Peking University Economics Professor Zhang Weiying’s early October 2018 (and promptly erased by net censors) article “Understanding the World Economy and China” (excerpted in translation on Andrew Batson’s blog) argued that China’s economic development has occurred in spite of rather than because of the so-called Chinese economic model. Prof Zhang stated that “The China economic model theory doesn’t fit with the facts. China’s high growth over the past 40 years has come from marketization, entrepreneurship and the technological accumulation of the West for three hundred years, rather than the so-called “Chinese model”.

This June 2018 article by Professor Zhang does argue that the so-called China model does seriously harm China’s international relations but does not directly attempt to discredit the “China model”.

Zhang Weiying is not alone in his concerns. Another economist, Shen Hong of the currently-being-strangled-by-the-Party Unirule Institute, a private economics think tank, makes similar points in an article translated by Andrew Batson on his blog in the article The US-China trade war as a conflict of values.

One of Professor Zhang’s arguments is that China needs to built a truly rule-by-law and democratic political economic system if it is ever to displace the United States as the world leader. This argument, which harnesses nationalism to the cause of promoting democratic reform, may be calculated to win more minds to the cause of reform but may well be true.

Interesting too is Professor Zhang’s article what might be perceived as an overly assertive in-your-face style of US leadership rather than the fact of US leadership is a major part of the problem as seen from China.

It reminds me of an article that Chinese General Liu Yazhou wrote about ten years ago arguing that “China needs to become a much more democratic country — only then can it be a strong country that western powers will not dare try to push around.” General Liu Yazhou, once a senior commander of the PLA Second Artillery (missile forces) and now an academic at the PLA’s National Defense University has written many intriguing articles, some available online such as an examination of the cultural roots of Chinese politics in “Re-Commemorating 1644: The 360th Anniversary of the Jiashen Year” and Great Critics are Often Great Patriots and John Garnaut’s 2010 article “Chinese general backs the American dream”.

General Liu Yazhou, unusually out-spoken, has some protection (what the Chinese call a backstop houtai) as the son-in-law of former PRC President Li Xiannian. Professor Zhang Weiying perhaps not so much, although the lines of the permissible are often changing and vague, though more tightly drawn over the past few years.

When I lived in China, sometimes people told me that the US was always trying to keep China down. My answer was that if that were so, the US should encourage Chinese to keep their Communist Party in power and for the Party to take a harder line on dissidents. If Professor Zhang and General Liu are correct, perhaps the US is not being clever enough (if it really wants to keep China down).

Zhang Weiying: The Future World Order Depends on What China Does

http://finance.qq.com/original/caijingzhiku/zhangweiying.html

June 26, 2018

Sino-US relations are the most important bilateral relationship in the world. This year, the United States launched a trade war. The two countries have been bickering for a long while about economic issues. Many worry how this will affect global stability. These days a big picture perspective on Sino-US relations is especially important to prevent things from descending into chaos.

Famed economist Zhang Weiying in his speech at the Symposium on Sino-US Relations at the Institute of World Politics and Economics of the Chinese Academy of Social Sciences discussed the fundamentals of Sino-US relations. This article was published in the International Economic Review. Zhang Weiying revised and authorized its publication here.

[photo]

Zhang Weiying, Economist, and Professor in the National Development Research Institute at Peking University

Zhang Weiying: Over the next twenty to thirty years, the United States will not be overthrown in its world leadership role. For the very reason that today China is incapable of assuming world leadership, US global leadership position is in China’s interests. The demands that world leadership responsibility places on a country in various areas are enormous. China is now incapable of assuming them.

Throughout modern world history, the United States is the country that has exercised global leadership the most. This happened because the American society is vigorous and is very capable of correcting its own mistakes. Moreover, the United States attracts the world’s most talented people. This melting pot laid the foundation of American strength.

I have on several occasions suggested to American politicians that they read two books.

The first book is Adam Smith’s The Wealth of Nations published the same year that the American Revolutionary War broke out. The shape of the world these past two hundred years is basically the extension of the ideas in The Wealth of Nations to the entire world. The reason American politicians should read this book is because the United States is now becoming more protectionist. No country, if it were closed rather than open, could lead the world. A closed United States would lack legitimacy as a world leader.

The second book is Laozi’s Tao Te Ching . The United States is gradually changing from a country with uniform or roughly similar leadership values to a country in which coexist multiple or even differing leadership values. Under these circumstances, the US needs to understand how “the powerful state is inferior”. Assuming a lower profile is the best way for the United States to lead the world. The current US leadership style is to support freedom and democracy at home, autocracy abroad, and is characterized by an overbearing style. No country can challenge the leading role of the United States, but the U.S. does need to changes its leadership style. What China cannot accept is not the world leadership of the United States but the way the United States conducts itself as the world leader.

The last two centuries utterly transformed the entire world as the world went through a Great Divergence and then the current Great Convergence. Demographic and economic data show that up to two hundred years ago, the correlation coefficient between the population and the GDP of a country was essentially one. The correlation between the two fell sharply during the 19th Century (the Great Divergence), reaching its lowest level in the 1970s. Then it gradually rebounded to around 0.55 in the early 21st century (the Great Convergence). Whether this trend towards convergence continues will greatly affect what leadership in international relations will be like in the world to come.

My point is that the structure of international relations and the position of the United States within it largely depend on what China does. If China continues to make mistakes, the status of the United States will be become even stronger. During the past two or three years, my attitude toward China’s development has changed from optimism to cautious optimism. This is first of all because some things that were originally considered irreversible have now been reversed. This includes reversals in the economic system. The government has been intervening more in the economy. There are even new price controls, the return of the economic planning system, and the “advancing of state-owned enterprises and the regression of private enterprises”. In government during the 1980s, everyone competed to take charge and to be a trailblazer. Now, everyone wants to avoid taking responsibility and to keep quiet. The whole spirit of the country has changed fundamentally.

China made its transformation from one type of economy to another a macroeconomic, monetary and fiscal stimulus issue. But what the transformation of the Chinese economy has really meant is opening up the market and relying on the spirit of economic entrepreneurship. In its domestic market, China’s most notable achievement has been a tremendous development of transportation and the accompanying very large drop in transportation costs. Although this has physically unified the Chinese market, the problem remains that transaction costs are still extremely high.

The Chinese system makes market transaction costs very high. High transaction costs constrain entrepreneurship and prevents the transformation of the Chinese economy from being fully realized. Moreover, the influence of statism is very strong. China’s state-owned enterprises have become an important factor in Sino-US relations. Maintaining the state-owned sector which these state-owned enterprises inhabit will not be good over the long term for China from the international strategic perspective and will constrain China’s opening up to the outside world.

China’s future development will depends to a very large extent on the reform of its political system. The big difference between China and India in terms of development is that India first democratized the political system and then liberalized the economy; China first liberalized the economy and has left reform of the political system as an issue for the future. From a sequencing perspective, I think China’s approach is better. However, it does carry huge risks, because reform of the political system will be essential sooner of later. India has already passed this test. China has not.

I believe that over the next three decades, China should, during the first fifteen years, first focus on judicial reform – on the establishment of a society ruled by law – and then, during the next fifteen years, focus on democratization. Justice should come before before democracy, because the rule of law is the foundation of social stability. In the long run, China needs to explore new pathways. These explorations may be inspired by the example of Hong Kong. China should also study the experience of Taiwan and Vietnam. China can start with political reforms in areas such as functional constituencies (professional groups), with democracy within the Chinese Communist Party and perhaps then it may be able to gradually complete the transition to democracy over the next 30 years.

There are many disagreements between the US and China. These are mostly bilateral disagreements. There are conflicts of interest arising from competition over resources and in geopolitics. There are also conflicts of values. Sino-US relations generally revolve around these two kinds of conflicts. For example, the Taiwan issue is a matter of interests. The United States often competes for its interests in the international arena under the pretext of defending values.

Sometimes the United States also faces conflicts in its own interests and values. For example, United States supported people like Mubarak who were dictators and stood for things that were contrary to American values. If a problem arises in those countries, there is certainly too a conflict between US interests and US values. From what I can see, the United States has finally chosen to subordinate its interests to its values in order to solve problems in the Middle East. It will no longer blatantly support those dictators. This conflict within the United States itself disturbs the entire international community and also affects Sino-US relations.

As far as conflicts of interest go, many US entrepreneurs, economists, and leaders all fundamentally believe that the economic benefits that can be attained through mutually beneficial cooperation are much greater than what can be gained by clashing. Our economic interests still largely depend upon cooperation. Therefore, the main differences between the two countries arise from differences in their politics and in their core values. How should these conflicts be resolved? Some solutions might simply resolve conflicts at the level of international relations, but these solutions might be very difficult for people domestically to accept.

From this perspective, many problems in Sino-US relations ultimately come down to the establishment of a democratic government in China and the reform of China’s political system. The path that China takes towards true democratization is both very important and very dangerous. It may move toward the rule of law and democracy as we expect, but then again, it may slip backwards into something ever worse than before.

We now face two major challenges, one is populism (including socialist egalitarianism) and the other is nationalism. By now the legitimacy of China’s leaders, after decades of economic development,can longer be based on its conquest of state power. Continuing economic reforms too are no longer an adequate support for its legitimacy. The only way to legitimate China’s political leadership is by promoting reform of the political system. If sufficient courage, determination and political authority is not put behind political reform, and the leadership instead resorts to populism and nationalism, the situation could become very dangerous. If that happens, major reforms will not be able to be carried out and China may well retrogress. We can well imagine that if lower-level officials feel free to misbehave and commit any crimes they like and higher leaders do not have enough authority to correct them, then a trend that propels China backwards against the tide of history may well prevail. The confluence of the problems of nationalism and populism would make acting rationally much more difficult in China.

Today we often do not address issues neither according to market logic nor in the spirit of the rule of law. Instead, by considering public opinion and other means, we make a moral judgment. Later, we do not consider the legality of the method that we have chosen to handle the issue. In short, reform of the Chinese political system is the critical factor influencing China’s future development.

My conclusion is that the question of whether or not there will be changes in China’s political system over the next decade will have an important effect on China’s future development. As for the United States is concerned, the leadership of the United States will be very difficult to challenge for some years to come. China will very likely economically surpass the United States, but this does not mean that China can challenge the United States and lead the world. The US economy surpassed that of the United Kingdom in 1890, but United States leadership was only established after World War II.

U.S. leaders overly politicize economic issues, making many issues difficult to address. For example, it is still not clear whether the appreciation of the renminbi would benefit the United States. But it would have at least two effects on the United States: first, American consumers would pay higher prices and the United States would face faster price increases; second, it would have a huge impact on the profit structures of large international companies. Especially for multinational companies and companies that have famous brands, because they are in an oligopolistic market, they enjoy relatively high profits. Renminbi appreciation would squeeze out some of the profits that those multinational companies enjoy. This would in turn impact the structure of the entire enterprise.

As to China’s international relations, China has no ally that openly and firmly supports it in the world. Compared this with the United States, which has the open support of many allies in the international community. Thus it would be hard for China to challenge U.S. leadership.

I believe that ideas and ideologies influence history. Therefore my attitude is both pessimistic and optimistic. I am pessimistic because the spread of ideas and ideologies is very slow. I am optimistic because our thinking is changing in subtle ways. The ideas of young people are now already very different from those of their elders.

The connection between the PRC and the United States began with relations between our governments. Now people-to-people ties play a large role, including the roles of private enterprises, scholars, media. The United States attaches great importance to the power of civil society. These forces in civil society all affect the way that the world views China. They affect Sino-United States relations as well. The diplomatic power of people in civil society had become the track two of international exchanges.

If we compare a country to an enterprise, from the perspective of the Theory of Evolution, any country after it evolves to a certain extent will encounter some force that obstructs its development. No big tree can grow all the way up to heaven! I do not believe in the decline of the United States. However, its international status will begin to decline relative to what it was before. If China can continuously promote market-oriented reforms, steadily carry out political reforms, and adopt appropriate strategies in diplomacy, the U.S. dominance in the world may not last long. However, if China goes the wrong way, then whatever changes there may be the relative statuses of the United States and China, they can only be very insignificant ones.

张维迎 经济学家、北京大学国家发展研究院教授 张维迎 经济学家、北京大学国家发展研究院教授 未来20-30年，美国的领导地位不会发生巨大颠覆性变化。事实上，目前来说，美国在全球的领导地位也符合中国利益，因为中国在各方面尚不具备领导世界的条件，且国际责任等等的成本是巨大的，中国还负担不起。 在近代史上，美国是最具全球领导力的国家。这是因为美国社会活力旺盛，具有很强的自我纠正和修复能力。另一方面，美国吸引了世界上最优秀的人才，这种大熔炉的特性也为美国的强盛奠定了基础。 我曾在几个场合推荐美国的政治家读两本书。 第一本是亚当·斯密的《国富论》，出版于美国独立战争的同一年，近两百多年来的世界基本上就是《国富论》的理念在全球范围的不断扩展。美国政治家之所以应该读这本书，是因为美国现在有走向保护主义的趋势，而世界上没有哪个国家能以封闭而不是开放的姿态来领导整个世界，一个封闭的美国是不具备领导世界的合法性的。 第二本书是老子的《道德经》，美国逐渐要从领导价值观相同或相似的国家转变为领导价值观多元甚至迥异的国家，在这种情况下应该懂得“大邦者下流”，以一种低的姿态来领导整个世界。现在的美国的领导方式是对内自由民主，对外专制，作风霸道。当下它的领导地位虽然没有其他国家可以挑战，但是其领导方式有必要进行改变。中国不能接受的不是美国在全球的领导地位，而是美国的领导方式。 过去200年，世界经历了一个巨大的变革，从大分流（Great Divergence）到大趋同、大融合（Great Convergence）。数据显示，在200年之前的漫长的历史中，一个国家的人口和GDP的相关系数基本是1，19世纪之后两者的相关性剧烈下降（大分流），20世纪70年代达到最低水平，然后又逐渐恢复到21世纪初的0.55左右（大融合）。这种大融合的趋势是不是会继续下去将会对国际关系的领导格局带来巨大的改变。 我的观点是，世界的格局和美国的地位很大程度上取决于中国在做什么。如果中国不断犯错误，美国的地位就将得到稳固。近两三年来我对中国发展的态度从乐观变为了谨慎的乐观。这首先是因为一些原本被认为不可逆转的事情现在出现了逆转。这其中包括经济体制的逆转，比如政府干预越来越多，甚至出现了新的价格管制、计划体制的回归，还有“国进民退”。政府方面，20世纪80年代大家比的是谁干事、谁有闯劲，现在比的是谁不干事、谁沉得住气，整个国家的气质在发生改变。 中国现在把经济转型变成一个宏观问题，货币政策问题，财政刺激问题。但是经济转型真正要做的是开放市场，靠企业家精神。就国内市场而言，中国近些年最好的成就是交通的发展，交通成本大大降低，在物理上创造了统一市场的条件，但是最大的问题是交易成本奇高无比。 中国的体制使得市场的交易成本非常高，而交易成本高了之后企业家精神就不能得到有效发挥，无法真正完成经济转型。此外，中国强大的国家主义倾向的影响力巨大。现在国有企业已经成为了中美关系中的重要因素，继续维护这些国有企业的国有体制，从长远的、国际战略角度看是不好的，对中国走向世界会带来负面影响。 中国的未来发展很大程度上取决于政治体制改革。中国和印度在发展道理上很大的区别在于，印度是先进行政治体制民主化，再进行经济自由化；中国是先进行经济自由化，未来再进行政治体制改革。从时间序列上来看，我认为中国的做法是更好的，但是也有巨大的风险，因为政治体制改革这一关是早晚必须要经历的，印度已经渡过了这一关，而中国还没有。 我认为，中国未来三十年里，前十五年的重点应该放在司法改革，建立法治社会，后十五年重点进行民主化改革。把司法放在民主之前是非常重要的，因为法治是社会稳定的基础。从长远看来，中国需要探索新的道路，这种探索也许可以从香港地区得到启发，包括台湾地区、越南的经验也非常值得中国研究。中国可以从功能团体、党内民主等等开始着手政治改革，也许三十年内能慢慢地完成向民主化的过渡。 中美关系中存在很多冲突，主要是两方面的冲突。一方面是利益冲突。两国在利益方面的争夺，包括地缘政治、资源方面的争夺。 另一方面是价值观念方面的冲突。中美关系往往就围绕着这两个冲突。例如台湾问题就是一个利益问题。美国在国际上经常打着价值观的旗号来争夺利益。 但是有时美国也会面临自己内部的利益诉求和价值观诉求发生冲突的时候。例如美国在中东所支持的人，如穆巴拉克，都是一些独裁者，是和美国的价值观所违背的；一旦这些国家出现了问题，美国这种利益和价值观的冲突就暴露无疑了。就我观察，这几次中东问题美国最后还是选择了利益服从价值观的做法来解决问题，不会明目张胆地支持这些独裁者。美国本身内部的这个冲突就会给整个国际带来麻烦，也会影响中美关系。 利益冲突方面，美国企业家、经济学家、领导人都基本相信，合作共赢的经济利益比互相冲突时大得多。经济方面的利益还是以合作为主的。因此主要的冲突还是来自政治和核心价值观的不同。这种冲突应该怎么解决？有些做法可能可以简单地解决国际层面的冲突，但是这些解决办法国内的百姓可能很难接受认可。 从这个角度来看，中美冲突的很多问题最终都归结到民主政体的建立、中国的政治体制改革。中国真正走向民主化的过程是非常关键也是非常危险的，有可能向预期一样地走向法治和民主，但也有可能滑向比原来更糟糕的境地。 我们现在面临两个很大的挑战，其一是民粹主义（包括社会主义的平均主义），其二是民族主义。国家经过几十年的发展，领导者权威的正当性已经不是靠打江山了，也很难继续靠经济改革来支持，寻求正当性的唯一途径就是推动政治体制改革。但是如果缺乏勇气，没有足够的决断力和权威来推动政治改革，求助于民粹主义和民族主义，这是非常危险的。在这种局面下，大的改革无法进行，倒退就很有可能发生。可以想象，当下层领导胡作非为的时候上层领导却没有足够的权威性能够表态时，倒行逆施就可能盛行。民族主义和民粹主义的问题相结合，就使得在中国，有理性的行为很难进行。 我们现在在处理问题的时候往往不是按照市场的逻辑，不是以法治的精神，而是先通过舆论等手段对事情进行道德定性，然后就不考虑处理方法的合法性了。总之，政治体制改革将是影响中国未来发展的关键因素。 总而言之，未来十年，中国政治体制改变或者不变，都将对中国未来的发展起到重要的影响。就美国而言，美国的领导地位若干年内难以挑战。未来中国在经济上超过美国是非常有可能的，但是这不意味着中国就能挑战美国、领导世界。美国的经济规模1890年就超过英国，但美国的领导地位只是在二战后才得到确立。 在经济问题上，美国领导人太政治化，导致了很多事情难以处理。例如人民币的升值问题，对美国究竟会有什么好处，现在尚且不明朗。但是其可预期的对美国的影响至少有二：第一，美国消费者会支付更高的价格，美国将会面临更快的物价上涨；第二，将对国际大公司的利润结构产生巨大影响，尤其是跨国公司、品牌公司，因为它们所在的市场是一个寡头市场，利润本身比较厚足，人民币的升值将挤出这些跨国公司的一部分利润。这对整个企业的结构都带来影响。 国际关系方面，中国这个国家在世界上没有公开而坚定的盟友，相比在国际社会上有很多公开盟友的美国，中国是很难挑战它的领导地位的。 我相信影响历史的是理念和思想。因此我的态度是既悲观又乐观的。悲观的是，理念和思想的传播是非常缓慢的。乐观的是，思想仍然在潜移默化地改变。现在年轻人的观念已经与老一代很不一样了。 中国和美国的联系原来只是政府与政府之间，而现在有了很多民间的势力，比如企业、学者、媒体等等。美国对这种力量也非常重视。所有这些民间的力量都在影响世界对中国的看法，影响中美关系。未来民众的外交力量会成为国际交流的第二渠道。 如果将国家比作企业，从进化论的角度来看，任何国家进化发展到一定程度，阻碍它的力量就会出现，没有一棵大树能长到天上！我认为，美国不可能衰落，但是它的国际地位，相对自己的历史将开始走下坡路。如果中国能不断地推进市场化改革，平稳地进行政治体制改革，并在外交方面采取合适的战略，美国在世界上的独霸地位可能不能维持太久；但是如果中国走错了道路，那么美国和中国的地位变化会变得十分微妙。