with some firms expected to fail (one county reportedly lost 6.6 billion yuan on a carmaker it supported). Similar misconceptions exist around its long-term plans. These actually contain insights of tremendous depth, coming from top-tier experts. Plans are contemplated and debated at length rather than rushed through. The economic debates preceding the 14th party congress offer an apt illustration. In the wake of the Soviet Union’s collapse, between October and December 1991 (known as ‘eleven half-days’), the debate centred on why the USSR’s economy collapsed and what could be done to prevent the same from happening to China. The end result was the adoption of the famous ‘modern enterprise system’, approved by the party in November 1993, which enunciated “clear property rights, clearly defined rights and responsibilities, separation of government and enterprise, and scientific management”, that would prove to be a critical moment in China’s march to prosperity. The gist is that prevailing conceptions of China as a centrally administered economy with a benevolent dictator at the helm directing its stellar rise are misplaced. In fact, it is arguably the most decentralised governance system in the world, with more than 80 per cent of public expenditure at the local level, and mayors who enjoy independence in their fiscal and administrative decision-making. The centre is still very powerful, but not in a manner that we understand. It has some red lines that it enforces. The rich, for example, are not allowed to attain influence to an extent that they are in a position to manipulate the state apparatus by tailoring it in their favour to the detriment of the country and its people. This explains, for example, why Communist Party members are banned from holding golf club memberships. The underlying philosophy is simple: facilitate capital creation and growth, but prevent it from working against the public good and the country. The state mainly acts as a facilitator for development in any way it can. In Pakistan, it’s the complete opposite. Big capital dictates and manipulates policies, whether through tax exemptions or trillions doled out in public-sector contracts. The sugar mafia is a pertinent example, whose powerful members, sitting in the legislature, sway policies and regulations in their favour. (Note: the above should not be taken as advocacy for anti-capital formation policies. Instead, it should be viewed in terms of regulating capital’s negative spillovers.) And lest we forget, the corrupt in China are handed the death penalty. Try naming a few cases in Pakistan where a similar predicament befell the corrupt. In essence, China’s remarkable transformation to where it stands today constitutes a long, arduous, and messy process that began with Deng Xiaoping’s 1978 reforms, with the above merely offering a glimpse of that long journey. Why then clamour for this ‘model’ that no one in our power halls would be willing to implement? After all, that would be hara-kiri for a corrupt, compromised elite which thrives on central control and illegally accrued rents via this system. Well, more than four years into the current experiment, the economy is still struggling to get out of the stagflationary rut in which it has been stuck since 2022; the average GDP growth has barely surpassed population growth, and all the ‘game changers’ (SIFC, $6 trillion mineral wealth, corporate farming, crypto, and geopolitical rents) have fizzled out. Expectedly, in comes yet another game changer — the ‘China model’. I cannot speak for others, but if it were up to me, I’d start implementing this model tomorrow. I assume, though, that once the enthusiastic folks in power circles come to grips with what it really implies, they’ll discard it immediately. The writer is an economist. His current research focuses on long-term analyses of the various issues plaguing Pakistan’s economy, economic reforms and the history of economic thought. [email protected] X: @ShahidMohmand79 Published in Dawn, October 2nd, 2026