Rebalancing is not retreat

By Daryl Guppy

Western criticism of China comes in repeated waves where old issues are raised as if they are new. The latest wave revives the charge that in the economy the state-owned enterprises are advancing and private enterprises are retreating. This is despite the fact that more than 90 percent of China's business entities are from the private sector.

This assessment is based upon several incorrect assumptions. Chief amongst these is the idea that the only valid economic model is that which dominates Western economies – the U.S. economic structure in particular.

This assumption ignores the way European, UK and U.S. economies have delivered sustained increases in homelessness. The Western model based on private enterprise seems unable to deliver improved living standards or sustained economic growth.

The structure of the Chinese economy is consciously different from that of the West. It places a higher priority on social outcomes delivered by economic activity. These social outcomes are encapsulated in the policy of common prosperity.

China is widely admired for its success in eliminating poverty, but is given less credit and support for the next steps which are designed to ensure that economic benefits are more evenly distributed in society. The U.S. economic model delivers a plutocracy where the rich decide the priorities of economic and social policy.

Like every economy, the Chinese economy is in a constant state of flux, of development, and rebalancing. The relative mix of economic factors, private and state-owned, will vary as the economic conditions change. This is not evidence of economic stagnation. It is evidence of dynamic policy adjustment to meet changing circumstances.

Western commentators often draw an artificial distinction between the role of state-owned enterprises and the intervention of the state in economic activity. During the 2008 global financial crisis the United States effectively nationalized the banks, bailing them out with taxpayer funds. This was state intervention on a scale never seen before in so-called private enterprise economies. The so-called "too big to fail" private enterprises required state support to survive.

No one suggested that this was an example of private enterprises retreating when in fact the very survival of the private banking system depended upon state intervention.

The Western response to COVID-19 saw similar levels of state intervention and the use of state funds to support private enterprises as they retreated from the marketplace. The structure of Western economies ebbs and flows in response to the broader economic environment.

So too does the composition of the Chinese economy. As broader global economic conditions change, the balance of state-owned and private enterprises also changes with the objective of supporting and enhancing common prosperity to reduce social inequality.

This has been the situation since the 18th National Congress of the Communist Party of China (CPC) in 2012. China insists on comprehensively deepening reform by giving full play to the leading role of economic system reform. It is a process of constantly improving the socialist market economic system so it is able to deliver economic progress against a set of criteria to which the Western economies are not held.

A supermarket in Nanjing, capital of east China's Jiangsu Province, June 12, 2024. [Photo/Xinhua]

Western economies look to the state to fill in the gaps of economic and social distress left by an emphasis on private enterprise which ignores the adverse social impacts of economic activity. The Chinese economy ranks the social impacts alongside the economic impacts of business activity. At times, this requires greater participation from the state-owned components of economic activity. At other times, the economic advance is led by private enterprise and the influence of state-enterprise activity shrinks.

Ultimately the idea that state-owned enterprises are advancing and private enterprises retreating is an irrelevant observation because it ignores the complete economic and social situation which is designed to reduce social inequality.   

What is more important is to understand how a company behaves in the business landscape distinct from who its nominal owners are. This idea is slowly creeping into the assessment of Western business activity with a new focus on environmental, social and governance measures. This is recognition that a good economy is measured by more than just the wealth of the business barons.

The Chinese approach to business already includes these social considerations. The social outcomes of business are ranked equally beside the dollar outcomes. This is consistent with the concept of developing a prosperous society rather than a plutocracy.

China's success in the face of the global financial crisis, its rapid reorientation towards a true digital economy and the restructuring to create a dual circulation economy is evidence of constant improvement in a market economic system. The third plenary session of the 20th CPC Central Committee in July this year introduced several measures to ensure that the business environment steadily improves.

The Chinese path of economic growth which supports common prosperity is not a path followed by Western economies which focus on the generation of wealth for an increasingly smaller section of the community. The current wave of economic criticism of China fails to understand the economic policy objectives and the way these dynamically respond to changes in economic conditions.

State-owned, or privately owned, or a mixture of both – all are working towards a common objective of social and economic responsibility to deliver a level of common prosperity where wealth is more evenly distributed than in Western economies.

Daryl Guppy, a special commentator on current affairs for CGTN, is an international financial technical analysis expert. He has provided weekly Shanghai Index analyses for media in the Chinese mainland for more than a decade. Guppy appears regularly on CNBC Asia and is known as "The Chart Man." He is a former national board member of the Australia China Business Council.