China Needs Bigger Government

An injured migrant worker in Jiaxing, China, February 2013
An injured migrant worker in Jiaxing, China, February 2013 Reuters

Originally published at Foreign Affairs

September 22, 2020, 8:00 am (EST)

An injured migrant worker in Jiaxing, China, February 2013
An injured migrant worker in Jiaxing, China, February 2013 Reuters
Article
Current political and economic issues succinctly explained.

"In China, the state controls the commanding heights of the economy—an arrangement that has fed the outside perception that Beijing poses a particular threat to the global economy.

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The Chinese state limits imports, for example, and rewards foreign firms that shift production to China and voluntarily share their technology with Chinese partners. For nearly ten years, state control of the exchange rate has kept the country’s currency significantly undervalued. Generous credit to state-backed firms fuels overproduction in sector after sector, allowing Chinese companies to undercut their global competitors in important markets (notably 5G technologies). And now new state-backed investment firms are supporting companies that aim to displace many foreign imports from China’s market, such as those of advanced semiconductors.

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But the pressure China puts on the global economy actually also stems from the opposite problem—namely, the limited role of its government. Far from a behemoth, the Chinese state appears relatively small in its provision of social welfare to its citizens. It may claim to be communist and to embrace the ideological legacy of Karl Marx, but the government offers relatively little support to many workers. It maintains one of the world’s most regressive tax systems while also offering relatively modest social benefits. Thanks in part to these realities, China now is one of the most unequal societies in the world. Its economic behavior on the international stage stems in large part from this domestic reality."

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