Contrary to much popular belief, Beijing’s insistence on centralized economic control is far from a strength.
Many Western journalists, commentators, and politicians fear the complete political and economic control exercised by the Chinese Communist Party (CCP). They see it as a competitive edge over the seemingly chaotic market-oriented approaches of the Western democracies.
Indicative of this view is a recent article by The Wall Street Journal reporter Greg Ip. Entitled “Beijing’s ‘Industrial Policy of Everything’ Leaves the Rest of the World in the Dust,” this piece, like so many similar articles elsewhere, insists that China’s centralized control and ability to focus effort is an economic strength. Ip, and others who argue as he has, could not be more wrong. Beijing’s insistence on centralized control is, in fact, a source of economic weakness, and that fact is already apparent.
Whatever else may be said about Ip’s piece, it is a fine piece of reporting. Succinctly characterizing China’s approach to economic management, he notes how Beijing “targets almost every industry and region, demand as well as supply, services as well as goods, the sophisticated and the mundane.” Beijing control is “macroeconomic and microeconomic” and advances toward Beijing’s “economic, technological, and strategic” goals. All this is correct and quite openly acknowledged, indeed celebrated by President Xi Jinping and the CCP. The planners in Beijing, at the behest of the party authorities, direct and control just about every aspect of Chinese production and economic life.
But as the article’s title makes plain, Ip takes a step beyond straightforward reporting to suggest that this centralized and politically directed approach will help China leave its economic competitors, presumably the United States, in the dust. Ip contends that China is “doing something that the world has never seen” and, in so doing, overlooks a clear example of how such centralized control may not function as well as he suggests. Contrary to his assertion, the approach has been tried before and is the main reason the Soviet Union’s economy failed so utterly and dramatically less than 40 years ago. And it is this same approach that lies at the root of many of the problems presently beleaguering China’s economy.
Take, for example, China’s property crisis. It has held back the country’s economy since it first erupted in 2021. Beijing, unsurprisingly, blames the property developers for the problem. And they have acted in imprudent ways and deserve some of the blame. But the roots of the problem lie with Beijing’s economic planning. It was China’s central plan that, for decades, aggressively encouraged property development by keeping interest rates low, providing subsidies, and fostering a partnership between local governments and developers, making residential construction a major growth driver that, at its peak, accounted for over 25 percent of China’s economy.
And it was the planners who, in 2020, imposed the “three red lines” policy, which suddenly removed support. Developers, extended to comply with older supportive policies, immediately began to fail, starting with the giant developer Evergrande, turning this once growth-promoting sector into an economic drag and unleashing financial repercussions that have since severely limited the economy’s ability to finance other growth-promoting investments. China’s economy, five years on, continues to suffer.
Faced with this ugly situation, China’s planners proceeded to do still more economic damage. Partly in response to a new political ambition to leap ahead of the United States technologically and partly in an effort to find a new growth engine for the economy, the central planners developed the so-called “Made in China 2025” plan. Under this guidance, Beijing used its state-owned banks to pour investment funds into a designated list of industries, among them electric vehicles (EVs), advanced semiconductors, quantum computers, artificial intelligence (AI), and biomedical tech.
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The flow of money built production capacity far beyond the needs of China’s domestic economy, in part because the property crisis depressed real estate prices and household net worth, thereby reducing consumer spending, and in part because a lagging Chinese consumer dampened the need for growth-supporting investments outside areas favored by Beijing. With surplus capacity in favored industries, China has experienced downward pressure on producer prices and the accompanying economic ills.
So now, as an unintended consequence of central planning, China has become more export-dependent than ever, and has done so just as the United States and, to a lesser extent, Europe and Japan have become increasingly hostile to China’s trade. President Donald Trump’s tariffs have experienced a wild ride in the US legal system.
Still, there is no denying that China’s exports to the United States have fallen some 30 percent over the last two years.
