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Covid-19 as metaphor for China’s economic development conundrum

The Covid-19 epidemic is both a public health emergency, and a severe economic shock, which has sucked all the growth out of the first quarter of the year. Whether there will be much of a recovery in the spring depends on how soon the draconian measures to stop the spread of infection last. It is also a serious political and trust challenge for the Communist Party leadership following the sad death of Dr. Li Wenliang earlier in February. President Xi Jinping is facing his strongest challenge to date, and his government’s actions testify to the suggestion that the government has taken Covid-19 almost as a challenge to its authority, and behaved accordingly.  

Yet, there’s also a more profound way to look at China’s unfortunate start to its new year. In the short timeline of the infection, we can discern a metaphor for China’s development conundrum, and the forceful but brittle nature of its current governance system. 

While Mao’s authoritarian and mostly isolated China in the early years of the People’s Republic is remembered mostly for economic and political catastrophes, it did also exploit its capacity to organise and harness resources in a desperately poor country to develop commerce, industry, education, and a state social and housing welfare system. 

Subsequently, economic development was spurred by the party becoming much more pragmatic. It created space for technocrats and professionals, and pursued the strategy of ‘reform and opening up’. This entailed experimentation with ownership structures, the grafting of market mechanisms and tools onto the state system, the pursuit of privatisation, entrepreneurship and certain property rights, and a commitment to a private housing market and openness to trade. By the 2000s, even some civil society institutions and NGO’s enjoyed a brief period of activism.

Yet, by about 2010, China’s development model was in need of a reboot, and a renewed commitment to ‘reform and opening up’. When President Xi Jinping came to power in 2012, though, he quickly orchestrated a political switch back to a Mao-era sort of governance model and ideology that revolves around a high degree of centralisation of personal and party power and authoritarian control. 

At the National People’s Congress in 2017, he told delegates ‘Government, the military, society and schools, north, south, east and west – the party leads them all’. He has not flinched from policies and practices designed to demonstrate this in shaping political and institutional arrangements across government, the economy, finance, education, culture, the media and elsewhere. The burning question now is whether this is compromising a more sophisticated China’s development potential? 

Some disquiet about Xi’s governance system has emerged in China since 2017 focusing mainly on economic performance and institutional obstacles to better economic management.  More recently, criticism has been joined by the government’s handling of the ‘trade war’ and broader relationship with the US, its mishandling of protests in Hong Kong, and its positioning regarding several Belt and Road countries. 

The barrage of criticism and anger, though, surrounding the coronavirus and the circumstances of  the death of Dr. Li, is something else, and ubiquitously and uniquely personal. Citizens have railed against the Wuhan party authorities’ attempts to contain and suppress information about the virus, rather than the spread of infection. The top echelons of the party were likely complicit. 

It is indeed a serious governance issue when the craving for stability, control and secrecy puts politics above people, and stifles experts – in this case doctors – from speaking their minds. 

We can debate if there is a case for authoritarian governance to propel economic development in a poor country that needs to deploy physical labour, and mobilise savings and capital to industrialise. Regardless, the party continues to remind citizens of the narrative in which it is the principal agent of prosperity, jobs, and world class assets such as high speed rail, smartphone, and mobile payments systems. Draconian actions to conquer the spread of infection, and construct hospitals quickly will doubtless become part of this narrative.

Yet contemporary China no longer fits this development script. It is a modern, industrialised  and increasingly information-driven state. Its growth and dynamism in the future will be increasingly determined not by top-down diktat, directives and quantitative targets, but by more flexible institutional arrangements that nurture and encourage productivity, efficiency, and, importantly, personal responsibility and initiative. Lack of transparency and openness, and a stronger deference to political control and stability than to individual initiative and debate contributed in no small way to put the party in the public health predicament from which it is now struggling to escape. We have seen this before in a litany of past health scares, food and public safety issues, a financial crisis in 2015-16, and economic and foreign policy misjudgements.

In complex, information-driven societies, in which we strive for the continuous application of advanced technologies across multiple economic sectors, and independent, accountable and professional regulation, the urge to control and suppress information or knowledge is highly likely to retard development.

The government has doubtless been shaken by Covid-19, but it has reacted with force and determination. It would be rash to assume it will change tack. Who knows whether the resistance online of millions shown after the death of Dr.Li will be subsumed by the re-assurance than tens of millions might be feeling thanks to what will be billed as the heroic actions of the party in the name of the people?

Regardless, the governance structure that has planted deep roots under Xi is both existential to the party, and yet it is also the antithesis of modern economic and social development. This is the biggest contradiction confronting President Xi and China in the 2020s.