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China's economic policies draw new path for modern macroeconomic theory

chinadaily.com.cn | Updated: 2023-11-25 10:23

A view of Beijing's CBD area on Aug 19, 2022. [Photo/VCG]

During the 30th Asia-Pacific Economic Cooperation Economic Leaders' Meeting, China called on the APEC members to stick to innovation, openness, green and inclusive development for the region to usher in another "golden 30 years". It once again demonstrates China's incredible commitment to the path of peaceful development to build a great country and national rejuvenation on all fronts through Chinese modernization, which will bring more and greater opportunities to the world.

China's economic policies and development philosophy elaborated on so many occasions such as the Belt and Road Initiative Forum and International Import-export Expo represent an important contribution to modern macroeconomic theory and practice in an increasingly divided world.

Economic policies and philosophy

Advocated by Adam Smith and other classical liberals, classical liberalism arising in Western nations in the mid-17th century pursued a collection of so-called liberal principles of free markets, individual liberty, and limited government. Over the past 300 years, it has championed fair competition for events to unfold with little or no central intervention in a complex system, helping the West achieve unparalleled progress.

However, as concluded by Patrick Deneen in "Why Liberalism Failed" (2018), right-liberals with the free-market philosophy and left-liberals with the single-minded advocacy of personal license had together resulted in a culture of hedonism, ignorance, and crippling economic inequality.

Since the 1920s, economists from John Maynard Keynes to Paul Samuelson to Joseph Stiglitz have believed in the doctrine of so-called anti-liberal syllogism in the sense that private arrangements work poorly, the state knows better, and more state is therefore needed. Milton Friedman is reputed for having pointed out that state intervention make markets work better. Business needs incentives to do the right thing, but the incentives rely on governments to spurn favoritism, spur dynamism and maintain openness.

Daron Acemoglu and Simon Johnson, in their book entitled"Power and Progress: Our Thousand-Year Struggle Over Technology and Prosperity"(2023), argue that the state can do a better job than the market of selecting technologies, making investments and implementing supportive policies such as anti-trust, trade protection, and subsidy for certain technologies.

The stagflation of the late 1970s triggered the less-state-is-better consensus and kicked off the neoliberalism era with the free-trade, laissez-faire economic priorities. Typically, Reaganism and Thatcherism moved forward with great strides toward liberalization of national economies and globalization across world markets where private firms were encouraged to follow commercial logic to compete in a global market, while the state largely acted as an umpire to oversee the rules in a global market.

Unfortunately, the West has entered a political cycle in recent years where both right­liberals, represented by Trumpian populism and United Kingdom's Tory Brexiteers, and left­liberals, represented by Biden's modern progressivism, have attacked liberalism's spiritual home. Both populists and progressives adhere to the same philosophy that neoliberalism has eroded America's economic foundation and supply chains security. With warped sense of "national security interests", both American left and right are indulging in geopolitical rivalry, losing faith in liberal capitalism, free markets, globalization and international cooperation and even deploying tactics to destroy geopolitical rivalries.

On the trade policy front, the Biden administration has launched the Indo-Pacific Economic Framework to build trading blocs that undermine the rules-based multilateral trading system and decouple global supply chains, in addition to continuing the dirty work of tariffs left by the Trump administration.

On the financial policy front, misled by the Modern Monetary Theory arguing that the government can finance its deficits "at zero cost" by printing money, the US administration has increased interest rates to a degree not been seen for decades, driving capital of emerging-markets to move out, their currencies to depreciate, and their debts denominated in US dollars to hit a record high.

On the industrial policy front, the US governments has wielded tools such as sanctions, import/export controls and subsidies to support its favored industries or attacked foreign industries. The so-called Uygur Forced Labor Prevention Act of 2021 to ban US businesses from sourcing goods manufactured in Xinjiang, and the Chips and Science Act of 2022 to suppress Chinese semi-conductor development are just some of the examples.

In "Why Liberalism Failed"(2018), Patrick Deneen contended that today's liberal elites who run America's government agencies, educational and cultural institutions have undertaken various self-deceptive, irrational and pernicious policies, leading to most of our woes.

Globalization and modernization

To both bolster national economy and impair geopolitical rivalries, the US-led West uses state intervention tools such as trade protectionism, unilateral sanctions, decoupling, or de-risking under the guise of "human rights abuses" or "national security imperatives" based on an assumption that the world is zero-sum.

In stark contrast, to promote globalization and support developing partners, China wields state intervention tools by using its own resources through high-quality Belt and Road Initiative, China International Import Expo, etc. with a vision that mankind has a shared future.

The first is to address global challenges by using our own resources and opening up vast domestic markets to boost global demand.

The global economy has been under threat, mainly by declining global demand caused by rising global interest rates, a stronger dollar and tangled global supply chains. To boost global demand, China is committed to opening up its huge domestic market to the outside world via platforms mentioned above.

The second is to champion free trade and globalization by furthering opening-up policies.

China resolutely opposes decoupling and deglobalization and rejects hegemony and colonial exploitation. Instead, China has enormous determination to constantly deepen its opening-up policy, champion free trade and globalization, and safeguard the rules-based multilateral trading system, in additional to supporting WTO reform negotiations and trade and investment liberalization and facilitation.

The third is to support developing partners with inspiration and development assistance.

China's rapid economic growth has been a major source of inspiration for developing countries to pursue independent modernization path. The investments associated with the BRI have created 420,000 jobs, helping lift 40 million people out of poverty, among other concrete benefits. The BRI has become an additional source of development funding for developing countries, an alternative to the IMF and World Bank. Partnerships under the "Global Development Initiative" allow development partners to freely share knowledge and resources to bolster international cooperation, defend liberty and justice, and achieve peace and mutual benefit.

The fourth is to join the globally-oriented networks with high-standard free trade agreements.

China is committed to high-quality openness with regards to rules, regulations, and standards by deepening reform in areas related to digital economy, intellectual property and government procurement, and high-standard opening-up, including removing all restrictions on foreign investment access to manufacturing sector and entering into free trade agreements with more countries.

Huang Yongfu is a commentator on economic affairs. The views don't necessarily reflect those of China Daily.

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