July 13, 2018


Is There Really a 'China Model'? (Bonnie Girard, July 13, 2018, The Diplomat)

If China's model is so successful, and represents a viable and perhaps more appropriate development "alternative" to the American model, then why is China itself using a completely different economic and investment paradigm than its own in most of the rest of the developing world? If, as He Yafei declares, the Chinese model is so strong that it has allowed China to make "remarkable contributions to the world and U.S. economies," then why doesn't it apply the principles of that model in developing countries in which it has strong economic relationships and interests? For example, much of China's relationship with developing African and Latin American nations suggests that it accepts local terms and practices, and seeks to benefit economically from them.

This is very different from the 1980s and 1990s in China, when China was first becoming familiar with various aspects of business and contract law, and was indeed, inviting foreign assistance in formulating those laws. Along with other factors, this cooperation with the richer, industrialized nations of the world to create at least a semblance of a reliable international business framework and legal foundation, inspired foreign direct investment into China of unprecedented levels, which in turn played a large role in China's overall development.

Two other key conditions play a large role in the "China model." The first is the Chinese Communist Party (CCP). China's economic model rests on a one-party political system, which is part and parcel of the fabric of the country. The CCP is the connective tissue that ties all business, social, and public sectors together in China. Its presence and power had already been established by the time that it decided to let go of strict Marxist principles and allow a modicum -- which became a tidal wave -- of for-profit business to take root in the country. For good or for bad, there is no denying the pivotal role that the CCP plays in the "China model" of economic development.

China does not, however, any longer openly encourage other developing nations to develop their own communist parties, or to organize under Marxist (with Chinese characteristics) principles. Yet, as He surely knows and would agree with, without the CCP, the China model doesn't exist.

A second, more technical condition exists in the China model, one which has had a profound importance on the development of business at all levels in China. Chinese companies, whether domestic or foreign-owned, must be capitalized.

In its original iteration, all companies in China were required to deposit in a bank in China an amount of money, called Registered Capital, that authorities in the relevant Industry and Commerce Bureau deemed sufficient to start up, operate, and maintain the business as a going concern for at least a year. [...]

Do Chinese companies advise their counterparts in the developing countries in which they operate to require Registered Capital as a component of their company law? A review of the record would suggest no.

There is little evidence that China, in practice, promotes its own model of development in the developing countries in which it operates around the world.

Posted by at July 13, 2018 3:59 AM