Economics and Ideology in China

What's going on inside China? Richard McGregor reports for the Financial Times:

A fierce battle hobbles China’s march to the market Liu Guoguang, a once influential but long retired Marxist economist, recently burst back onto the scene with an incendiary warning for the Chinese government. If it did not rein in market reforms and deal with the growing, gaping rich-poor divide, China would “change its colour”: code for the “red” Communist party losing power.... Almost overnight, symposiums were staged around the country to study his “economic thought”....

On one level, the attack by the elderly economist seemed to symbolise a backlash against Mr Hu’s government. But such straightforward interpretations no longer apply in a China where few debates fit neatly into an old-style Marxists-versus-the-market template. How, after all, could Mr Hu be criticised for the rich-poor gap when he, along with Mr Wen, has made tackling it a centrepiece of his economic policy?

When Mr Hu took over from Jiang Zemin three years ago, he inherited a country wealthier than it had been for generations but also more unequal. China is now less equal than the US and Russia, according to the World Bank, and income inequalities are still widening.... Even as official poverty levels have been falling and literacy rates rising, education researchers are discovering that drop-out rates among rural children from junior secondary schools average 30-40 per cent. “This is the most under-reported story in China – the country’s massive failure to educate its rural youth in the 1990s.” says Yasheng Huang.... Mr Hu and Mr Wen... declaring that addressing the rich-poor gap and improving the lot of those left behind by the boom years, especially farmers, would be a hallmark of their administration. Their policy response, however, has so far satisfied few.... To old Marxists such as Mr Liu, Mr Hu and Mr Wen have not done enough to uphold government – and, by implication, party – control of the economy.... [C]elebrity economists such as Lang Xianping... have criticised privatisation as a slow-motion Russian-style theft of state assets. Many mainstream economists counter that the Hu-Wen administration is shaping up as a disaster precisely because it refuses to tackle the state’s still dominant role....

For the Marxists, the growth in inequality and popular disenchantment with reform are directly related to the rise of the entrepreneurial economy and private wealth. Mr Huang at MIT turns this proposition on its head.... “The resilience of the state sector is a result of vast, powerful vested interests, powerful because so many of the remaining state enterprises are essentially wholly-owned subsidiaries of government agencies,” he says. “The best examples are the health and education sectors. Price inflation in these sectors since the mid-1990s has been rampant. At the same time,private entry into these two sectors has been minimal. Bureaucratic windfalls are enormous.”...

In the one area that there is a consensus on the need for urgent action – the countryside and small villages where most Chinese live – there is also increasing division about the proper response.... In rural areas the most sensitive issue, and one the government so far has dared not touch, also revolves around giving greater play to the market, with all the risk that entails. City residents can now buy and sell their homes but rural land remains under collective ownership and cannot be traded by farmers. As a result, land in rural areas has less than 10 per cent of the value of urban land.... Such differentials offer an irresistible financial incentive to corrupt officials to take rural land, reclassify it and sell it on for homes or factories....

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Zhou Xiaochuan has been an unusually activist governor of the People’s Bank of China.... So for anyone attuned to the subterranean rhythms of Chinese politics, an article published last month in a small Hong Kong newspaper attacking Mr Zhou had ominous undertones. The article gave him no credit for his policy work as central bank chief, instead damning him as unprofessional. His support for market devices such as derivatives would attract foreign “wolves” into China and lead to an explosion in bad debts.... It is no secret why Mr Zhou and his supporters have accumulated enemies over the past year. At a time when market reforms have been under pressure, they have pushed ahead with their agenda and achieved notable successes....

Mr Zhou has not strayed from the orthodox party line on politics, but a number of prominent economists who are broadly aligned with his reforms have suffered in the crackdown on liberal think-tanks and non-governmental organisations in the past year. Economists Mao Yushi and Wu Jinglian have both had research institutes closed, in Beijing and Shanghai respectively. Others, such as Zhang Weiying of Peking University, have been taken to task for being too close to China’s new breed of entrepreneurs.... Hu Jintao and Wen Jiabao, prime minister, have engineered a stifling political climate, which has seen numerous newspapers closed and editors sacked.... [T]heir views on economics and on issues such as privatisation and foreign investment in banks are much less clear. Some see that as a product of weakness and indecision....

“We are all very much on the defensive right now,” says another well-known economist with close connections to the liberal camp. The economist... was stunned by the reaction to a recent speech he delivered in Beijing to a university economics faculty, a group that he thought might be open to ideas and debate.... Members of the faculty rose not to debate but to denounce him. “We must keep in mind our [foreign] enemies,” one professor told him, to wide applause. “We are still a socialist country.”...