Managing the “Post Miracle” Economy in China: Crisis of Growth Model and Policy Responses

ABSTRACT

Combining some theoretical perspectives of economic development stages, a capital accumulation regime with Chinese characteristics and a techno-economic paradigm, this paper tries to explain how the Chinese growth miracle reached the edge of crisis after 2008. It argues that for 30 years, the ‘visible hand’ managing the Chinese economy has progressively shifted from local governments’ initiatives and experiments to central government’s macro policy supplemented with industrial economics tools. This brought China’s growth from the factor-driven to the investment-driven stage, and progressively decoupled the financial system from China’s local, dominant, accumulation regime, directing finance into a technological accumulation regime. The Chinese central government attempts three macroeconomic approaches with which to readdress the growth pattern: rebalancing; supply-side reform; and innovation-driven development. The Belt and Road Initiative is an attempt to domestically recouple backward to coastal provinces, trade and investment to economic diversification, and to upgrade provinces. The current Chinese growth model is composed of different capital accumulation regimes: export, domestic infrastructure investment, financial market liberalisation, e-commerce platform economy, all based on the manufacturing economy built up over the last 40 years. China needs upgrading its manufacturing economy to an innovation level and build a new capital accumulation regime based upon it.

KEYWORDS:

• Middle-income trap
• macroeconomic policy
• regime of accumulation
• development
• technological catching-up
• China

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1. In theory, the formation of a techno-economic paradigm system requires mutual adaptation and matching of its three interrelated components: (1) the industrial system or real economy, which contains an economy’s science and technology capabilities, industrial structure, fixed assets, equipment, labour, labour costs, productivity, profitability, export trade, domestic market, the relative prices of the required inputs, the relative wage rates, and the size and characteristics of the domestic market, etc.; (2) the financial system, which contains the capital market, real estate market, foreign reserves, exchange rate and interest rate, etc.; and (3) the social system or social institutions, which contains the legal, social and institutional framework, such as government regulations, standards, taxes, subsidies, tariffs, and other relevant policies or laws; trade-union organisation and practices; and the values of the local population in terms of willingness to accept or reject the innovation or its consequences, etc. (c.f. Freeman & Perez, 1988; Perez, 2002; Perez & Soete, 1988).

2. The best example is the crisis of 1929, where the free play of market forces and competition did not lead to a renewed phase of expansion. The interwar period marks the passage from an accumulation regime characterised by mass production without mass consumption to a regime incorporating both mass production and mass consumption. The crisis in 1971 represented the end of the Fordist accumulation regime which relied simultaneously on mass production and mass consumption.

3. Arvanitis and Zhao (2014) or their suppliers Balcet and Ruet (2012) and Richet and Ruet (2008).

4. It is interesting to mention that when the Olympics Games are held in Asia they seem to be related with successful export-oriented development. In 1964, Tokyo hosted the Olympics that, typically, indicated that the host country is on the threshold of developed status. In 1972, Japan became the second largest economy in the world. In 1988, Seoul hosted the Olympics when South Korea was about to become Asia’s industrial giant.

5. See Li (2015).

6. See the Social Science Survey Center of Pekin University (2014)

7. Detailed in Lanckriet and Ruet (2019) and Ruet (2016).