China and the middle-income trap: toward a Post Washington, Post Beijing Consensus

Abstract

Over the last 30 years, China has experienced tremendous growth, with many commentators attributing the rapid development to the ‘China Model’ (CM) or the ‘Beijing Consensus’ (BC). However, in recent years growth has slowed and an ever-increasing number of bears are predicting a financial crisis, economic collapse, and a very hard landing, perhaps even a lost decade a la Japan. All of this has led to heated debate about whether the CM is now exhausted, whether China is caught in ‘the middle-income trap’ (MIT) and whether a new model is needed for the next phase of development where China attempts the difficult transition from middle-income country to high-income country status. This article addresses the following five sets of issues. First, is there a CM or BC? If so, what does it entail, and does it differ from the model followed by other successful countries in East Asia? Second, is there a MIT? Is China stuck in the MIT or perhaps multiple MITs? Third, what adjustments to the economic model are required for China to continue its long march toward becoming a high-income country? Fourth, are political, legal and social reforms also required? If so, will all reforms proceed simultaneously or are reforms likely to be sequenced, with adjustments to the economy preceding reforms in other areas? Fifth, is there now a global convergence on a new model of development for developing countries – a Post-Washington, Post-Beijing Consensus?

Keywords:

• Washington Consensus
• China Model
• East Asian Model
• Post Washington
• Post Beijing Consensus
• middle-income trap

Notes

1. By 2009, there were more than 3000 articles available on the internet discussing the China Model and related concepts (Fewsmith 2011). Shaun Breslin has made available more than 106 such articles at http://tinyurl.com/chinamodel.

2. The World Bank (1993) cited a number of factors: sound macroeconomic management, including fiscal discipline and control of inflation; high levels of private domestic investment, domestic savings and investment in education; agricultural policies that increased productivity; promotion of exports; flexible labor markets; limited price distortions; openness to foreign technology; a demographic transition from high to low birth rates; politically insulated and reasonably compensated technocratic leaders; a business-friendly environment; and selective state interventions subject to strict performance criteria – although the Bank was ambivalent at best about the positive value of state interventions that deviated from ‘the neo-classical’ model.

3. Pettis (2013) begins with three such identities. In his review of Pettis’ book, Borst (2013) simplifies matters even further: ‘The Savings-Investment Identity states that the difference between national savings and national investment is equal to the current account surplus. To put it more simply, production that is not consumed or invested domestically is sent abroad.’

4. Those with an interest in economic history also tend to emphasize a relatively small set of factors that explain economic success, and then portray the CM as another example of that more general pattern (see, e.g., Breslin 2011). There is also a large and growing literature that attempts to understand China's growth, or lack of it until recently compared to the West, in much broader historical terms, drawing on geography, biology and anthropology (see, e.g., Morris 2010).

5. The World Bank considers countries with GNI per capita from $1026 to $12,475 to be MICs. More specifically, the World Bank classifies countries with GNI per capita of $1025 or less as low income countries (LICs), $1026–$4035 as lower middle income countries, $4036–$12,475 as upper middle income, and $12,476 or more as high income (HICs). See http://data.worldbank.org/about/country-classifications.

6. For a discussion of the risk of CCE-style political capitalism occurring in China, see Peerenboom (2011). If anything, the risks are now higher as interest groups have become more firmly entrenched and the Party appears to have lost the ability to make and implement policies that benefit the broad majority at the expense of these powerful interest groups.

7. Pettis (2013) notes that by 2005 household consumption had dropped to unprecedented levels of 40% of GDP, and despite promises to address the situation, dropped further to the ‘almost surreal’ level of 34% in 2010.

8. In China, this is often portrayed as a debate between the New Left and those on the right. Although useful as a first cut, there are widely divergent views within these broad categories. See generally, Freeman and Wen (2011).

9. Recent central party policy statements have confirmed this two-track approach. Compare, for example, Li's (2013) ringing endorsement of liberal economic reforms, including a new, more facilitative role for the government, with the Central Committee General Office's ‘Concerning the Situation in the Ideological Sphere,’ warning about the need to combat dangerous ‘Western values’ and to preserve top-down political control (Buckley 2013).

10. For more on the PWBC, see Peerenboom and Bugaric (2013), reviewing the attempts to develop new theories and approaches to development, variously referred to as the new development state, liberal neo-developmentalism, new structural economics, the PWC and the PWBC, they discuss the emerging consensus, delineate the main features of the PWBC, and analyze both its potential and limits for guiding development policies in the post global-financial crisis era.

Additional information

Notes on contributors

Randall Peerenboom

Randall Peerenboom is a law professor at La Trobe University and an associate fellow of the Oxford University Center for Socio-Legal Studies. He was a professor at UCLA Law School from 1998 to 2007 and director of the Oxford Foundation for Law, Justice and Society Rule of Law in China Programme. He has been a consultant to the Asian Development Bank, Ford Foundation, EU-China, UNDP and other international organizations on legal reforms and rule of law in China and Asia, and is the Co-Editor in Chief of The Hague Journal of Rule of Law. He is also a CIETAC arbitrator, and frequently serves as expert witness on PRC legal issues. His recent sole-authored and edited books include Law and Development in Middle-Income Countries: Avoiding the Middle Income Trap (2013); Rule of Law in an Era of International and Transnational Governance (2012); Judicial Independence in China (2010); Regulation in Asia (2009); China Modernizes: Threat to the West or Model for the Rest? (2007); Human Rights in Asia (2006); Asian Discourses of Rule of Law (2004); and China's Long March toward Rule of Law (2002).