Driving the dragon: China’s adaptive policymaking

Apr 29, 2024
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China’s economic policymaking over the past few decades is a fascinating example of adaptive planning and strategic foresight. From pivoting away from reliance on globalisation to emphasising domestic infrastructure and poverty alleviation, tilting towards the Belt and Road Initiative (BRI), and now focusing on “high-quality development” (simultaneously upscaling advanced manufacturing while deflating the property bubble), China has demonstrated a sophisticated capacity to recalibrate its economic policies in response to the changing global and domestic landscape.

This remarkable stack of serial achievements, each built upon the success of the last and necessarily a prerequisite for the next, warrants close analysis of the methodology behind this success.

In the wake of the 2008 financial crisis, China found its relatively low value-added, export-reliant economy vulnerable to the shock of lower demand. The crisis prompted a strategic shift towards bolstering domestic demand and reducing reliance on foreign markets. A significant element of this strategy involved huge investments in infrastructure required to build a nation-spanning high-speed rail network. With just over 300 kilometres completed by 2008, China extended the network to more than 43,000 kilometres in the following decade.

But the strategy of improving transportation had larger goals in mind. It represented a new paradigm of mega-scale development and railway engineering driven by innovation in construction. The challenges overcome in connecting the diverse and often difficult terrains of the country honed the skills of Chinese construction firms in tunnelling and bridge-building. These capabilities signalled China’s transformation into a global leader in infrastructure development while stimulating domestic segments of the economy and reducing unemployment that was a direct aftermath of the global financial crunch.

The domestic success of the high-speed rail projects demonstrated a capacity to complete large-scale infrastructure projects efficiently and effectively. The Belt and Road Initiative, announced in 2013, signalled China’s intentions to deploy its infrastructure prowess on a global scale, involving hundreds of projects across Asia, Europe, and Africa. The initiative encompassed not only transportation infrastructure like railways and ports but also energy projects and telecommunications networks.

By leveraging the experience and capabilities developed through its domestic infrastructure boom, Chinese firms embarked on BRI projects with a competitive edge in cost and expertise. This phase of Chinese economic strategy aimed at creating more expansive trade networks, essentially exporting the model of infrastructural development that had proved successful domestically. Furthermore, the BRI served to mitigate overcapacity issues within China by offloading excess production capabilities in steel, cement, and construction.

While the BRI continued to expand, domestic challenges such as the real estate bubble and concerns about environmental degradation prompted another strategic shift towards sustainable, high-quality development, which the Chinese government had anticipated in the “New Normal” strategy of the 2010s. China’s transition from a high-quantity to high-quality economic growth model began a decade ago. The shift was not a reactive measure but a policy-driven adjustment in response to changes in the global market. The Chinese government planned for a gradual deceleration of GDP growth from 10% to around 6%, aiming to maintain this rate before the unforeseen impact of the pandemic. This strategy marked a deliberate shift from high-speed growth to more sustainable, moderate growth rates, focusing on enhancing the quality rather than the quantity of economic expansion.

The transition towards high-quality development involved prioritising innovation, higher value-added industries, and green development.

The new emphasis is on developing sectors like technology and services, which are less resource-intensive and more sustainable in the long term. This shift is supported by policies that foster innovation, such as increased spending on research and development, and initiatives to enhance the technological capabilities of industries.

Strategic goals are also supported by China’s series of Five-Year Plans. These plans have consistently emphasised infrastructure development, technological advancement, and now increasingly, sustainability. The 14th Five-Year Plan, for example, places significant emphasis on innovation, green development, and the digital economy, which directly support the infrastructure and technological goals of the BRI.

The secret sauce of China’s policymaking process involves several key steps.

Before formalising any major initiative, the Chinese government often employs experts from think tanks, academia, and industry to conduct extensive research and feasibility studies. This helps in shaping the policy’s objectives, mechanisms, and potential impacts.

Major policies often originate from the top leadership, with significant input from the CCP’s highest echelons, including the Politburo and its Standing Committee. President Xi Jinping personally announced and championed the BRI.

For sweeping initiatives, coordination across various government bodies is crucial. This includes ministries such as Foreign Affairs, Commerce, and others that deal with infrastructure, finance, and international cooperation.

The National Development and Reform Commission (NDRC), along with other relevant ministries, also plays a crucial role in formulating the detailed policy framework. They draft plans, guidelines, and funding mechanisms.

Once formulated, the policy is queued for approval by the CCP’s central committee and the State Council. After approval, it is officially promulgated and the implementation phase begins. This phase involves local governments, state-owned enterprises, and private sector players.

Chinese policies typically undergo periodic reviews. Feedback mechanisms are in place to monitor progress and challenges, allowing for adjustments to the policy as necessary.

The BRI, as a global infrastructure and economic development initiative, is managed with a high degree of state coordination, aiming to enhance trade routes and economic ties between Asia, Europe, and Africa, reflecting China’s strategic economic and geopolitical interests. This initiative is a prime example of China’s top-down approach to policymaking, where strategic visions set by the leadership dictate policy directions and implementation mechanisms.

In conclusion, China’s economic policymaking over the past few decades has been characterised by adaptive planning, strategic foresight, and a remarkable capacity to recalibrate in response to changing global and domestic landscapes. From the pivot towards domestic infrastructure post-2008, to the global ambitions of the BRI, and now the focus on high-quality, sustainable development, China has demonstrated a sophisticated approach to economic strategy. This approach is underpinned by a centralised, top-down policymaking process that allows for the effective implementation of major initiatives. As China continues to navigate the complexities of the global economy, its ability to adapt and strategise will undoubtedly shape the planet’s economic trajectory for years to come.

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