Lessons on deflation, demography & democracy from the China model

China

The Chinese economy has entered deflationary territory for the first time since it began its remarkable and uninterrupted economic growth in 1978, a journey that has seen it rise from a per capita income of less than many Sub-Saharan African countries in the 1960s to becoming the world's second richest (arguably the richest in terms of purchasing power parity) country on a national GDP basis today.

As [Large-scale%20public%20works]prices in China fall amid an economic slowdown, it has sparked a rush among practitioners, academics, and the general public to understand its causes, impact, and short- and long-term trajectories. While markets are focused on trade figures, real estate, local government debt and consumer sentiments in the short term, economists are also concerned about the country's declining population and its impact on demand and the economy over the next few decades.

On the other hand, few are looking at these as symptoms of China's political economy in a broader and historical context to see if any lessons can be drawn. This is especially significant given that, in the face of the challenges confronting Western democracies and economies since 2008, China has aggressively promoted its "China model" of governance and development as an alternative to a Global South of developing countries seeking viable economic and political models. The following is a brief examination of the history of China's millennial political economy in search of patterns that may hint at risk-related insights.

Emergence of centralised China

China has had three major streams of philosophical and religious thought for over two thousand years: Confucianism, Daoism and Buddhism, all of which have had varying degrees of influence on its society, politics, economy and culture. Despite Mao Zedong's notorious "Gang of Four" efforts during the Cultural Revolution (1966–76) to destroy the "Four Olds” — Old Ideas, Old Culture, Old Customs and Old Habits — and impose monotonic thought, Chinese religious philosophical thought has persisted. Indeed, the Chinese Communist Party has taken pride in these in recent years, promoting them as a revival of Chinese culture both at home and abroad. Attempts to impose centralised thought during China's infamous Cultural Revolution, on the other hand, may have had fewer roots in European Marxist-Leninist-Stalinist philosophy than is commonly assumed and may have been influenced more by China's own political history.

China's first emperor, Shi Huangdi of the Qin dynasty, united all warring states and established the country's current national, cultural, and social identities in 221 BCE. Creating China’s first centralised state, he abolished feudal estates and reorganised them to create administrative units and subunits (even down to “hundred families” units), staffed it with a bureaucracy selected through its famous merit-based Mandarin system, created its unified script, and standardised weights and measures. He also outlawed the then-prevailing Hundred Schools of Thought and established China's unitary Legalist ideology, which eventually became its school of jurisprudence. He also ordered the destruction of existing books, with the exception of those on astrology, agriculture, medicine, divination and the history of his own Qin state.

Stability and order, with Confucian roots of hierarchy and obligation within family and society, have been central to state objectives for millennia, regardless of dynasties and rulers ever since.

Public works & mass mobilisation

Large-scale public works through mass mobilisation have been a persistent feature of Chinese political and economic thought. Centralised direction and decentralised and locally delegated implementation through administrative and mass mobilisation have equally been a uniform feature of the Chinese state. While this has enabled the great feats of human effort, engineering and achievement that China has been known for, it has also resulted in equally great disasters. Shi Huangdi’s Great Wall (begun in 220 BCE and added to by subsequent dynasties, which at its greatest length stretches for over 21,000 km) is much admired, but it failed in its objective of keeping out invaders and likely caused widespread human misery and economic hardship for the local populace. Equally, the Grand Canal, begun in the 5th century BCE (added to over the centuries and now flowing for 1,800 km), has been a lifeline of China for transport and communication, irrigation and flood control, unifying north and south China and forging its national identity.

In modern times, while Mao is widely regarded as a hero of China's independence, he is also remembered for the failure of the Great Leap Forward in 1958, which resulted in a man-made famine that claimed the lives of 30 million people. Deng Xiaoping's "Reforms and Opening" policy of 1978 liberalised China's economy and focused on the "Four Modernizations" of agriculture, industry, defence, and science and technology. Based on these, Deng proposed Xiaokang, a Confucian concept of a moderately prosperous (functional middle-class) society.

China's achievements in most of these areas, particularly economic growth, are well known and have been well documented.

Population control hurts

Less well known, however, is that in 1980, as China's population approached one billion, Deng implemented the "One Child Policy." It was a draconian measure.  Administrative implementation exacerbated its severe social and, eventually, economic consequences. A preference for male children resulted in a gender imbalance of 3-4 percent more males than females, with implications for marriage and reproduction rates. The consequences were not realised until 2016, when the policy was reversed. However, 35 years of the policy had already resulted in an inverted pyramid structure of familial responsibilities for every single child, with 4-2-1 (four grandparents, two parents) for every single child, with a corresponding impact on marriage and childbearing rates.

In 2000, each elderly person in China was supported by approximately 6.48 working-age adults. By 2030, this figure is expected to fall to 2.32.  It is expected to fall even further, to 1.28 by 2050. China's population of approximately 1.4 billion people is expected to nearly halve by 2100. China is going to great lengths to increase birth rates, even offering incentives. It remains to be seen whether the unintended socioeconomic consequences of a policy implemented over nearly two generations can be reversed over time.

While other economies and societies in its immediate vicinity, particularly Japan and South Korea, face the challenge of declining populations and economic growth, none face such severe challenges. Cai Feng, a demographer at the Chinese Academy of Social Sciences, raised the question "Will China grow old before it grows (per capita) rich?" at a conference on China's economy in 2012. It is now a question that concerns not only financial markets and economists but also foreign policy, security, and international affairs forums.

This high-risk governance pattern found in the "China model" has echoes in Daoist philosophy's concept of Yin and Yang. Female and male, positive and negative, black and white, Yin and Yang are viewed as interconnected forces of contrast. "A yin (with) a yang is called dao," according to the Daoist book Daodejing. However, and most importantly, unlike Confucian structures, Daoism views order, force, and hierarchy as complementary rather than antagonistic forces. Daoism's central principle is to find harmony in the interconnected flux of relativeness, to let the self mould to the world as water fills a bowl. It is to adapt, compromise and accept life as it comes rather than force it.

As China's political economy faces yet another challenge, it is time for the developing countries of the global South to reflect on the governance model that China offers and seeks to promote. On the harmony, relativeness and natural flow of democracies' economic and social growth, as well as the coercion, conflict, and unexpected but recurring negative consequences of a Confucian authoritarianism model.