China’s Post-Reform Trajectory: An Interview with Yasheng Huang Analysis / Microfeatures Ilaria Mazzocco and Matt BarocasMay 24, 2024 China, Economics, US-China Competition In this interview for Big Data China, Trustee Chair Senior Fellow Ilaria Mazzocco speaks with Yasheng Huang (MIT Slogan School of Management) about Chinese institutions and their role in shaping China’s political and economic trajectory, U.S.-China academic collaboration in an era of increasing competition, his framework for understanding the role of diversity in a successful and innovative political system, and how structural inequalities result in overcapacity and declining growth in China’s post-Reform Era economy. Huang, the Epoch Foundation Professor for Global Economics and Management at MIT, is a leading scholar on China’s political economy, historical reforms, and behavioral sciences. Professor Huang is the author of 11 books in both English and Chinese and many academic papers. His most recent book, The Rise and Fall of the EAST: How Exams, Autocracy, Stability, and Technology Brought China Success, and Why They Might Lead to its Decline (Yale University Press, 2023), covers the different political systems of East Asia in a broad historical approach. His book Capitalism with Chinese Characteristics (Cambridge University Press, 2010), examined the different approach to governance of China’s rural and urban economies and its implications for the country’s overall trajectory. He is updating this work to look at economic reforms and performance in China since 1978 in the forthcoming Statism with Chinese Characteristics. Some of the key highlights from the interview include: Mazzocco and Huang discuss his latest book The Rise and Fall of the EAST and how Chinese history and the country’s institutions over the centuries have benefitted homogeneity in ways that have made it more challenging for democratic institutions to emerge organically. China’s government has historically prioritized scale, or homogeneity, in the system over scope, or heterogeneity, which Huang argues has negative implications for innovation and economic growth. “I talk about democracy and autocracy in terms of heterogeneity vis-à-vis homogeneity, but one thing at least I have observed is, not just of China but also of other countries, is that successful economic development, successful technological development, requires a balance between these two forces. You can’t just have one at the expense of the other.” “I would argue that between 1978 and 2018, China handled the balance of these two forces effectively and productively. And that’s why the country had an economic miracle, had a degree of technological and scientific achievements, had globalization, innovations, prosperity. That was a rare moment in Chinese history because Chinese history tends to stack against that, it tends to go overboard on scale rather than on scope.” Huang argues that Chinese elites misunderstand the drivers of growth and overemphasize the role of government. Although government support has been important, private companies have played an important role and China’s success is due to a diverse set of social and economic conditions. “I actually think that these subsidies and the government support today are doing more harm to these companies than they were benefiting these companies. I believe that the competitiveness of these companies is sufficient enough to propel them to the global stage and the subsidies are an extra push, but I don’t think without those subsidies those will be total failures." Huang and Mazzocco discuss the role of politics in China’s economy. Huang argues that the Reform Era was defined by an effort to move China away from the Mao era and it officially came to an end when the China’s constitution was amended to remove term limits, effectively paving the way for Xi Jinping to extend his tenure indefinitely. “I define the reform era first and foremost as a political act. In that sense, the reform era is over.” Mazzocco asks Huang to explain his argument in his book Capitalism with Chinese Characteristics (and the upcoming update Statism with Chinese Characteristics) that economic reforms were really propelled forward by political reforms in China in the 1980s and that Tiananmen represents a watershed moment in China’s development trajectory. Moreover, the roll-back of political reforms after 1989 undermined economic reforms in the long term. “The changes that Zhao Ziyang proposed in the 1980s to separate the function of the party from the state, to separate the political management of the government from the economic management of the government, transparency reforms, a degree of media freedom, and depoliticization of the Chinese bureaucracy, all these reforms were reversed immediately after 1989." “Once you weakened or reversed these Zhao Ziyang reforms, you expose Deng Xiaoping. So, the bigger reforms introduced by Deng Xiaoping: term limits, mandatory retirement and government objective should be about economic development. These are the three biggest things that Deng Xiaoping introduced as political changes, you expose these three changes to an act by a future strong leader and that’s exactly what has happened since 2018." Huang then explains the tension between political and economic objectives, between state control and private entrepreneurship as the defining feature of the current era under Xi Jinping. “I think this era is going to be this tension between economics and politics. The Chinese economy moved away from central planning, from socialism, far away enough so that that reversing them will not be something very easy, unlike politics. So if the leaders after 1989 didn’t reverse Zhao Ziyang reforms, it would have been much more difficult for them to reverse Deng Xiaoping reforms in 2018. But economics, that’s more difficult because it’s more distributed, because of the global connections, and also very importantly because the Chinese economy in a very strange way is extremely dependent on Western rich countries.” “The current government talks about big projects, industrial policies, science, semiconductors, big city developments, infrastructure. Okay you can talk about these things all the way you want, but these things require resources. Who is going to generate resources? It’s going to be the private sector. So there are tensions domestically between the political policy of cracking down on private sector and the financial and economic dependency on the private sector. These are the tensions that didn’t exist before Xi Jinping and now these tensions are coming to the forefront of the Chinese economy, the forefront of the Chinese politics.” Mazzocco and Huang discuss the structural sources of manufacturing overcapacity in China, a problem that is increasingly fueling trade tensions between China and other economies. Huang argues that systematic inequality between Chinese rural and urban households is a crucial factor in explaining low consumption in the Chinese economy, which then translates into excess supply be exported. “The way that the Chinese economic strategy is geared toward the production side, supply side of the economy, rather than to the final demand side. The fundamental reason for that, there are many reasons, but let me just name one is that the rural Chinese are essentially the missing picture here. The whole property boom and much of the GDP growth did not benefit proportionally the rural Chinese.” “So that’s actually the fundamental problem with the Chinese economy today. It is not narrowly about subsidizing EVs and subsidizing solar it has fundamentally to do with factor market, the land reforms are not happening, and the hukou [household registration] reforms are not happening, the labor market reforms are designed to benefit the capital at the expense of the labor.” Interview Transcript CSIS-Big-Data-China-Interview-with-Yasheng-Huang-TRANSCRIPT-1Download Featured Scholar Yasheng Huang Yasheng Huang holds the Epoch Foundation Professorship of Global Economics and Management at MIT Sloan School of Management. From 2013 to 2017, he served as an Associate Dean in charge of MIT Sloan’s Global Partnership programs and its Action Learning initiatives. His previous appointments include faculty positions at the University of Michigan and at Harvard Business School. This year, he is a visiting fellow at the Kissinger Institute at the Woodrow Wilson Center in Washington, D.C. Professor Huang is the author of 11 books in both English and Chinese, many academic papers, and writes frequently for publications such as the New York Times, Wall Street Journal, Financial Times, and Foreign Affairs, and Caixin. His most recent book, "The Rise and Fall of the EAST: How Exams, Autocracy, Stability, and Technology Brought China Success, and Why They Might Lead to its Decline," was published by Yale University Press in 2023. Resources Yasheng Huang, The Rise and Fall of the EAST: How Exams, Autocracy, Stability, and Technology Brought China Success, and Why They Might Lead to Its Decline, Yale University Press (2023). Richard Lester, Lily Tsai, Suzanne Berger, Peter Fisher, M. Taylor Fravel, David Goldston, Yasheng Huang, and Daniela Rus, “University Engagement with China: An MIT Approach,” MIT China Strategy Group, MIT (November 2022). Yasheng Huang, Capitalism with Chinese Characteristics: Entrepreneurship and the State, Cambridge University Press (2010). Scott Rozelle and Natalie Hall, Invisible China: How the Urban-Rural Divide Threatens China’s Rise, Chicago University Press (2020). Ilaria Mazzocco, “How Inequality is Undermining China’s Prosperity,” Big Data China, Center for Strategic and International Studies (May 26, 2022). Authors Ilaria Mazzocco Ilaria Mazzocco is a senior fellow with the Trustee Chair in Chinese Business and Economics at the Center for Strategic and International Studies (CSIS). She has over a decade of experience researching industrial policy, Chinese climate policy, and the intersection between the energy transition and economic and national security. Prior to joining CSIS, she led research on Chinese climate and energy policy for Macropolo, the Paulson Institute’s think tank. She holds a PhD from the Johns Hopkins School of Advanced International Studies (SAIS), where her dissertation investigated Chinese industrial policy by focusing on electric vehicle promotion efforts and the role of local governments. She also holds master’s degrees from Johns Hopkins SAIS and Central European University, as well as a bachelor’s degree from Bard College. She speaks Chinese and Italian. Matthew Barocas R. Matthew Barocas is the program manager for the Trustee Chair in Chinese Business and Economics at the Center for Strategic and International Studies (CSIS). Prior to joining CSIS, Matthew received an MS in global affairs from Tsinghua University in Beijing as a Schwarzman scholar. In Beijing, he researched U.S.-China diplomacy during crisis points in the bilateral relationship and experienced life under China’s zero-Covid policy. He graduated summa cum laude from the University of Florida Honors Program with a BA in history and political science. Matthew is from Miami, Florida. This feature was made possible through the generous support of the Stanford Center on China’s Economy and Institutions (SCCEI). Photo Credit: Peter Limafp via Getty Images Cite this PageIlaria Mazzocco and Matt Barocas, "China’s Post-Reform Trajectory: An Interview with Yasheng Huang," Big Data China, Center for Strategic and International Studies, May 24, 2024, last modified May 24, 2024, https://bigdatachina.csis.org/chinas-post-reform-trajectory-an-interview-with-yasheng-huang/.Copy