The US-Chinese trade war China in the World Economy, 2021 Questions from last time •Which era could be seen as China‘s most free market phase? Questions from last time •Which era could be seen as China‘s most free market phase? •When did China‘s current account surplus reach its peak? Questions from last time •Which era could be seen as China‘s most free market phase? •When did China‘s current account surplus reach its peak? •How were Chinese exports distinct from developing country exports in the 2000s? Questions from last time •Which era could be seen as China‘s most free market phase? •When did China‘s current account surplus reach its peak? •How were Chinese exports distinct from developing country exports in the 2000s? •How did China stabilize its economy during the 2008 Financial crisis? Questions from last time •Which era could be seen as China‘s most free market phase? •When did China‘s current account surplus reach its peak? •How were Chinese exports distinct from developing country exports in the 2000s? •How did China stabilize its economy during the 2008 Financial crisis? •> bank loans to SOE – mostly construction sector > real estate bubble! • Questions from last time •How was China‘s long-term industrial policy thinking influenced by the 2008-2009 counter-recessionary measures? Questions from last time •How was China‘s long-term industrial policy thinking influenced by the 2008-2009 counter-recessionary measures? •Which economic sectors and technologies has China been trying to develop by its industrial policies? Questions from last time •How was China‘s long-term industrial policy thinking influenced by the 2008-2009 counter-recessionary measures? •Which economic sectors and technologies has China been trying to develop by its industrial policies? •What is the name of the biggest currently effective program of industrial policy? Questions from last time •How was China‘s long-term industrial policy thinking influenced by the 2008-2009 counter-recessionary measures? •Which economic sectors and technologies has China been trying to develop by its industrial policies? •What is the name of the biggest currently effective program of industrial policy? •What does it mean to say that Artificial Intelligence is a general-purpose technology? •„…in the IDDS, the opportunity to move directly to the technological frontier and surpass other economies is no longer a wished-for feature of a few random sectors, but rather a fundamental feature of the current global moment.“ • •„Increasingly, Chinese industrial policy is based on the idea that China has a once-in-a-lifetime opportunity to get in on the ground floor of a technological revolution and vault into the leading ranks of economic and technological powers.“ • Today •Continuation – China‘s industrial policies •The confrontation with the United States •Other economic challenges China is facing Today •Continuation – China‘s industrial policies •The confrontation with the United States •Other economic challenges China is facing • •International comparison – finally??? China‘s industrial policy programs •2006 – MLP – „let‘s development these X sectors“ • China‘s industrial policy programs •2006 – MLP – „let‘s development these X sectors“ •2010 – SEI - „let‘s development these X sectors AND become the global leader in them“ • China‘s industrial policy programs •2006 – MLP – „let‘s development these X sectors“ •2010 – SEI - „let‘s development these X sectors AND become the global leader in them“ •2015 – MiC, IDDS - „let‘s development these X sectors AND become the global leader in them AND implement these technologies in the entire economy“ • • Industrial Guidance Funds •Key tool of industrial policy •The previous (MiC25 etc.) were programs laying out goals; this is about the means Industrial Guidance Funds •Inspired by US venture capital firms •But funded by SOEs and banks – indirect state capital Industrial Guidance Funds •Inspired by US venture capital firms •But funded by SOEs and banks – indirect state capital •„You have savings and profits? Give them to a designated fund!“ Industrial Guidance Funds •Inspired by US venture capital firms •But funded by SOEs and banks – indirect state capital •„You have savings and profits? Give them to a designated fund!“ •Investment – both new startups and established firms • Industrial Guidance Funds •Inspired by US venture capital firms •But funded by SOEs and banks – indirect state capital •„You have savings and profits? Give them to a designated fund!“ •Investment – both new startups and established firms •2019 – total commitment 1,6 trillion USD – 11 % of Chinese GDP Obsah obrázku stůl Popis byl vytvořen automaticky Obsah obrázku stůl Popis byl vytvořen automaticky Social credit system(s) •In the West – interpreted merely as a tool of social control Social credit system(s) •In the West – interpreted merely as a tool of social control •Additional purpose – another layer of regulation for businesses Social credit system(s) •In the West – interpreted merely as a tool of social control •Additional purpose – another layer of regulation for businesses •If you follow laws, reduce your emissions, are fair to costumers, contribute to national industrial and technological goals, etc., you will be rewarded Social credit system(s) •In the West – interpreted merely as a tool of social control •Additional purpose – another layer of regulation for businesses •If you follow laws, reduce your emissions, are fair to costumers, contribute to national industrial and technological goals, etc., you will be rewarded •- by cheaper loans, access to public procurement contracts „Wish list approach“ •Matt Sheehan: How China’s Massive AI Plan Actually Works • Next Generation Artificial Intelligence Plan – 2017 „Wish list approach“ •Matt Sheehan: How China’s Massive AI Plan Actually Works • Next Generation Artificial Intelligence Plan – 2017 •A brimful of goals and targets – but no plan of how to acquire them „Wish list approach“ •Matt Sheehan: How China’s Massive AI Plan Actually Works • Next Generation Artificial Intelligence Plan – 2017 •A brimful of goals and targets – but no plan of how to acquire them •> „let the local Party leaders figure this out, we will reward the successful ones“ „Wish list approach“ •Matt Sheehan: How China’s Massive AI Plan Actually Works • Next Generation Artificial Intelligence Plan – 2017 •A brimful of goals and targets – but no plan of how to acquire them •> „let the local Party leaders figure this out, we will reward the successful ones“ •= combination of central plans with local initiative – typical for China since the Great Leap Forward „Wish list approach“ •„The central government isn’t issuing detailed marching orders to local officials for carrying out a master plan. Instead, it’s giving them hundreds of ideas for “gifts” that it would like to receive, and saying, “surprise me.”“ Examples from Sheehan‘s article •Are you in charge of transportation for the new megacity of Xiong’an? Partner with Baidu’s self-driving project, Apollo, to demonstrate autonomous vehicles in the city. •Head of the Changping branch of Beijing’s Public Security Bureau? Spend 2.75 million yuan ($437,000) procuring AI person-tracking software for security cameras. •President of a mid-tier engineering university in Shandong? Open the province’s first AI research center focusing on medical and marine AI. •Party chief of a Nanjing economic development zone? Pour 8 billion yuan ($1.3 billion) into an AI-focused venture capital fund and dole out 5 million yuan ($794,000) in R&D subsidies to each firm that sets up shop there. „Wish list approach“ •“government-steered market economy” The AI triad •1) Collection of data – sensors, cameras with facial recognition etc. •2) Quick transfer of data – next generation Internet •3) Processing od data – algorithms, advanced hardware The AI triad •China is surprisingly weak in the creation of hardware •= mostly semiconductor chips Chips •Basic unit – a transistor – either allows electric current to pass through, or it does not Chips •Basic unit – a transistor – either allows electric current to pass through, or it does not •> coding of 0s and 1s Chips •Basic unit – a transistor – either allows electric current to pass through, or it does not •> coding of 0s and 1s •Semiconductor materials must be used to do this - silicon Chips •Basic unit – a transistor – either allows electric current to pass through, or it does not •> coding of 0s and 1s •Semiconductor materials must be used to do this - silicon •Chip – lots of transistors on a silicon wafer Obsah obrázku elektronika, obvod Popis byl vytvořen automaticky Chips •Basic unit – a transistor – either allows electric current to pass through, or it does not •> coding of 0s and 1s •Semiconductor materials must be used to do this - silicon •Chip – lots of transistors on a silicon wafer •Invented – Bell labs, late 1950s Chips •Since 1970s – Moore‘s Law Chips •Since 1970s – Moore‘s Law •Every two years, the number of transistors in a chip of equal size doubles Chips •Since 1970s – Moore‘s Law •Every two years, the number of transistors in a chip of equal size doubles •> double brute computing force Chips •Since 1970s – Moore‘s Law •Every two years, the number of transistors in a chip of equal size doubles •> double brute computing force •Self-fulfilling prophecy – if you want to stay in business, you must keep up with the Law Chips •Since 1970s – Moore‘s Law •Every two years, the number of transistors in a chip of equal size doubles •> double brute computing force •Self-fulfilling prophecy – if you want to stay in business, you must keep up with the Law •Or focus on specific types of rudimentary, trailing edge chips – Europe! • Chips •China imports the vast majority of its chips Chips •China imports the vast majority of its chips •Its national chip maker- SMIC – Semiconductor Manufacturing International Corporation Chips •China imports the vast majority of its chips •Its national chip maker- SMIC – Semiconductor Manufacturing International Corporation •Quintessential national champion on part with Huawei! Chips •China imports the vast majority of its chips •Its national chip maker- SMIC – Semiconductor Manufacturing International Corporation •Quintessential national champion on part with Huawei! •Extremely high support - 50% of its revenue comes from state subsidies Chips •China imports the vast majority of its chips •Its national chip maker- SMIC – Semiconductor Manufacturing International Corporation •Quintessential national champion on part with Huawei! •Extremely high support - 50% of its revenue comes from state subsidies •But it is still far behind industry leaders and only has a small global market share Chips •SMIC‘s smallest transistors are 14 nm in size •The smallest produced on a large scale globally are 7nm, the cutting edge is moving to 5nm Chips •SMIC‘s smallest transistors are 14 nm in size •The smallest produced on a large scale globally are 7nm, the cutting edge is moving to 5nm •Most of their production is even further from the frontier! Obsah obrázku stůl Popis byl vytvořen automaticky The semiconductor value chain •Perhaps the most sophisticated value chain in the world The semiconductor value chain •No country or company in the world is able to produce cutting edge chips on its own The semiconductor value chain •Dominated by USA + Taiwan, Korea, Japan; Netherlands The semiconductor value chain •EDA – software (US firms) The semiconductor value chain •EDA – software (US firms) •Design – smartphone manufacturers etc. The semiconductor value chain •EDA – software (US firms) •Design – smartphone manufacturers etc. •SME – equipment – US + Japan + Netherlands (ASML) The semiconductor value chain •EDA – software (US firms) •Design – smartphone manufacturers etc. •SME – equipment – US + Japan + Netherlands (ASML) •- extreme-ultraviolet lithography Obsah obrázku interiér Popis byl vytvořen automaticky The semiconductor value chain •EDA – software (US firms) •Design – smartphone manufacturers etc. •SME – equipment – US + Japan + Netherlands (ASML) •- extreme-ultraviolet lithography – largest bumps on their mirrors are smaller than one atom! The semiconductor value chain •Together – „fabs“ – most expensive factories in the world – circa 20 billion dollars to create a production link The semiconductor value chain •Together – „fabs“ – most expensive factories in the world – circa 20 billion dollars to create a production link •Non-monetary inputs – need for engineers with experience, which is extremely rare Obsah obrázku interiér, patro Popis byl vytvořen automaticky The semiconductor value chain •Most important producer of chips in the world – TSMC – Taiwan Semiconductor Manufacturing Company • The semiconductor value chain •Most important producer of chips in the world – TSMC – Taiwan Semiconductor Manufacturing Company •- 50% of global production or so, even stronger on the cutting edge The semiconductor value chain •China – no EDA or SME, few experiences engineers • The semiconductor value chain •China‘s Achilles‘ heel! The semiconductor value chain •China‘s Achilles‘ heel! • •> huge resources are being invested into redressing it The semiconductor value chain •China‘s Achilles‘ heel! • •> huge resources are being invested into redressing it • •> US pressure is concentrated in this area US – Chinese technological rivalry •Khan and Flynn: Maintaining China s Dependence on Democracies for Advanced Computer Chips US – Chinese technological rivalry •Khan and Flynn: Maintaining China s Dependence on Democracies for Advanced Computer Chips •The goal should be to prevent China from gaining a capacity to produce cutting edge chips US – Chinese technological rivalry •Khan and Flynn: Maintaining China s Dependence on Democracies for Advanced Computer Chips •The goal should be to prevent China from gaining a capacity to produce cutting edge chips •> China must be prevented from importing SME (equipment) or licensing EDA software US – Chinese technological rivalry •Khan and Flynn: Maintaining China s Dependence on Democracies for Advanced Computer Chips •The goal should be to prevent China from gaining a capacity to produce cutting edge chips •> China must be prevented from importing SME (equipment) or licensing EDA software •This embargo must include US allies (Korea, Japan, Taiwan, Netherlands) US – Chinese technological rivalry •The goal is not to prevent China from importing chips! US – Chinese technological rivalry •The goal is not to prevent China from importing chips! > that would give them an even greater motivation to develop an indigenous production capacity! US – Chinese technological rivalry •The goal is not to prevent China from importing chips! > that would give them an even greater motivation to develop an indigenous production capacity! •When China is dependent, the US and its allies can impose conditions for usage – so that chips are not used for military purposes, surveillance of Uighurs, etc. US – Chinese technological rivalry •The goal is not to prevent China from importing chips! > that would give them an even greater motivation to develop an indigenous production capacity! •When China is dependent, the US and its allies can impose conditions for usage – so that chips are not used for military purposes, surveillance of Uighurs, etc. • •Biden‘s strategy - in line with this approach Export controls •Cold War-era legislation – it is possible for the US government to ban the export of products which can be used for military purposes Export controls •Cold War-era legislation – it is possible for the US government to ban the export of products which can be used for military purposes •Much harsher than tariffs – outright ban of sale Export controls •Cold War-era legislation – it is possible for the US government to ban the export of products which can be used for military purposes •Much harsher than tariffs – outright ban of sale • •Exterritorial – falls on foreign companies using US inputs or IP Investment screenings •Since circa 2014, China ramped up strategic purchases of foreign technological companies Investment screenings •Since circa 2014, China ramped up strategic purchases of foreign technological companies •> a screening mechanism, which allows US authorities to stop the sale Investment screenings •Since circa 2014, China ramped up strategic purchases of foreign technological companies •> a screening mechanism, which allows US authorities to stop the sale •If the owner still wants to sell, he must find a different buyer, if he can‘t one, the government will temporarily purchase it • •A tighter regime of export controls and investment screenings is being created in the EU as well! •– two new EU regulations in 2021! The US-China trade war • The US-China trade war •„China shock“ – contrary to expectations of economists, the post-2000 surge of imports had negative impacts on many parts of US society The US-China trade war •„China shock“ – contrary to expectations of economists, the post-2000 surge of imports had negative impacts on many parts of US society •> de-industrialization, followed by permanently decreased wages and employment The US-China trade war •Political conflict – winners vs. losers of globalization The US-China trade war •Political conflict – winners vs. losers of globalization •Branko Milanovic - paradoxically – rich urban American are on the same side as the poor from the Global South – in favor of (US) free trade The US-China trade war •Political conflict – winners vs. losers of globalization •Branko Milanovic - paradoxically – rich urban American are on the same side as the poor from the Global South – in favor of (US) free trade •> Donald Trump The US-China trade war •2018-2019 – 4 waves of tariffs on Chinese goods The US-China trade war •2018-2019 – 4 waves of tariffs on Chinese goods •Tariffs on Chinese products increased from circa 3 % to circa 20 % The US-China trade war •2018-2019 – 4 waves of tariffs on Chinese goods •Tariffs on Chinese products increased from circa 3 % to circa 20 % •Usually, tariffs were increased by 25 percentage points, some goods were given exceptions The US-China trade war •2018-2019 – 4 waves of tariffs on Chinese goods •Tariffs on Chinese products increased from circa 3 % to circa 20 % •Usually, tariffs were increased by 25 percentage points, some goods were given exceptions •Chinese retaliation The US-China trade war •Much worse for China – far more dependent on exports, has more to loose The US-China trade war •Much worse for China – far more dependent on exports, has more to loose •Also not great for US customers The US-China trade war •Much worse for China – far more dependent on exports, has more to loose •Also not great for US customers •Winners – US workers in import-competing industries; third countries – EU! The US-China trade war •Much worse for China – far more dependent on exports, has more to loose •Also not great for US customers •Winners – US workers in import-competing industries; third countries – EU! •Popular in the US – Biden continues the same policy •Mattoo and Staiger •The tariffs serve as leverage to force China to carry out reforms that the US demands The US-China trade war •By the beginning of Covid, US imports from China returned to 2011 levels The US-China trade war •By the beginning of Covid, US imports from China returned to 2011 levels •China‘s share of US imports dropped to 2008 levels The US-China trade war •By the beginning of Covid, US imports from China returned to 2011 levels •China‘s share of US imports dropped to 2008 levels •= decoupling? • The US-China trade war •Goal – „onshoring“ – forcing companies to return home, or at least to relocate from China into another country The US-China trade war •Goal – „onshoring“ – forcing companies to return home, or at least to relocate from China into another country •Far less successful – China remains paramount for large multinational companies The US-China trade war •Goal – „onshoring“ – forcing companies to return home, or at least to relocate from China into another country •Far less successful – China remains paramount for large multinational companies •- a giant market •Returns on investment in China are higher than anywhere else in the world • The US-China trade war •Goal – „onshoring“ – forcing companies to return home, or at least to relocate from China into another country •Far less successful – China remains paramount for large multinational companies •- a giant market •Returns on investment in China are higher than anywhere else in the world •Sometimes – feigned moves abroad – products are completed in another country, so they avoid US tariffs etc. The US-China trade war •How has China‘s role changed from the perspective of a multinational corporation between 2000 to 2020? The US-China trade war •How has China‘s role changed from the perspective of a multinational corporation between 2000 to 2020? •From a source of cheap labor to a market – the Chinese are rich enough to consume The US-China trade war •How has China‘s role changed from the perspective of a multinational corporation between 2000 to 2020? •From a source of cheap labor to a market – the Chinese are rich enough to consume • •This goes hand in hand with China‘s drive to decrease its dependence on exports – promotion of domestic consumption • The US-China trade war •How has China‘s role changed from the perspective of a multinational corporation between 2000 to 2020? •From a source of cheap labor to a market – the Chinese are rich enough to consume • •This goes hand in hand with China‘s drive to decrease its dependence on exports – promotion of domestic consumption •Trade war = another incentive to make China less dependent on exports • Threats to China‘s success story • Threats to China‘s success story •1) Backlash from industrialized countries •Even EU, CANZ, Japan etc. are starting to turn against China Threats to China‘s success story •2) An uncertain wager on digital technologies Threats to China‘s success story •2) An uncertain wager on digital technologies •Normally, industrial policy is about catching-up Threats to China‘s success story •2) An uncertain wager on digital technologies •Normally, industrial policy is about catching-up •There are existing technologies to be copied – it is faster to copy something than to develop it Threats to China‘s success story •2) An uncertain wager on digital technologies •Normally, industrial policy is about catching-up •There are existing technologies to be copied – it is faster to copy something than to develop it •Even if you decide for domestic innovations, it is still clear that the technology is viable and can work Threats to China‘s success story •2) An uncertain wager on digital technologies •As you get near the frontier, it is more and more hard to say which way to go Threats to China‘s success story •2) An uncertain wager on digital technologies •As you get near the frontier, it is more and more hard to say which way to go •Most countries (J, K, T) liberalize at this point > so that markets can experiment and find the way Threats to China‘s success story •2) An uncertain wager on digital technologies •As you get near the frontier, it is more and more hard to say which way to go •Most countries (J, K, T) liberalize at this point > so that markets can experiment and find the way •China has decided to bet huge resources on a technological revolution that is yet to emerge Threats to China‘s success story •2) An uncertain wager on digital technologies •As you get near the frontier, it is more and more hard to say which way to go •Most countries (J, K, T) liberalize at this point > so that markets can experiment and find the way •China has decided to bet huge resources on a technological revolution that is yet to emerge •> What if the future doesn‘t work the way Beijing imagines? Obsah obrázku text Popis byl vytvořen automaticky •„The future will be just like the present, only more so“ Threats to China‘s success story •2) An uncertain wager on digital technologies •Huge resources might be wasted creating unproductive industries •At the expense of the actually promising sectors Threats to China‘s success story •2) An uncertain wager on digital technologies •Huge resources might be wasted creating unproductive industries •At the expense of the actually promising sectors •Bursting of a bubble x permanent support for an entrenched interest • Threats to China‘s success story •3) Ageing population Threats to China‘s success story •3) Ageing population •> need for far greater spending on pensions, healthcare spending Threats to China‘s success story •3) Ageing population •> need for far greater spending on pensions, healthcare spending •China currently only has a tiny welfare state •Because „it promotes laziness“ Poll •Is China right-wing or left-wing? Poll Obsah obrázku text Popis byl vytvořen automaticky Threats to China‘s success story •4) A real-estate bubble Threats to China‘s success story •4) A real-estate bubble •Huge build up of real estate since 1990 Obsah obrázku budova, obloha, exteriér, město Popis byl vytvořen automaticky Threats to China‘s success story •4) A real-estate bubble •Huge build up of real estate since 1990 •Also infrastructure Threats to China‘s success story •4) A real-estate bubble •Huge build up of real estate since 1990 •Also infrastructure •Financed by state banks, built by SOEs Threats to China‘s success story •4) A real-estate bubble •During every crisis > financial injection > even more build up Threats to China‘s success story •4) A real-estate bubble •During every crisis > financial injection > even more build up •„Keynesianism with Chinese characteristics“ was based around real-estate Threats to China‘s success story •4) A real-estate bubble •During every crisis > financial injection > even more build up •„Keynesianism with Chinese characteristics“ was based around real-estate •> near miraculous ability to escape recessions • Threats to China‘s success story •4) A real-estate bubble •2008 – the biggest injection of them all > overproduction, redundant capacity Threats to China‘s success story •4) A real-estate bubble •2008 – the biggest injection of them all > overproduction, redundant capacity •Also – since finance is controlled by the party-state, real estate is the one asset into which households can invest Threats to China‘s success story •4) A real-estate bubble •2008 – the biggest injection of them all > overproduction, redundant capacity •Also – since finance is controlled by the party-state, real estate is the one asset into which households can invest •Empty suburbs of investment flats • Obsah obrázku budova, vysoký, mrakodrap, město Popis byl vytvořen automaticky Threats to China‘s success story •4) A real-estate bubble •The Xi leadership – lets switch resources to manufacturing! • Threats to China‘s success story •4) A real-estate bubble •But: •What if the manufacturing strategy fails? • • Threats to China‘s success story •4) A real-estate bubble •But: •What if the manufacturing strategy fails? •If the move is permanent and the construction industry becomes obsolete, how will China react to a future crisis? • • Threats to China‘s success story •4) A real-estate bubble •But: •What if the manufacturing strategy fails? •If the move is permanent and the construction industry becomes obsolete, how will China react to a future crisis? •Local governments get income from selling land > will they have to switch to higher taxes? • Threats to China‘s success story •4) A real-estate bubble •But: •What if the manufacturing strategy fails? •If the move is permanent and the construction industry becomes obsolete, how will China react to a future crisis? •Local governments get income from selling land > will they have to switch to higher taxes? •What about the middle class and their savings? • • •Do we still have time? •Do we still have time? •Probably not… Next time •China in the World Trade Organization Asian developmental state •„How Asia works“ – Joe Studwell • Obsah obrázku text Popis byl vytvořen automaticky Asian developmental state •„How Asia works“ – Joe Studwell •1) Land reform •2) Industrial policy > promotion of exports •3) State owned banks – also promotion of industry Asian developmental state •New firms are not going to succeed on their own, they need protection and help from the state (x free trade) Asian developmental state •New firms are not going to succeed on their own, they need protection and help from the state (x free trade) •But they must be tested so that they don‘t become complacent > „export discipline“ – they must be able to sell products abroad Asian developmental state •New firms are not going to succeed on their own, they need protection and help from the state (x free trade) •But they must be tested so that they don‘t become complacent > „export discipline“ – they must be able to sell products abroad •Why abroad? Success in the closed domestic market doesn‘t prove anything Asian developmental state •Undervalued currency – helps with export Asian developmental state •China – somewhat similar, but even more statist •Most large enterprises continued to be state-owned (to this day) Asian developmental state •China – somewhat similar, but even more statist •Most large enterprises continued to be state-owned (to this day) •No liberalization after successful growth Asian developmental state •China – somewhat similar, but even more statist •Most large enterprises continued to be state-owned (to this day) •No liberalization after successful growth •J, K, T attempted to catch up, not to become the undisputed leader (x China‘s ambitions for next generation Internet, AI….) • Asian developmental state •J, K, T – developmental state as a necessary evil, a precursor to capitalism which isn‘t possible yet •= more or less in line with Western theorists of protectionism – Alexander Hamilton, Friedrich List Asian developmental state •J, K, T – developmental state as a necessary evil, a precursor to capitalism which isn‘t possible yet •= more or less in line with Western theorists of protectionism – Alexander Hamilton, Friedrich List •CH – developmental state as a necessary evil, a precursor to socialism which isn‘t possible yet Asian developmental state •J, K, T – developmental state as a necessary evil, a precursor to capitalism which isn‘t possible yet •= more or less in line with Western theorists of protectionism – Alexander Hamilton, Friedrich List •CH – developmental state as a necessary evil, a precursor to socialism which isn‘t possible yet •= China does not yet posses the capacity for planning and redistribution necessary to achieve socialism, so it has to accept markets Asian developmental state •CCP – China‘s advantage continues to be the ability to mobilize resources • ISI •Import-substituting industrialization (ISI) •Not so important for us, but often discussed in IPE •Latin America, circa 1945-1980 ISI •Protectionism, state-owned banks and large enterprises – similar to Asia ISI •But – no promotion of export! – closed economies ISI •But – no promotion of export! – closed economies •> trade deficits > financed by debt ISI •But – no promotion of export! – closed economies •> trade deficits > financed by debt •Overvalued currencies – to pay back the debt – but exacerbated the trade deficits ISI •But – no promotion of export! – closed economies •> trade deficits > financed by debt •Overvalued currencies – to pay back the debt – but exacerbated the trade deficits •Also – no sweeping land-reform = surviving inequality, „old elite“ ISI •But – no promotion of export! – closed economies •> trade deficits > financed by debt •Overvalued currencies – to pay back the debt – but exacerbated the trade deficits •Also – no sweeping land-reform = surviving inequality, „old elite“ •1980s – bankruptcies, transition to free trade (IMF, WB) ISI •Economists – identification of ISI with protectionism and Asia with free markets •= misinterpretation Shock therapy/Neoliberalism •Eastern Europe after 1989 •= full transition towards free market capitalism •= privatization of enterprises, market prices, free trade • Shock therapy/Neoliberalism •Main idea – the Communist regimes have collapsed > there is no power capable of overseeing central planning Shock therapy/Neoliberalism •Main idea – the Communist regimes have collapsed > there is no power capable of overseeing central planning •> we must move quickly towards markets, otherwise the managers of the SOE‘s will plunder the assets •= the need to dissolve public ownership relatively quickly, before it‘s completely hollowed out • Shock therapy/Neoliberalism •Derided and discredited today – collapse of Russia, Ukraine etc, poverty, rise of oligarchs Shock therapy/Neoliberalism •Derided and discredited today – collapse of Russia, Ukraine etc, poverty, rise of oligarchs •But – Baltic countries, Poland, Czechia, Slovakia, Slovenia, Hungary… •> often reasonably successful! Shock therapy/Neoliberalism •China – We don‘t want shock therapy, because: •1) we still basically believe that socialism will win in the end •2) doing so would drastically curtail the Party‘s power Shock therapy/Neoliberalism •China – We don‘t want shock therapy, because: •1) we still basically believe that socialism will win in the end •2) doing so would drastically curtail the Party‘s power •Eastern Europe – We don‘t want Chinese-style mixed economy because: •1) we no longer believe in socialism •2) doing so would mean keeping the security apparatus to oversee the SOEs