Top Ten Myths About China - Part 2

What are the myths about China floating around the West?

View from China with an Austrian School of Economics Perspective

Last May we went through a few of the popular myths going around at the time. One year on, we’ve had plenty of time to accumulate quite a few more.

Before launching into the new ones, here are the five we covered a year ago:

1. China has a centrally managed economy.

2. The “government” in China is interchangeable with the “CCP”.

3. China has a “social credit system” which tracks citizen behavior and produces some kind of score to reward the tame and punish the disobedient.

4. The Chinese response to the Covid-19 outbreak in 2020 provided a role model for the rest of the world.

5. The Chinese response to the Covid-19 outbreak was more inhumane than anywhere else in the world.

Frankly, with some many to choose from, it’s hard to know where to start. We may well have to eventually do a Part 3, but here are five of the most popular ones we have run across in 2023.

For those who haven’t read Part 1, let’s repeat Myth #1, since it’s a pretty crucial thing to understand if you want to make sense of the rest:

1) China has a centrally managed economy.

The reality: By most estimates, approximately 25% of China’s GDP is generated by government-controlled companies. 75% is generated by privately or foreign-owned companies. But perhaps more crucially, the private sector drives both employment and innovation, generating 100% of new jobs and 93% of all new patent applications. So while a substantial government-run sector does exist, in reality it can be argued that it’s more of a deadweight for the economy than anything else, despite the preferential policies that it enjoys.

As in any country, the government does have some influence over privately owned companies, but in terms of its effects, this arms-length influence is not comparable with actual direct public ownership. We have written more about this here:

https://austrianchina.substack.com/p/which-country-has-the-larger-private-sector

Now for the new and semi-new myths. In some cases, they are admittedly a bit repetitive, the best example of that being myth #6 (see below), which in reality is the same thing as #1.

6) China is a communist country.

For some reason many people struggle with the idea that labels can be misleading. If someone claims he is a “democrat” – whatever that means – does that mean he really is? How about if someone claims he is a “conservative”? That said, even China’s government doesn’t describe China as “communist”. They use the term “socialist with Chinese characteristics”. So, no, the fact that China is run by a party which has the word “communist” in its name means nothing.

To humor the people who make such statements, we’ll assume that when they use the word “communism” they really mean socialism, for example as practiced by countries such as the Soviet Union and Maoist China which commenced their rule by nationalizing all the businesses in the areas under their control.

The reality: Labels aside, today’s China certainly is not very socialist (or communist for that matter) by any standard normally associated with either of those words. On the contrary, it has a free market-driven economy and by some accounts five times more dollar billionaires than anywhere else in the world outside the United States.

As mentioned in Myth #1, most companies in China are privately owned, and, though there are some exceptions, in most industries the competition between them is among the fiercest in the world. This kind of no-holds-barred competition is hardly socialist, much less communist. In particular, fierce competition is not what you get from central planning. Does the government interact with private business? Of course, just like it does all over the world. But interaction is not ownership. There is a huge difference.

China also has an extremely limited welfare system. A public pension scheme does exist, as well as public health insurance for white collar workers, but the other legs of the system (disability, unemployment) are quite meager. Instead, the family remains the primary support mechanism. Thanks to decades of high savings rates and booming real estate markets, most families tend to have some savings in case a family member falls on hard times. To the extent that the State makes any payments at all, they tend to be so minimal that few even bother to apply for them.

By contrast, we see many nominally “capitalist” countries with huge welfare systems which are now talking about introducing a universal basic income for all. This would be unimaginable in China.

Ultimately what counts are however the results. It is not a secret that “communism” does not generate wealth – aka capital. On the contrary, it uses it up. Is substantial new wealth – i.e. capital – being generated, or not? Or does much of the wealth which does get generated get sucked up by giveaways to the parasitic classes? This is the litmus test.

The answer in China is unambiguous: yes, and a lot. Some does end up in the hands of the parasitic classes. And yes, as we have argued elsewhere, some of that capital is indeed being wasted. Moreover, since 2008 Chinese governments at all levels (national, provincial and local) have ratcheted up spending substantially, not all of which (especially in 2020-2022!) was particularly productive. During the same period, like its Western counterparts, the leadership in Beijing has permitted its banks to print an enormous amount of fresh money, leading to all sorts of malinvestment, particularly in the real estate sector. Myths about ghost cities aside, real mistakes were made and many developers were overleveraged. The price for all these bad decisions is being paid by the shareholders, bondholders, creditors and the customers of those developers. And to some extent by the State. But with savings rates hovering around 40%, the economy can normally afford a lot of mistakes and still continue to accumulate net capital.

So what was the result? Despite the very real problems created by all this money printing and government spending, the net result has nonetheless been the creation of the world’s largest middle class. There are a lot of metrics which one could cite to illustrate this, but perhaps one of the most glaring is the passenger car market. The Chinese market is over six times the size of the next largest market, which is India. (If commercial vehicle sales are included, the United States would rank #2, with a market roughly half the size of China’s market. Commercial vehicles are however arguably less relevant when attempting to gauge the buying power of middle class consumers.) Nor is this just a question of quantity versus quality: in the high end market, Chinese consumer demand also outstrips all other markets.

New Passenger Car Registrations in 2022. Source.

Another metric worth looking at is the tourist trade, where until 2020, Chinese tourists had become the #1 source of tourist spending in many countries all around the world. Obviously two metrics are not enough to prove this point, but those interested can find plenty more.

Note that we are talking about wealth here, not income. Income flows are notoriously harder to pin down than wealth and consumption, particularly in a country like China where very few people file income tax declarations.

7) All Chinese companies are controlled by the “CCP”.

Uh, no.

The reality: Aside from the fact that there is no organization called the “CCP” (there is a “CPC”), this is just a silly statement which does not stand up to any scrutiny at all. And yet, apparently some Westerners believe it.

To someone who repeats it, even if they don’t know anything about stock markets and the like, one might ask them how this superhuman CCP they talk about has succeeded in profitably managing literally millions of companies, whereas the Soviet Union and Maoist China by contrast so miserably failed.

One common rebuttal is that this is done by subsidizing them, or by “dumping” products under cost. Such a belief can only come from people who have absolutely no grasp of economics. To state the obvious, paying “subsidies” and/or selling under cost does not generate wealth.

Another obvious problem with this claim is the well-known adversarial relationship which the Chinese government has with many of China’s top companies. In the past five years, they have levied several companies of China’s largest companies with astronomical fines. Just to cite two of these cases, Alibaba was fined $2.8 billion and Meituan $580 million. They also stopped Alibaba’s planned multi-billion dollar IPO of Ali Financial, its payment services provider which forms part of the duopoly controlling the Chinese payments market.

Such harsh treatment of companies which should be their top champions is arguably moronic, but it certainly does not imply a position of control. This is in marked contrast to their Western counterparts, most of which are controlled by Blackrock and its coterie of interlocking investment funds. Unlike in China, these companies tend to all have very chummy relationships with their governments. In fact, one might argue that in the West, for all intents and purposes, Blackrock is indistinguishable from the State, which means that in reality, the state-run sector in the West is huge. If that is true, then we should also not be surprised to see that many of these Blackrock-controlled companies struggle to compete with their privately run Chinese competitors. We wrote about this comparison here.

8) China is an Orwellian police state where the police are brutal and the government is feared by most people. The “CCP” monitors and decides everything. As one commentator put it, “the country is led by a single, ruling party that rules with absolute impunity.”

Quote: “Everything is tracked by the party… If you dare speak against the party, you're locked out of society and punished.”

The gap between this kind of claim and reality is large. However, there are several parts to this statement, so let’s look at them one by one.

The reality: Police state is a vague term, but one can objectively say that China has one of the lowest levels of ‘fear’ anywhere in the world today. For one thing, violent crime is rare. In most areas you can literally walk the streets 24x7 staring at your iPhone 14 without any fear of being robbed or accosted, either by criminals or by the police. Police don’t carry guns and it’s not uncommon to see people arguing with them. That said, unless there is some crackdown in progress, seeing police interacting with people or motorists on the street is not particularly common. Probably the most common interaction is seeing policemen detaining delivery guys on their motorcycles, which does happen fairly frequently due to their often minimal respect for traffic laws.

Moreover, unlike in some countries, if the police want to talk to someone suspected of a crime or connected to one, they don’t arrange for a SWAT team to burst into his home. Instead, the first step is almost always to call the person and ask him to come to a police station to make a statement.

That said, to the extent that the idea of a police state is connected with surveillance, on a worldwide ranking, China’s larger cities would likely rank fairly high. In downtown areas, train stations and airports, cameras are ubiquitous and, as in many countries, face recognition software is definitely in use. Those on wanted lists do tend to eventually get arrested, though judging by the length of time often required, it seems that such software is not yet in general use, especially in smaller towns. Moreover, if you are NOT on the wanted list, you are not likely to be affected. For example, it is absolutely commonplace for people to live for years in cities without ever registering with the police. If/when those people do go register, the police clearly have no idea when they actually arrived.

Moreover, one should not forget that such surveillance does have a dampening effect on crime, and as such, is probably perceived by most as something positive. Especially for people with children, this lack of crime is very attractive.

As for being “locked out of society” for criticizing the party, again this does not have much relationship with reality. Criticism in private is an everyday occurrence, and even online is hardly rare. As discussed in a previous article on China’s “zero-speech” policy, China’s current censorship framework is indeed absurd. But it’s also rather ineffective. News gets around anyway. Moreover, to irritate the government enough to get them to take action against you above and beyond deleting your posts and/or temporarily freezing your social media accounts, you have to work hard at it. And even in the absolutely most extreme case where someone is actually convicted of a “crime” and sentenced to prison, sentences of over 5 years ago are extremely rare. Compare this to, say, the United States, where these days sentences of 15 years or more are the new norm, and the difference is stark. Maybe if one day China does actually implement a social credit system like the ones one reads about in Western publications, this will change. But we’re not there yet.

We reviewed the social credit system psyop here.

9) China is a top-down country.

In a somewhat superficial sense, yes. But not in reality. China does indeed have an authoritarian tradition, but it’s often more blather than action. As the old saying goes, the mountains are high, and the emperor is far away.

The reality: Regionalism is the rule. We wrote about that here – skip down to “Goodbye to regional competition?”. The central government does interfere, and sometimes succeeds with this, but it’s the exception, not the rule. Moreover, contrary to their image in the West, the Chinese are not particularly obedient. They may say “yes”, but they often do “no”.

10) Chinese economic growth is powered primarily by copying and stealing Western technology.

The following chart comparing patent grants by country of origin should help to dispel this illusion. Patents are not everything, but they are correlated with the pace of innovation. It will no doubt come as a shock to some that China comes out on top in 29 fields, versus 4 for the United States and 3 for Japan.

We mention this one last because it often seems to be the final straw some clutch at when attempting to reveal China’s duplicitous nature and the threat it allegedly poses.

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Finally, here is a bonus myth. It’s not really a myth about China, but is worth mentioning nonetheless:

Bonus Myth: Western elites such as Klaus Schwab, Bill Gates & Co. see China as a model for their Agenda 2030.

This could be; we don’t have access to their minds. It’s true that both Schwab and Gates have on multiple occasions expressed their vague “admiration” for China. But are they being honest? It seems rather unlikely, since the ideas which form the core of their agenda all require massive central planning and economic intervention, and, as we have noted above, the real China is not at all a good example of such principles in action. Surely they must be aware of this. These include ideas like “you will own nothing and be happy.” Or the idea that private vehicle ownership should be reduced by 75%. Or that the state should impose massive taxes on energy, which will logically lead to a mass impoverishment of society. And while it’s true that the Chinese leadership is to an extent willing to give lip service to some of these ideas, at the end of the day, China has already tried a centrally planned economy and seen the results. They were poor to say the least. No-one in China is willing to go back to that. Once was enough.

At the 2023 Davos summit, Chinese Premier Li Keqiang said as much himself. He stated specifically that China is committed to a market-driven economy. Despite some real setbacks caused by bad policies, there is no evidence that would cast doubt on this basic claim.

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