HONG KONG -- On Friday, China released a disappointing set of second quarter growth figures, including a GDP growth rate that fell to 7.6 percent from 9.5 percent a year ago. The numbers have intensified jeremiads about the end of China's boom, which saw Barron's declare before the figures' release, "It looks like the Great China Growth Story may falling apart."
Even premier Wen Jiabao publicly bemoaned "huge downward pressure" on China's economy last weekend, while calling for "more aggressive" fiscal and monetary policies in the months ahead. He pointed to weak overseas demand, especially in Europe, as the source of China's woes.
The relatively liberal Wen is certainly right that diminished demand from abroad inevitably hurts China's export-driven economy in the short-run. But more conservative elements in China's leadership have decided to go even farther than suggesting that foreign economies are to blame for this slowdown. This news, in their view, exposes the crisis of a foreign model -- the crisis of "Western Neo-Liberalism."
Of course, this isn't the first time in recent years that neo-liberalism, a pejorative term to describe belief in free markets, has been criticized in the Chinese press -- or that China's development path has been praised as a better way. (Some in China, like the economist Zhang Weiying, have pushed back against these attacks, arguing that more privatization and strong market forces are exactly what China needs.) And Western media certainly hasn't shied away from bemoaning a crisis of liberal economics in the wake of the global financial crisis, exemplified by the Economist's 2009 cover depicting a melting "Modern Economic Theory" textbook and a 2012 Economist issue dedicated to the rise of "state capitalism."
But, crucially in the context of China, these views have been given extraordinary prominence in a tumultuous time when debates about the fundamental goals of China's economic reforms are key indicators about China's political future -- and are taking on a new degree of urgency at a moment when some believe that China's economic miracle may be "falling apart."
In the days between Wen's comments and the figures' release, the party organ People's Daily gave unusually extensive attention to economic views that attack market forces. In the run-up to the leadership transition later this year, this emphasis reveals that a crucial choice may have been made in China's top echelons: the fight against slowed growth in China will not be waged through more market reforms that would promote increased efficiency and output, but rather will be an excuse for greater state intervention in the economy.
Last Wednesday, the People's Daily devoted a full-page spread to the newly-released macroeconomic writings of Li Peng, the country's former premier who is well-known for his advocacy of strengthening state involvement and limiting market leeway. Twenty years ago, Li Peng even allegedly opposed Deng Xiaoping's Southern Tour, which eventually restarted economic reform after the post-1989 standstill. The People's Daily urged readers to "study" Li Peng's works as a guide to the nature of the Chinese economy and policies going forward.
In the same day's paper, another long article called "Grasping the Nature of Western Neo-Liberalism" sought to pin down just what the enemy of Chinese growth is. Written by a scholar of Marxist economics, the article criticizes the belief in "free flow of investment capital" and "privatization of the public sector" -- two extremely sensitive issues in China today, where capital is still allocated largely under state influence and state-owned enterprises continue to dominate the economy. The piece characterizes this "ideology" as an embrace of "the law of the jungle," with negative consequences for all but the richest members of society.
The article claims that what is true in individual societies is also true in the world: "Neo-liberalism has brought untold suffering to to many countries." Even more, the piece claims, "neo-liberalism" was "the most profound source of the ongoing global financial crisis." China's "socialist market economy" system, on the other hand, is a mode of "firm resistance" to neo-liberalism. Not everything in the Chinese economy is perfect, the essay acknowledges -- but at least it's better than stagnating Western countries dragged down by the burdens of "neo-liberalism."
Sure enough, in announcing Friday's growth figures, Sheng Laiyun of the National Bureau of Statistics said, "Even though the economy continued to decline, I think that compared to other countries it isn't bad... The economy remains steady." And "steady," in the eyes of neo-liberalism's Chinese critics, is exactly what that "Western" system is not.
The Chinese Communist Party is often characterized as "communist" in name only. But these statements reveal that its "Chinese" and "communist" commitments endure, in part, in the form of conservatives' politically potent opposition to the penetration of "Western neo-liberalism" into China.
China's growth is widely expected to slow further in the second half of 2012. As it does, the new and old guards of China's leadership will be hard-pressed to reassure the Chinese public that their way remains the best way. Putting Wen's statements, the People's Daily articles, and the data together reveals that a major debate about the basics of economy theory and growth is underway--and that the opponents of "Western"-style market reform are gaining influence.