Chinese Character

The Adam Smith of China?

Reform-minded economist causes controversy with People’s Daily article

The Adam Smith of China?

When Wu speaks, the media listens

Articles in state-owned People’s Daily often carry the weight of official policy. So it boded ill for noted economist Wu Jinglian when, in 2008, the newspaper wrote about internet rumours that he was an American spy.

At that point, Wu must have had a few sleepless nights. But the 81 year-old academic survived in his job (at an important government think-tank) and last week the same newspaper was running a story about his ideas on government and the economy.

The article was provocatively titled: “For China to change its style of development the reform of government itself is essential”.

Using the words ‘reform’ and ‘government’ in the same sentence – it need hardly be said – is highly controversial. So the article got a lot of people talking.

China’s leadership isn’t monolithic and various factions within the elite have waged a constant struggle to shape the country’s future. Wu has been a part of that fight for most of his life, so he’s no stranger to some of the risks involved. Back in the 1970s, he alienated some by providing intellectual support for Deng Xiaoping and his (then highly controversial) economic reforms. Viewed from today, it looks like an inevitable policy choice. But at the time there were plenty of hardliners who saw it as betrayal of the revolution they had fought to secure.

Born in 1930 to a lawyer mother and a newspaper-boss father, Wu came of age at a momentous time. His family had to move to Nanjing when he was just seven to escape the Japanese army, and he was one of the first undergraduate students to start school after the civil war, graduating with a degree in economics from Shanghai’s Fudan University in 1954.

He then got a promising job in Beijing researching economic reform for the state’s Chinese Academy of Science. Any celebrations didn’t last long. After a couple of years he was confronted with the disastrous famine brought about by the Great Leap Forward – an event that had a major impact on his thinking. The experience was hugely influential in shaping Wu’s view that too much central planning was dangerous.

But with Mao still at the helm it was even more dangerous to voice dissenting views too loudly. The Cultural Revolution soon caught up with Wu, and in 1969 he was sent to a farm in the countryside. Just two years later he was branded a ‘rightist’ and sent to a labour camp instead.

Rehabilitation to his former profession didn’t come until after Mao’s death in 1976, when he started to have a significant impact on policy.

Impressed by reformist thinkers Sun Yefang and Gu Zhun, Wu suggested the first of his ‘market socialism’ reforms the following year. He argued that self-interest should be used as an incentive for work and that people should be paid according to their output. It was a key point of contention and advocating it was a risk since Mao’s chosen successor, Hua Guofeng, was still chairman of the Communist Party.

But the academic papers that Wu (and others like him) were publishing were critical to the changes that Deng Xiaoping pioneered once Hua was finally ousted. They provided many of the arguments that persuaded officials to approve the ‘contract responsibility system’ (decollectivising farmers and allowing them to sell their surplus crops at market). They also lent weight to the decisions to allow private enterprise and establish special economic zones.

The jump in agricultural productivity that followed supported much of China’s subsequent efforts to re-launch its industrial programme.

Wu’s counsel became so sought-after that he was made deputy director of the State Council’s ‘Development Research Centre’ in 1986, a body tasked with advising China’s leadership on economic matters. (He remains a senior research fellow at the centre). He told them the need for change was urgent. “Now there are so many economic problems, the only way out is to reform,” he argued in a speech that year.

Although leaders like Deng appreciated his ideas, others thought the reforms were destabilising. The most damning charge was that Wu’s ideas had a hand in devastating bouts of inflation, particularly after the decision to lift price controls in 1988. Even then he stuck to his guns – blaming the student protests the following year on “rent-seeking” officials and “insufficient determination to apply market oriented reform”, says China Business News. Deng agreed with him, and kept the reforms effort going.

In the years that followed Wu hasn’t stopped voicing his opinions, condemning both ends of the political spectrum – the “crony capitalists” of the right and the “Maoists” of the left – for China’s woes. “The source of crony capitalism in China is the unrestrained power held by certain factions that lets them intervene in economic activity and allocate resources,” he complained in an article for Caijing magazine in 2009.

Predictably, Wu is still prescribing the government cede more power to markets.

“Energy prices, interest rates and exchange rates are still tightly regulated by the central government and, thus, cannot accurately reflect levels of scarcity,” he argues. “An even more serious problem is that the central government and state-owned entities still control most of the nation’s resources.”

Wu’s call for an end to the dominance of state-owned companies is accompanied by other advocacy. In the same Caijing opinion piece: “[Without rule of law] those who participate in economic activity only need friends in local officialdom to safeguard property and ensure economic survival.” And according to Wu, “a lack of political reforms to complement economic reforms [gives] new impetus to rent-seeking.”

Of course, discussion of political reform is a heavily controlled debate. Back in October, WiC reported how even prime minister Wen Jiabao’s views on the topic failed to make it past the censor’s scissors (WiC82). But the fact that the People’s Daily is prepared to push Wu front-and-centre once more could also be saying something about the internal debate going on at elite level, especially as China’s leadership transition enters a crucial phase.

© ChinTell Ltd. All rights reserved.

Sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.