* China’s giant economy faces an equally giant crisis of confidence—and a growing deficit of accurate information is only making things worse. Even as the country wrestles with a property crash, the services sector slowed by one measure in August. Consumers are fed up. Multinational firms are taking money out of China at a record pace and foreign China-watchers are trimming their forecasts for economic growth.
* The gloom reflects real problems, from half-built houses to bad debts. But it also reflects growing mistrust of information about China. The government is widely believed to be massaging data, suppressing sensitive facts and sometimes offering delusional prescriptions for the economy. This void feeds on itself: the more fragile the economy is, the more knowledge is suppressed and the more nerves fray. This is not just a cyclical problem of confidence. By backtracking on the decades-long policy of partially liberalising the flow of information, China will find it harder to complete its ambition of restructuring the economy around new industries. Like the Soviet Union, it risks instead becoming an example of how autocratic rule is not just illiberal but also inefficient.
* The tightening of censorship under President Xi Jinping is well known. Social-media accounts are ever more strictly policed. Officials are warier of candid debate with outsiders. Scholars fear they are watched and business people mouth Communist Party slogans. Less familiar is the parallel disappearance of technical data, especially if it is awkward or embarrassing for the party. Figures for youth unemployment, a huge problem, have been “improved and optimised”—and lowered. Balance-of-payments statistics have become so murky that even America’s Treasury is baffled. On August 19th stock exchanges stopped publishing daily numbers on dwindling foreign-investment inflows. As the economic dashboard dims, the private sector is finding it harder to make good decisions. Officials probably are, too.
To understand the significance of this shift, look back to the mid-20th century. Witnessing the totalitarianism of the 1930s and 1940s, liberal thinkers such as Karl Popper and Friedrich Hayek argued that political freedom and economic success go hand in hand: decentralised power and information prevent tyranny and allow millions of firms and consumers to make better decisions and live better lives. The collapse of the Soviet Union proved them right. In order to maintain political dominance, its rulers ruthlessly controlled information. But that required brutal repression, starved the economy of price signals and created an edifice of lies. By the end, even the Soviet leadership was deprived of an accurate picture.
* As China grew more open in the late 1990s and 2000s, its leaders hoped to maintain control while avoiding the Soviet Union’s mistakes. For many years they allowed technical information in business, the economy and science to flow far more freely. Think of Chinese firms with listed share prices disclosing information to investors in New York, or scientists sharing new research with groups abroad. Technology seemed to offer a more surgical way to censor mass opinion. The internet was intensively policed, but it was not banned.
* China’s top leadership also redoubled its efforts to know what was going on. For decades, it has run a system known as neican, or internal reference, in which journalists and officials compile private reports. During the Tiananmen Square protests, for example, the leadership received constant updates. Techno-utopian party loyalists reckoned that big data and artificial intelligence could improve this system, creating a high-tech panopticon for the supreme leader that would allow the kind of enlightened central planning the Soviets failed at.
* It is this vision of a partially open, hyper-efficient China that is now in doubt. Amid a widening culture of fear and a determination to put national security before the economy, the party has proved unable or unwilling to limit the scope of its interference in information flows. Monetary-policy documents and the annual reports of China’s mega-banks now invoke Xi Jinping Thought. Deadly-dull foreign management consultants are treated as spies. This is happening despite the fact that China’s increasingly sophisticated economy requires more fluid and complex decision-making.
* An obvious result is the retreat of individual liberty. In a reversal of its partial opening, China has become a more repressive place. Many Chinese still have liberal views and enjoy debate but stick to private gatherings. They present no immediate danger to the party.
The information void’s other effects pose more of a threat. As price signals dim, the allocation of capital is getting harder. This comes at a delicate moment. As its workforce shrinks, China must rely more on boosting productivity to grow. That is all about using resources well. The country needs to pivot away from cheap credit and construction to innovative industries and supplying consumers. That is why capital spending is pouring into electric vehicles, semiconductors and more. Yet if investment is based on erroneous calculations of demand and supply, or if data on subsidies and profits are suppressed, then the odds of a successful transition are low.
* China’s admirers might retort that the country’s key decision-makers still have good information with which to steer the economy. But nobody really knows what data and reports Mr Xi sees. Moreover, as the public square empties it is a good bet that the flow of private information is becoming more distorted and less subject to scrutiny. No one wants to sign a memo that says one of Mr Xi’s signature policies is failing.
* After the horrors of the mid-20th century, liberal thinkers understood that free-flowing information improves decision-making, reduces the odds of grave mistakes and makes it easier for societies to evolve. But when information is suppressed, it turns into a source of power and corruption. Over time, the distortions and inefficiencies mount. China has big opportunities but it also faces immense problems. A fully informed citizenry, private sector and government would be far better equipped to take on the challenges ahead. ■
Melodic_Ad596 on
Another day another Zeihanista post.
Yes, China has severe structural problems.
Yes we should stop waiting for it to collapse any day.
Acacias2001 on
The panipticon is blind if the man on the chair closes his eyes
3 Comments
* China’s giant economy faces an equally giant crisis of confidence—and a growing deficit of accurate information is only making things worse. Even as the country wrestles with a property crash, the services sector slowed by one measure in August. Consumers are fed up. Multinational firms are taking money out of China at a record pace and foreign China-watchers are trimming their forecasts for economic growth.
* The gloom reflects real problems, from half-built houses to bad debts. But it also reflects growing mistrust of information about China. The government is widely believed to be massaging data, suppressing sensitive facts and sometimes offering delusional prescriptions for the economy. This void feeds on itself: the more fragile the economy is, the more knowledge is suppressed and the more nerves fray. This is not just a cyclical problem of confidence. By backtracking on the decades-long policy of partially liberalising the flow of information, China will find it harder to complete its ambition of restructuring the economy around new industries. Like the Soviet Union, it risks instead becoming an example of how autocratic rule is not just illiberal but also inefficient.
* The tightening of censorship under President Xi Jinping is well known. Social-media accounts are ever more strictly policed. Officials are warier of candid debate with outsiders. Scholars fear they are watched and business people mouth Communist Party slogans. Less familiar is the parallel disappearance of technical data, especially if it is awkward or embarrassing for the party. Figures for youth unemployment, a huge problem, have been “improved and optimised”—and lowered. Balance-of-payments statistics have become so murky that even America’s Treasury is baffled. On August 19th stock exchanges stopped publishing daily numbers on dwindling foreign-investment inflows. As the economic dashboard dims, the private sector is finding it harder to make good decisions. Officials probably are, too.
To understand the significance of this shift, look back to the mid-20th century. Witnessing the totalitarianism of the 1930s and 1940s, liberal thinkers such as Karl Popper and Friedrich Hayek argued that political freedom and economic success go hand in hand: decentralised power and information prevent tyranny and allow millions of firms and consumers to make better decisions and live better lives. The collapse of the Soviet Union proved them right. In order to maintain political dominance, its rulers ruthlessly controlled information. But that required brutal repression, starved the economy of price signals and created an edifice of lies. By the end, even the Soviet leadership was deprived of an accurate picture.
* As China grew more open in the late 1990s and 2000s, its leaders hoped to maintain control while avoiding the Soviet Union’s mistakes. For many years they allowed technical information in business, the economy and science to flow far more freely. Think of Chinese firms with listed share prices disclosing information to investors in New York, or scientists sharing new research with groups abroad. Technology seemed to offer a more surgical way to censor mass opinion. The internet was intensively policed, but it was not banned.
* China’s top leadership also redoubled its efforts to know what was going on. For decades, it has run a system known as neican, or internal reference, in which journalists and officials compile private reports. During the Tiananmen Square protests, for example, the leadership received constant updates. Techno-utopian party loyalists reckoned that big data and artificial intelligence could improve this system, creating a high-tech panopticon for the supreme leader that would allow the kind of enlightened central planning the Soviets failed at.
* It is this vision of a partially open, hyper-efficient China that is now in doubt. Amid a widening culture of fear and a determination to put national security before the economy, the party has proved unable or unwilling to limit the scope of its interference in information flows. Monetary-policy documents and the annual reports of China’s mega-banks now invoke Xi Jinping Thought. Deadly-dull foreign management consultants are treated as spies. This is happening despite the fact that China’s increasingly sophisticated economy requires more fluid and complex decision-making.
* An obvious result is the retreat of individual liberty. In a reversal of its partial opening, China has become a more repressive place. Many Chinese still have liberal views and enjoy debate but stick to private gatherings. They present no immediate danger to the party.
The information void’s other effects pose more of a threat. As price signals dim, the allocation of capital is getting harder. This comes at a delicate moment. As its workforce shrinks, China must rely more on boosting productivity to grow. That is all about using resources well. The country needs to pivot away from cheap credit and construction to innovative industries and supplying consumers. That is why capital spending is pouring into electric vehicles, semiconductors and more. Yet if investment is based on erroneous calculations of demand and supply, or if data on subsidies and profits are suppressed, then the odds of a successful transition are low.
* China’s admirers might retort that the country’s key decision-makers still have good information with which to steer the economy. But nobody really knows what data and reports Mr Xi sees. Moreover, as the public square empties it is a good bet that the flow of private information is becoming more distorted and less subject to scrutiny. No one wants to sign a memo that says one of Mr Xi’s signature policies is failing.
* After the horrors of the mid-20th century, liberal thinkers understood that free-flowing information improves decision-making, reduces the odds of grave mistakes and makes it easier for societies to evolve. But when information is suppressed, it turns into a source of power and corruption. Over time, the distortions and inefficiencies mount. China has big opportunities but it also faces immense problems. A fully informed citizenry, private sector and government would be far better equipped to take on the challenges ahead. ■
Another day another Zeihanista post.
Yes, China has severe structural problems.
Yes we should stop waiting for it to collapse any day.
The panipticon is blind if the man on the chair closes his eyes