Learning from China’s economic philosophy and policy — XII

Here it needs to be understood that in order to have an overall supportive investment-friendly environment in China, on one hand, leadership was provided from the highest level for overall adopting a purpose-driven, mission-oriented mind-set, for instance as highlighted by significant focus given on enhancing economic development, for which a non-shock therapy, non-neoliberal role of public sector.

This was envisioned both in terms of government providing meaningful level of institutional, organizational, and market support, in terms of effective organizational, and incentive structures.

Also read: Learning from China’s economic philosophy and policy — XI

Moreover, the public sector in doing so, provided in particular pathways to economy as a dominant public sector keeping a control over both fiscal, and monetary policy, and employing specifically, state-owned enterprises (SOEs), state banks, and local governments in implementing decisions in support of economic development, in an overall democratic, and inclusive way.

On the other hand, the investment-inducive adequate credit provision condition was further met with keeping ‘multiple policy objectives’, especially both economic growth, and price stability – and especially economic growth, given perhaps due to the aggregate supply-side influence it has for inflation consequences as well – and not just monetarist, and related neoliberal economic thought process advocates, which has led to unnecessarily high economic growth sacrifice, especially in an age of significant global economic structural transformation due to existential threats like climate change, and related ‘Pandemicene’ phenomenon, elevated level of conflict, and artificial intelligence (AI), in turn, having negative consequences on inequality, poverty, resilience, and political voice.

Also read: Learning from China’s economic philosophy and policy — X

The purpose of inclusive, well-directed economic growth has been the main objective, in the light of which is determined not only fiscal policy, but also extent of independence of central bank, so that overall policy is aligned to serve an overall purpose-driven, mission-oriented role of government, and through it the demos.

Also read: Learning from China’s economic philosophy and policy — IX

Here, more appropriate limits on central bank, than envisaged under the neoliberal economic philosophy, has meant better regulation of the banking system, and through it, greater directional role played by public sector in incentivizing saving, and investment.

‘The handbook of China’s financial system’ pointed out in this regard ‘In the investment-driven economy phase, the central government laid out multiple policy objectives, including (real) GDP growth, inflation, employment, foreign exchange rate, social stability, and environment.

Also read: Learning from China’s economic philosophy and policy — VIII

Out of these objectives, only two economic targets are of primary importance: GDP growth and consumer price index (CPI) inflation.

Since, 1988, the GDP growth target has been specified in the State Council’s Report on Work of Government (RWG). This is the overriding objective among all possible objectives. From 1999 to 2017, the M2 growth target was also specified in the RWG, along with the GDP growth target.

The PBC is not an independent institution in making monetary policy. The State Council and other government units exerted considerable and often-dominant influences on the official target of M2 growth.’

Also read: Learning from China’s economic philosophy and policy — VII

In terms of the monetary policy orientation being pro-growth, counter-cyclical policy has been adopted, where such policy becomes all the more aggressive in terms of intervention during growth below the target; while pro-cyclical policy has possibly only been adopted to rein-in somewhat growth enhancing extents – while apparently not adopting pro-cyclical policy to the extent to compromise on achieving a meaningful level of growth – in the third phase of the economy called a ‘a new normal economy.’

Also read: Learning from China’s economic philosophy and policy — VI

Here, a somewhat conservative approach in terms of growth enhancing impetus being provided has likely been taken to avoid possible ‘over-heating’ of the economy, after years of overall aggressively expanding productive capacity, and also being more cautious in better internalizing limits of efficiency gains that can be channelized for extracting greater growth from a certain level of productive base, and investment.

The same handbook pointed out in this regard ‘In recent years, the Chinese central government strived to achieve a balance between GDP growth and financial stability of the economy.

Also read: Learning from China’s economic philosophy and policy — V

The Central Economic Work Conference, held in December 2014, declared for the first time that the Chinese economy had entered the ‘new normal stage.” The 2015 RWG listed the dual objective: maintaining a healthy rate of growth while moving towards a sustainable level of development.

The Central Economic Work Conference, held in December 2015, called for “structural reforms” on the supply side “which included deleveraging debts, reducing overcapacity, and destocking the real estate.

Also read: Learning from China’s economic philosophy and policy —IV

This effort shows up as negative monetary policy shocks [procyclical monetary policy] since 2014… According to the monetary policy rule since 1998, GDP growth lower than target in this episode would demand higher M2 growth [counter-cyclical monetary policy]… The consideration of financial stability, however, induced the government to lower M2 growth at the sacrifice of GDP growth.’

Also read: Learning from China’s economic philosophy and policy — III

Having said, in the case of Pakistan, over-riding price stability objective over-riding under a virtually inflation-targeting monetary policy regime, has resulted in reaching sustainable economic growth, even after frequent episodes of sacrifice of economic growth, at the back of practice of pro-cyclical policy, and that too in an aggressive way – highly significant positive real interest rate – to reach, at most, short-lived macroeconomic stability.

This is because of the lack of productive capacity to generate a much-needed aggregate supply impetus to reach sustainable- macroeconomic stability, and economic growth.

On the contrary, China has successfully employed even in situations when growth reached target.

Also read: Learning from China’s economic philosophy and policy — II

What is quite bizarre then is that it is indicated that first pro-cyclical policy be employed to reach macroeconomic stability, and then counter-cyclical policy – and that too very limited role of public sector under the overall neoliberal policy emphasis – will be adopted to move towards meaningful level of growth.

Also read: Learning from China’s economic philosophy and policy – I

This, in the absence of building any meaningful level of productive base – both in terms of domestic production, and exports – and reaching productive, and allocative efficiencies, has not allowed reaching sustainable level of stability, and economic growth; with the country stuck in frequent boom and bust cycles, volatile stability, and low-growth equilibrium, with overall negative consequences for reaching meaningful level of inclusivity, and resilience.

(To be continued on Sunday)

Copyright Business Recorder, 2026