Can China do nothing wrong?

Q: What do you think about the claim that China and its increasingly central-planned economy is a genius model that can do no wrong?

A:

“Can do no wrong” is an exaggeration. What makes the Chinese system good, economically, is that the institutional cost is low.

China is a society with high trust, a harmonious society, as the Chinese leader promotes. In China, the government trusts the people, and people trust the government. In the West, the government cannot trust the people, and people cannot trust the government.

For example, to address one issue, Chinese lawmakers produce an act of a few pages and publish it in newspapers. In the West, politicians use slogans for campaigns and make an act of two thousand pages. Nobody knows how many fine prints are in the act to cover up the interested groups to satisfy their lobbyists. It becomes a big business for lawyers and accountants once a new act is passed in Congress. The pundits and commentators bombard the public with what’s good or bad about the new act, preparing for the next election.

In China, a five-year plan always hits the target, as people understand what the plan means and feel the impact of life improvement. In the US, say, the Inflation Reduction Act, people don’t know how much or less, and in what time frame, the inflation can be reduced, at what cost. The act became an economic rent-seeking scheme, and many companies tried to find a loophole to get more government subsidies.

Chinese culture of Confucianism values collectivism, and the West values individualism. So if the Chinese government says we plan to grow the economy by 5%, Chinese people are mostly OK with it. But the Western people will ask what it is good for me. If the government grows the AI economy, the oil industry may not like it and will lobby Congress about how this growth should be.

To picture this. Suppose nobody trusts others in a bus; the bus must be built with individual compartments so that nobody can stab others on board the bus. Individualism means high institutional costs and high transition costs. You cannot conduct business without some degree of trust. The lower trust needs more legal safeguards to conduct a transaction. If we shop for groceries, it would be simple to pay for the goods and take them. But to buy a house, you have to hire a law firm to facilitate the transaction.

Moren society is highly specialized, so everyone depends on others in the society. The society functions with many transactions and exchanges. If the law is complex, only lawyers can understand it, then the cost to society is high. China has a low-cost society.

With individualism, the government needs many checks and balances mechanisms. Even with this checks and balances mechanism, government policies are still being hijacked by the military-industrial complex. In the West, individuals can exercise their voting power by casting his or her ballot every four years, and then are powerless facing the system.

So the Chinese system can adapt to the geopolitical environment fast. The West doesn’t think they should adapt to the geopolitical environment; they think they are the boss of the world, and their actions make the geopolitical environment. But China is rising. The West is incapable of adapting to geopolitical change. The Chinese system is winning the competition in the world.