Why China isn’t sending money to everyone

Global crises are revealing. How different countries are responding to the Covid-19 pandemic can tell us a lot about how their systems function. One of the most interesting differences is in how governments are offsetting the economic damage caused by extended lockdowns. Unprecedented reductions in economic activity have led many countries to rapidly adopt unprecedented policies, such as direct relief payments to households, or government grants to companies to cover worker salaries. These measures have been derided as “socialism” by some of their critics. But China, an actual socialist country, has not used them: it has not delivered any kind of broad-based grants to households. Why?

The reason clearly has nothing to do with Chinese culture, Confucian philosophy, Asian values, or whatever. In late February, the indubitably Chinese territory of Hong Kong became the first government to announce a direct cash payment: a HK$10,000 handout to every adult Hong Kong resident. And it has since announced a program to subsidize 50% of wages for employers who pledge not to lay off workers. Despite having this example close at hand, mainland China has not done anything comparable.

It’s not for lack of ideas. A number of prominent Chinese economists have advocated income support measures. Liu Shijin, the former head of the State Council’s Development Research Center, has advocated giving low-income workers a month’s worth of wages. Yao Yang, the dean of the National School of Development, has called for giving 2,000 renminbi to every household earning less than half the median income.

Yet the best time to deploy those measures may have passed. As Yu Yongding, an well-known independent economist, has pointed out, China is already over the worst of the epidemic and many of its restraints on movement and daily life have been lifted. It seems unlikely that China would copy policies that Western governments used in the most urgent phase of their outbreaks when its own situation is no longer quite so severe. While there is still an ongoing debate about the next stage of China’s economic-policy response, the first wave of decisions about how to respond to an emergency have already been made. It is telling that universal or near-universal relief for household incomes was not one of the tools China reached for.

One reason some have given for this decision is simply fiscal conservatism: universal income support costs a lot of money, which China can ill afford. Jia Kang, the former head of the Ministry of Finance’s in-house think tank, is one of the most prominent figures publicly arguing against direct income support:

For China, given that our our per-capita fiscal resources are still very low, and that the fiscal situation is very right, to give money to everyone–Jack Ma gets some, I get some, you get some–is really not necessary. …There are many places where we need to spend money, and China has to be careful with its spending. If I were allowed to make suggestions, I would take this plan of distributing money to every person off the table. It would be better for the government to focus on helping low-income and vulnerable groups while keeping appropriate control of spending.

In more recent remarks, Jia expanded on this theme, arguing that the government should not issue debt just to support short-term household consumption. Rather, it should use its fiscal resources on infrastructure and grand projects that will help China’s economy develop over the longer term. The best way of supporting household income growth, he argued, is to ensure that China is on a sustainable development trajectory and not stuck in the middle-income trap.

Jia is an effective spokesman for a brand of fiscal conservatism very widespread in Chinese official circles. But this fiscal conservatism is not of the sort found in right-wing Western political parties, which emphasizes restraint on government spending so that households can keep more of their money and decide how to spend it themselves. The Chinese version is rather a kind of government-knows-best conservatism. The reason the state needs to be conservative with its resources is so that it can use them to develop the economy in the best way, as only the state is capable of determining.

In fact, this is a very typical Chinese socialist way of thinking. It’s a caricature to think that socialism is just about maximizing the delivery of state benefits to households. Deng Xiaoping talked about achieving common prosperity for everyone, but through state-led development and growth rather than social welfare payments. Even at the apex of Stalinist high socialism in the 1950s and 1960s, China’s social welfare system was not astonishingly generous. State benefits were originally provided only to workers in urban state-owned enterprises, a minority of the population. Those workers were treated better because they were working in the core industrial sectors given priority in economic development plans. Relative prices were set to funnel any surplus from agriculture, where the majority of the population earned their living, into the development of heavy industry.

Chinese planners today have a much broader conception of strategic sectors than just coal and steel, and appreciate the virtues of market pricing. But their producer bias, the tendency to favor production over consumption, is still present. China is also notable for still having a fairly regressive system tax system that does relatively little redistribution. The social benefits provided by the Chinese state are more of a combination of programs for specific groups than broad, universal guarantees. They have evolved out of the narrow benefits provided to socialism’s privileged class of state workers, and are based on careful distinctions rather than an equalizing ideology. The means-testing for China’s minimum-income support program (dibao) is famously strict.

Of course, the socialist tradition also contains powerful themes of equality and the state’s responsibility for its citizens, and these have been periodically mobilized to put pressure on China’s government to expand its provision of social welfare. Yet the inequality between privileged urban workers and their rural compatriots has been an enduring feature of Chinese society for decades, one that has only been exacerbated by the disruptions of Covid-19. Judged by actual practice rather than rhetoric, producer bias has been a much more enduring theme in Chinese socialism than generous redistribution.

These historical legacies are not immutable, and received ideas are not a prison. Since late April, China’s government has stepped up its rhetoric about helping those people suffering from the economic disruption brought by the coronavirus outbreak, and it has pledged to expand access to existing programs that provide benefits to unemployed and low-income people. It’s still possible that the government could decide to offer much more broad-based support to household incomes than it has so far. Nonetheless, China has clearly moved more slowly and reluctantly in this direction than many other countries.

I think it would be a mistake to interpret this reluctance as a sign that China is now more capitalist than the capitalists, or more right-wing than the Republicans. Rather, the pandemic is once again revealing how its socialist legacy is still very much alive.

2 Comments

  1. the pandemic is once again revealing how its socialist legacy is still very much alive?

    China took a brief break from full Socialism from 1978-2020. From 2021-2035, it’s back to socialism to fulfill Part Two of Deng’s promise, “The others will catch up later.”

    It’s now later, and China will spend the next fifteen years becoming the most equitable nation on earth.

    Reply

  2. A fantastic explanation difference between China’s “fiscal conservatism” and the policies supported by conservatives in Western countries. That misunderstanding has led quite a few free market economists over the years to greatly overrate the extent to which China’s leaders are in favor of free markets.

    That said, I think it’s worth noting that China has gone from squeezing the agricultural sector to providing it with very generous subsidies.

    Reply

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.