Amid the difficulties in analysing and forecasting macroeconomic conditions, economist Chen Kang likens their changes to a unique game of tug of war between the bulls and the bears — in which economic reforms, policies and outcomes are interpreted differently among the players, and the current outcome encapsulates the people’s aggregate response. However, the big question is whether China will press on with economic reforms despite all the challenges. This is the third in a five-part series of articles on the future of China.

China has implemented regulatory clampdowns at lightning speed across various industries. Reactions to these new policies and directives have been mixed. Some people approve of the Chinese central government's decisive actions to address societal ills and problems, hailing them as part of a grand master plan. Others are sceptical, thinking China is repeating the same old mistakes of using Chinese-style mobilisation methods and creating a grand illusion that the top leadership has the future mapped out and everything under control. Comparing China's counter-pandemic and carbon reduction efforts, economist Chen Kang examines the problems of the Chinese bureaucratic system and the issues that may go wrong when the government runs grand campaigns.

Chen Kang explains why global governance is hard to achieve, not least due to the limited effectiveness of multilateral organisations, the waning willingness of the US to lead in global governance, and the conflicts between global governance and national sovereignty.

China’s willingness to consider joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) is perhaps an admission that emphasising free trade but ignoring fair trade is no longer sustainable. Even sacred cows such as its state-owned enterprises (SOEs) and insistence on the WTO platform for multilateral trade negotiations may be up for discussion. On a practical level, the CPTPP may just be the external push it needs to force its SOEs to reform.

From Mao to Deng to Xi, generations of Chinese leaders have made great and consistent efforts to tackle bureaucracy in the Chinese system. The ills of functional bureaucratisation include rigidness, imprudence and over-staffing, among others, while the ills of structural bureaucratisation lead to unchecked power and its abuse. It is important that one recognises the type of bureaucratisation that one is dealing with and provide the right remedy, says Chen Kang, but the real solution lies in building a system that is predicated on empowerment by the people. In that regard, China can pick up a few tips from observing how the Singapore system works. 

Chen Kang attributes the blindspots in China’s handling of the Covid-19 outbreak to the tendency of officials to withhold information and put up appearances for their own interests. As such, decision-making could be impaired by the asymmetry of information and misaligned interests between superiors and subordinates, especially at the local level. Results then vary based on how well one navigates the minefields of groupthink, collusion and that seemingly innocuous aim of not rocking the boat. Using the prism of formalism, or what is prizing form over substance, Chen points out the weakness of a centralised system.

While it may seem that the Chinese government single-handedly dealt with the Covid-19 crisis in its initial stages, Chen Kang opines that it is the voluntary involvement of the people, social organisations and enterprises that made and continues to make life under lockdown liveable. This process has provided invaluable lessons on public governance that the Chinese government and society should continue to learn from and work on.

Prof Chen Kang opines that after over 40 years of reform and opening up, China is still heavily influenced by the planned economy of its past. China is also stamped with characteristics of market socialism, as its early reform is modelled after the Hungarian experience. Hence, Chen suggests that China should heed the warnings of the eminent Hungarian economist János Kornai, as it takes its next steps forward in its economic reform.

Who is the better innovator between China and the US? Prof Chen Kang observes that both sides are lacking in confidence in their innovative capabilities, and the grass seems greener on the other side. What are their strengths and weaknesses, and how can China and the West overcome their own insecurities to be more adaptable and responsive?