Stepping on spiky grass
Xi Jinping’s surprising new source of economic advice
What China’s leader may learn from a pair of reform-minded academics
Zhou qiren is an unusual economist. A professor at Peking University, he spent ten years toiling in the countryside during China’s cultural revolution.
“The same farmer”, he observed, “worked like two totally different persons on his private plots versus on collective land.”
Unlike most economists, Mr Zhou still studies incentives and constraints from the ground up, starting not with abstract principles, but with concrete cases, often drawn from his travels around China and beyond.
After a visit to a rice-noodle bar in Qinzhen, he wondered why it offered one-week courses showing others how to replicate its prized dish.
On trips to China’s sprawling new city districts, he notes that it takes 70 steps to cross the road compared with 15 or so for many streets in Manhattan.
He is sceptical of state-owned enterprises, which he once compared to public passages crowded with private “sundries”.
He also has doubts about the feasibility of national self-reliance.
Prosperity, he has pointed out, is built on “coming and going” across borders.
It was, therefore, a surprise when Mr Zhou was invited to brief Xi Jinping, China’s ruler, at a symposium on May 23rd in Shandong, a coastal province.
The symposium was supposed to gather ideas for a big meeting on economic reform in July, the third plenary session of the Communist Party’s central committee, held twice a decade.
Although expectations for this year’s “third plenum” are low, previous meetings have shaken the world.
Investors are eager for any hints about the problems Mr Xi intends to tackle this year.
To many foreign economists, these problems seem clear.
China’s leaders have damaged the confidence of households and entrepreneurs through capricious and intrusive policymaking, from the draconian zero-covid regime to the regulatory crackdown on data transfers across borders.
They have prioritised investment in technological self-reliance over decisive measures to boost consumption, stabilise the property market and dispel deflation.
Foreign investors sometimes worry that China’s leaders are trapped in an echo chamber.
Seen in that light, the symposium in Shandong was a crumb of comfort.
It suggested that Mr Xi is at least willing to listen to homegrown economists who have a grasp of what is going wrong.
As well as the peripatetic Mr Zhou, the symposium included Zhang Bin, a doveish economist at the Chinese Academy of Social Sciences.
He has studied America’s escape from the Depression and Japan’s lost decades after its housing bubble burst.
He has looked into what would happen if China cut its interest rates to zero.
In a review of the economy in the first quarter of this year, he and his co-authors concluded that the central bank should reduce rates and set a target for credit growth to stop inflation expectations falling dangerously low.
The review’s authors also cautioned that attempts by local governments to cut debts could weaken demand at a bad time.
Their report compared China’s indebted property developers to financial institutions facing a run.
Since they pose a systemic danger, they require a systematic response, rather than a piecemeal local one.
It is not known whether Mr Zhang shared these views with Mr Xi directly in Shandong.
But these positions did not, at least, disqualify him from being invited.
After the symposium, Mr Xi dropped some encouraging hints that he is getting the message.
He emphasised the need for easing some of the social burdens that weigh on households, such as medical expenses and child care.
A few days later he called for more jobs that would make use of the talents of unemployed college graduates.
That was a more sensible message than a year ago, when he spoke about his own character-building hardships during the cultural revolution and encouraged the jobless young to show similar stoicism.
In Shandong, according to official reports, Mr Zhang pointed out that China’s productivity push would have to avoid the problem of regions copying and undercutting each other.
He used the word “involution”: when the effort someone exerts brings little benefit, but merely raises the effort required of everyone else.
Almost three years ago, Mr Zhou raised a similar concern about efforts to nurture local champions.
He drew an analogy with attempts to reverse desertification in China’s western region.
Planting lots of trees failed.
What was required was a mix of grasses and shrubs that could enrich the soil and co-exist with trees.
By a similar logic, local governments need to nurture diverse entrepreneurial ecosystems, out of which trees will spontaneously grow.
In Africa, Mr Zhou was impressed by the hardy, spiky grass of the savannah.
It reaches only a few centimetres in height during the dry season.
But when the weather turns, the grass can draw on deep roots to grow 2m tall.
China’s private firms must also endure a harsh climate.
But the roots of entrepreneurialism run deep.
If Mr Xi listens to economists like Mr Zhou and Mr Zhang, the season could turn in July.
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