South China Morning Post

A search for harmony

Lub Bun Chong says economic developmen­t cannot come at the expense of sustainabi­lity

China concluded its third plenum last month, which came off the back of lowerthan-expected second-quarter GDP growth of 4.7 per cent. The outcome of the plenary session was a disappoint­ment, once again, for Western analysts who seem bent on pressing China for more stimulus to boost its gross domestic product.

Economic developmen­t is a tenet of China’s social contract. President Xi Jinping warned, in his new year speech, that “some enterprise­s had a tough time”, and “some people had difficulty finding jobs and meeting basic needs”. The magnitude of China’s economic slowdown is not lost on its leadership. But sustainabi­lity is also a tenet of the social contract, and economic growth should not be achieved to the detriment of sustainabi­lity – this, too, is not lost on China’s leadership.

China cannot claim to support globalisat­ion yet brush aside the concerns of Western analysts. So its policy agenda is a delicate juggling act of Western concerns and its social contract. A case in point: it announced US$42 billion of stimulus for consumptio­n, but not before earmarking US$139 billion for public projects.

China’s leadership is profoundly influenced by the philosophi­cal notion of “harmony”, which dates back thousands of years and continues to feature prominentl­y in its policy agenda. In “harmony”, the cause-effect relationsh­ip isn’t linear but a dynamic cycle of change and balance, so a linear approach can lead to an incomplete assessment of China.

Unlike “harmony”, the modern form of GDP is an American notion developed in the 1930s. Once lauded by the US Department of Commerce as “one of the great inventions of the 20th century”, it has become the yardstick for the global pecking order, with the US-led Group of Seven (G7) at the pinnacle.

GDP serves a critical function and was instrument­al in global developmen­t after the second world war. But each country’s developmen­t path is different, and a blind pursuit of GDP growth can create unintended effects.

China is one such case and it is not alone. Other notable examples include Japan’s “lost decades”, the Asian financial crisis and the European debt crisis. The circumstan­ces were different, but excessive debt for GDP growth was a common factor.

For China, the remedy calls for long and arduous structural adjustment­s, which will slow the economy as it undergoes a transforma­tion and excesses are drained out.

In 2014, China ditched hard GDP targets and ushered in the “new normal” with a soft target of “around” 7 per cent for 2015. Actual growth for 2015 came in at 6.9 per cent, then the lowest in 25 years, which prompted some Western analysts to raise serious doubts about the “China miracle”.

China’s GDP growth continued to slow, but its transforma­tion gathered pace and was calibrated in response to shifting risks: the “new normal” evolved into “high-quality developmen­t” which was refined into the “new quality productive forces” that featured prominentl­y at the third plenum.

China’s high GDP growth led to excesses, allowing corruption and inequality to fester. With targeted stimulus, it can plug excesses, and this, coupled with its anti-corruption campaign – which has been going on for over a decade – will reinforce its efforts to halt the misallocat­ion of resources intended for its social contract.

Restoring investor and consumer confidence is vital for China’s economy. But it is also crucial to restore confidence in the function of society, which came under duress during the era of high GDP growth. “Common prosperity” looks to restore this with a greener and fairer society – even if there is no immediate GDP boost.

Historical context is essential for an assessment of China’s developmen­t – where it came from, where it is heading, and how these interplay.

China plays the long game, and its governance is measured against centenary goals. These goals do not change, but times do, hence “reforms” and “opening up” are indispensa­ble for upholding the social contract. To clarify, the importance of longterm developmen­t is not lost on the American leadership, either. But the political stakes of losing an election are massive and the priority is understand­ably on delivering short-term results, for winning an election in each four-year cycle.

The US presidenti­al election is around the corner, and to the delight of US investors, the S&P 500 has rallied by around 27 per cent in the past year. In China, the S&P China 500 is a dismal laggard, down almost 7 per cent. The contrastin­g stock market fortunes are emblematic of a deeper divergence in the US-China developmen­t models.

Despite the US-China divergence, the underlying principle is the same, which is governance for the people. It’s pertinent to recall the words of Abraham Lincoln – “government of the people, by the people, for the people”. With regard to “for the people”, it’s worth noting that China and the United States were ranked 1st and 23rd respective­ly in terms of people’s trust in NGOs, businesses, government and the media, according to the 2024 Edelman Trust Barometer Global Report.

Edelman’s ranking is based on a survey and is not definitive, but it does indicate the relative trustworth­iness of the social contracts in the US and China.

With a multipolar world taking root, and pressing global issues like climate change and inequality, it’s timely for global institutio­ns to rethink how they assess the developmen­t model of China, or for that matter, other countries that are not a fit with the US-led G7 model.

China plays the long game, and its governance is measured against centenary goals