Читать книгу The Political Economy of the BRICS Countries - Группа авторов - Страница 34

China’s party-state draws its political legitimacy by delivering consistently rising living standards with employment generation. While the political power is concentrated in the central government (and party apex), economic decision-making is decentralized at the level of provinces and cities, with the centralized party, army, and bureaucracy forming the glue that binds the large, unevenly developed country. The party-state sets the national economic goals via 5-year plans, the achievement of which becomes the target for the provinces. Provincial bureaucracy and the party-state are incentivized to achieve the plan targets and maintain social harmony (proxied by employment generation locally).

Fiscal decentralization without an institutional mechanism of devolution of financial resources from the center to the provinces (perhaps after abolition of agricultural taxes) seems to have compelled provinces to depend on land sale and property sale and long-term lease as means of raising fiscal resources. This is possible in China because land, by definition, belongs to the state. However, Chinese provinces cannot raise public debt, but they get access to bank credit for capital investment as long as they support economic growth (via local party-bureaucracy’s influence on the banking system, which is almost entirely state-controlled). Further, state-level party and bureaucracy seem to have an incentive to prioritize economic growth (over other socioeconomic objectives) because their professional upward mobility seems contingent upon delivering output growth and employment generation in their territory. Similarly, provincial statistical offices have an incentive to show that the targets are met, which is said to be a reason for the overestimation of provincial output growth and an underestimation of unemployment rates.

Given the incentive structure, and political legitimacy derived from generating growth and employment, the aftermath of the financial crisis posed a major challenge to Chinese policymakers. China, therefore, undertook massive fiscal and monetary stimulus measures — perhaps the largest among G20 countries — to prop up domestic demand in the face of collapse of the external markets [need to quantify these measures as GDP%]. Most of these resources went into infrastructure and urban housing. Urbanization therefore became a policy goal it itself.⁴ Though such a policy did not revive economic growth to pre-financial crisis level, it perhaps prevented a collapse of domestic demand and employment. Investment levels were maintained (or even surpassed the pre-crisis levels), and the best evidence of it is the rise in debt/GDP ratio from about 160% of GDP before the crisis to the current level of 230–260% of GDP (Figure 3).

Figure 3:China’s debt–GDP ratio.

Source: Goldman Sachs: Walled in: China’s Great Dillemma (2016).