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Over the last thirty years, China has been reforming its economy at breakneck speed. However a surge in nationalism is threatening China's relations with its neighbours and its rise to regional leadership. This book addresses a wide range of factors influencing the development of China's model and its influence on the rest of the world.




According to Tocqueville, who had been through several revolutions, ‘the most dangerous time for a government is the time when it starts reforming itself’. Over the last 30 years, China has been reforming its economy at breakneck speed; nonetheless, nothing has changed in its institutional framework. It is hard to believe that the communist regime has not changed at all while everything else has changed so dramatically. In China, as in every other country, a period of reformation is a crucial time. Confucius’ answer when a student asked him what he would do should he be in charge of the government is well-known: ‘I would start by checking names.’ Obviously, Confucius (Kong Fu zi) did not intend to rewrite the dictionary but to make sure that words fit with what they are supposed to mean. His close follower Mencius (Meng zi) used to say: ‘If words communicate the truth, that’s enough’ and ‘I hate the things which are not what they are supposed to be.’ (XV–41). Not all members of the Chinese Communist Party are devout Confucian, but they know the power of words.
Dominique de Rambures

1. What is the Socialist Market Economy?

For any sensible mind, the term ‘socialist market economy’ is an oxymoron the two adjectives conflict. This definition appeared relatively late — in 1992, during the 14th National Congress of the Communist Party of China — as the policy of reform and opening that began in 1978. Up to this point, one spoke of a ‘commodity economy’ to avoid using the words ‘market economy’, which were taboo. The ‘market economy’ was discovered before the word was used. The policy of ‘reform and opening’ was meant to be a transition, but a transition to what? Towards socialism, or towards capitalism? It took Poland three years to complete what China has not yet achieved in thirty. The word ‘transition’ is the only stable part of the policy of reform — a sort of new ‘perpetual permanent revolution’, to paraphrase Lenin. However, the idea that something goes from A to B is not consistent with the traditional Chinese way of thinking. Everything is ephemeral; all events are part of a continuum without a beginning or an end. Everything forms part of the flow of the eternal stream of all things. Nothing is fixed, not even the truth — which is contingent by definition.
Dominique de Rambures

2. The Transition Period

When Deng Xiaoping took over power, it is probable he did not know precisely where he was going. However, he knew that he was moving in the right direction. Like the zen archer, he had the chance to hit the target but only by adopting the correct stance. The ‘policy of reform and opening’ has been implemented through a set of experiments of trial and error which, over time, have generated a true mutation. It is a gradual yet pragmatic process, using a process of limited and tightly controlled opening. ‘It was a step by step process thanks to which we continuously deepen our understanding — it was the experiment which allowed us to learn’ (Zhao Ziyang, former general secretary and prime minister).
Dominique de Rambures

3. A Fast but Unbalanced Growth

Over the past 35 years, since the inception of the policy of reform and opening in 1978, China has experienced an exceptionally high growth rate. Over the first decade of the twenty-first century, China recorded a growth rate in excess of 10 per cent. The world financial crisis accelerated the process which, in effect, had already been in operation for some considerable time. Over the last few years, China has stepped up a breakthrough, leading to its emergence on the global scene. According to the ‘72’ law,1 China should overtake the USA within the next 10 or 20 years (see Table 3.4). In 2011, the IMF expected that China would overtake the USA in 2016. But the computing method was said to have been biased by two factors: a miscalculation of GDP and the foreign exchange rate. In 2009, China altered the calculation method but, as the foreign exchange rate used for the calculation is the prevailing rate, the actual growth rate was grossly underestimated.
Dominique de Rambures

4. An Uncompleted Banking and Financial Reform

Money is a commodity unlike any other. It is the only one which can be traded against all others. Therefore, money not only has an economic function, but also social, political, institutional, even emotional ones too. The growing monetization of an economy is a form of rationalization of the economy and a strong integration factor. The monetary regime is a very accurate sign of the way a society is operating. From a historical point of view, money and credit have always been based on a highly centralized state, a strong bureaucracy and a legal framework. Under Mao’s reign, money played a very limited role and was stricto senso restricted to the function of a currency veil; that is, a means of payment.
Dominique de Rambures

5. Investment in Human Capital

Over the centuries, Chinese capital was scarce while human resources were both plentiful and cheap. This may be one (amongst other) reasons why China did not experience the Industrial Revolution. At the present time, capital is plentiful and cheap; however, the human factor is becoming scarce in terms of both quantity and quality. In twenty-first century China, the government has to juggle with these two factors simultaneously: reining in the demographic growth while investing in the human factor.
Dominique de Rambures

6. The Knowledge Economy

Devoid of raw materials, China developed processing industries before it turned to an economy of knowledge. Theory states that developing countries are supposed to go through three economic sectors of growth return: primary (agriculture, mining), secondary (manufacturing), tertiary (services), if not quaternary (digital economy) where the share of intellectual development is overwhelming. The service sector includes several types of activities: from the noodle soup vendor who has set up a shop around the corner, to the hi-tech company staffed with highly skilled manpower. Western countries that were increasingly moving towards a tertiary, if not quaternary, economy realized that a strong tertiary economy must be backed by a strong manufacturing sector. Most of them have undergone a ‘reindustrialization’ process by pulling back some of the manufacturing units formerly transferred to emerging or developing countries. China is working the other way around. Manufacturing industries account for an unusually high share of the economy. Therefore, salary increases must be compensated through increasing competitiveness. The policy of research and innovation is aimed at raising the added-value of Chinese output and the profile of the range of Chinese-made products.
Dominique de Rambures

7. Growing Inequalities

The average income of the upper 20 per cent of the population accounts for 133 times the average income of the lowest 20 per cent. Not only is the degree of inequality in China high, it is also worsening: the richest 10 per cent own 45 per cent of the national wealth while the poorest 10 per cent own only 1.4 per cent (see Table 7.1). In January 2013, for the first time since 2000, the National Bureau of Statistics (NBS) published China’s Gini index,1 a measure of the level of inequality. The Gini Index increased from 0.30 in 1978 to 0.474 in 20122 (0.22 in Japan), well above the 0.40 which is considered to be the threshold of social troubles. According to UNO,3 China is placed 143rd out of the 177 recorded countries in terms of inequality. According to some economists, China’s Gini Index may be as high as 0.61, which would make China one of the most unequal countries in the world. According to data published by the Ministry of Interior and Security, ‘violent’ (this is the Chinese definition of social troubles) demonstrations (over 500 participants) numbered 8700 in 1993; in 2005, 87,000; and, in 2011, 180,000.
Dominique de Rambures

8. A Foreign Policy which Serves Growth (and Vice Versa)

From 1949 onwards, China’s foreign policy went through three stages: during Mao’s reign, China fought with all her neighbouring countries; during Deng Xiaoping’s leadership, China focused on a policy of domestic growth and withdrew from the international stage; in the last period, starting with the twenty-first century, China’s foreign policy was more active — some would say more aggressive, although avoiding any direct clashes. China has territorial conflicts with each of her neighbouring countries. In addition to the traditional fighting on the northern and western mainland in Central Asia (India, Russia), China has also opened new border conflicts in the Sea of China and the Pacific gulf (Japan, Vietnam, Indonesia, Philippines), the ultimate aim of which is no longer to defend (often contested) borders but, rather, to recover losses dealt by unequal treaties of the twenty-first century. It is no longer a matter of border conflict but of regional leadership against rival powers (the USA, Japan and India). To a large extent, China’s foreign policy is commanded by geopolitics: border defence and regional leadership. Now that China’s economy is integrated into the world economy, the defence of borders is extended to the whole world. Moreover, regional leadership is not only contested in each particular region, but also across the world.
Dominique de Rambures

9. In Search of Civil Society

Between the Party and the People, civil society — understood as ‘the field of civil, organized, social life which is voluntary, self-sufficient and independent from the State’1 — acts as a dynamic intermediary, data transmission system and shock absorber. China does not operate an authoritarian government system but rather, is totalitarian. Whether the Party-State is more flexible does not change its basic nature. Public freedoms are monitored the same way as the planning system is in the economic field; the more strategic the area, the more controlled it becomes. As long as the Party-State is not directly challenged, the government is largely accommodating but, should it feel its power challenged, it is uncompromising. Elections can be demanded, but not a multi-party system; there are some limited freedoms of speech, but no right of association. Censorship is omnipresent, even though it may be applied in a more flexible and (sometimes) clever way. Books are allowed but confidential essays are not, if the Party doctrine is questioned. Movies critical of the State or Chinese society are forbidden in China but permitted abroad. An artist who uses his reputation to support dissidents will be sued under whatever pretext (corruption, tax fraud) and his passport withdrawn.
Dominique de Rambures


Following the Treaty of Tordesillas (1494), Spain and Portugal divided the world between them along a North-South meridian, 370 leagues (925 miles) west of the Cape Verde Islands (46° 37’ W). All that fell to the west of this meridian was allocated to Spain; to the east, to Portugal. The western route to the mythical lands of Cathay (China) was only for the use of Spain, the Portuguese had to take the eastern route. Once they made it to the Malacca Straits, the Portuguese Crown equipped several fleets with the aim of invading China. China would be to Portugal what America was to Spain: a new worldwide empire. All attempts to land failed. Following the last, in Canton, all crewmen including the ship’s chaplain were executed. As opposed to America, China was a united country, ruled by a competent bureaucracy, protected by professional armies and local militias.
Dominique de Rambures


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