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Home >Opinion >Columns >China's economic re-engineering is a path we must not follow

The world, in the last few weeks, has been riveted by the happenings in Afghanistan. There is much discussion about whether America has lost its prestige and influence in the world because of its botched exit and withdrawal. Helicopters taking off from the roof of the American Embassy in Kabul have been compared to a similar embarrassing exit from Saigon. However, as the consensus is leaning towards one side, that America stands diminished, it is time to examine the opposite case.

That brings us to China. While this has been happening, China’s crackdown on businesses has been going on steadily and continually. Initially, it was felt that the target was Jack Ma because he dared to challenge the system in a speech last October. But soon, it became clear that it was not just about Jack Ma or non-bank companies and the systemic risk they posed to China’s financial stability. These might have been peripheral considerations, but there was a nagging feeling that its ruling Communist Party was worried about some businessmen becoming too successful, and hence too powerful, and that they might one day challenge the party’s authority.

That was evident when the party ordered Jack Ma to step down from the helm of the affairs of a futuristic business-cum-leadership school that he had set up. That was clearly about more than financial-stability risk concerns.

Then came China’s crackdown on ride-hailing app DiDi right after it listed its shares in the US. The timing of this clampdown on DiDi’s operations—after it had convinced investors overseas to invest in it—certainly raised eyebrows. Then, it was said that Beijing was concerned about the privacy and sovereignty of Chinese data. Maybe.

The regulatory invasion of the affairs of private tuition and education firms in China was explained as a response to the exploitation of Chinese households by these companies for revenues. But few took notice of the stipulation that foreign culture and material should not be taught and that foreign tutors should be dropped. Overnight, these for-profit businesses were asked to turn themselves into non-profit entities, and the government stepped in to provide the ‘right education’.

The country’s online recreation and entertainment industry was the next target. They were branded ‘moral opium.’

Shuli Ren writes regularly on China for Bloomberg Opinion. Her conclusion is that China is now averse to big capital, especially if it flows into areas that the government does not consider priorities; also, more importantly, big capital was creating power centres that could threaten the government (‘Gaming? China’s big crackdown is really on big capital’, 3 August 2021). That makes sense because China did not just frown upon Big Tech. That is the crux of the issue. In July, China sentenced Sun Dawu, the founder of one of the country’s most successful agricultural groups, to 18 years in prison.

In another recent column, Ren wrote that any obstacle that stood in the way of President Xi Jinping’s vision of a more equal and liveable society would be swept away. She was right. Recently, China’s President presided over the 10th meeting of the Central Finance and Economics Committee and emphasized the promotion of common prosperity. The meeting concluded that it was necessary to strengthen the regulation and adjustment of high incomes and to clean up and standardize what it called unreasonable income.

Policy in China is now clearly oriented towards political, social, economic and cultural re-engineering. It is doubtful if it will end well. Markets might do a bad job of many sectors, but a wholesale takeover of these by the government is likely to end in disaster. The reason the Chinese President is pursuing this could be that he wants to ensure the Communist Party Congress next year elects him for a third term (or forever). In other words, Xi is playing a ‘re-election’ tune even in Communist China. To understand the odds he must surmount, you could read an insightful blog post by Eyck Freymann and Ralph Su written in April (‘The Matter of Xi’s succession’, bit.ly/3kgH0fH). With China’s economic recovery slowing, the covid virus raising its head where it first emerged, and with a power tussle at the top not unlikely, an interesting year lies ahead for the country.

For India, the lesson is this. If insecurity stalks the incumbent in a non-democratic China, India faces elections in 16 states before 2024 and national elections in 2024. Both incumbents and contenders face an irresistible temptation to play the populist-socialist card to retain power or win elections. In India, the tendency to play the populist card either through policies or through fiscal largesse lurks just beneath the surface.

America and even China, to a large extent, have created far more economic wealth than India has done and can turn their attention towards divvying up the pie. India still has to expand its pie to engage in meaningful redistribution. Indeed, some of our growth-friendly measures would automatically help raise incomes at the bottom of the pyramid, if the licence, inspection and compliance raj is systematically dismantled at all levels. This is the ‘populism’ that India needs, not failed social and economic engineering that destroys capital.

V. Anantha Nageswaran is a member of the Economic Advisory Council to the Prime Minister. These are the author’s personal views.

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