The lasting influence of “Kornai fever” in China

Julian Gewirtz’s new book, Unlikely Partners: Chinese Reformers, Western Economists, and the Making of Global Chinahas gotten rave reviews from plenty of people smarter and more important than me, but I am happy to add my voice to the chorus. It is an excellent general history of economic policymaking in the first fifteen or so years of the reform era (1978-1993), focusing particularly on the intellectual exchanges between a group of Chinese intellectuals and various foreign economists. The “western” in the title should be interpreted very broadly, as the stars of the story are in fact mostly lesser-known scholars from what used to be called the Eastern Bloc.

At the center of this tale is the great Hungarian economist János Kornai, who incisively analyzed the nature and problems of socialist economies. With detailed research and interviews, Gewirtz nicely uncovers the chain of encounters that led to Kornai’s ideas getting wide exposure in China:

Kornai’s major idea presented at the [1981] Athens conference was his analysis of the “soft budget constraint.” This crucial concept showed that, under a planned economy, the firm “is not limited by fear or loss of failure”–in more practical terms, loss-making in the firm’s finances does not bring negative consequences to the firm. … Kornai’s presentation drew a sharp rebuke from V.R. Khachaturov, president of the Soviet Economic Assoication and a vehement supporter of the socialist planned economy. … But an unlikely voice, not heard previously in the conference discussions, spoke up in Kornai’s favor: Wu Jinglian. “In his paper, Professor Kornai had analyzed the functioning of a specific model of a socialist economy. Chinese experience made it easy to understand his analysis,” Wu said. Chinese economists had observed these issues, especially the “paternalistic relationship” of the government and enterprises, “serious waste” in enterprise management, and “the disappearance of the function of prices as carriers of information about supply and demand.” Wu praised Kornai for providing a rigorous conceptual apparatus. …

While at Yale University’s Department of Economics in 1983-1984, the 53-year-old Wu had read Kornai’s Economics of Shortage. Returning to China in 1984, Wu stashed a copy of Kornai’s book in his luggage and, at home, excitedly circulated sections of the book among friends and colleagues. In the minds of this small, elite group of Chinese economists, Janos Kornai seemed like an unexpected friend. …

[in 1985] Kornai had come to China as part of a distinguished group of economists from Europe and North America who would gather with many of China’s leading economists and economic policy makers. … The ostensible topic of his presentation was “could Western policy instruments (especially monetary and fiscal policies) be effective in socialist countries?” Kornai’s career, built on applying sophisticated economic analysis to the economic problems of socialist countries, clearly suggested an affirmative answer to this question–although this idea was relatively new to China. Since arriving in Beijing, Kornai had been listening carefully to discussions of China’s problems, including economic “overheating” and fears of inflation, as well as to the Chinese economists’ sense that they did not have in mind a goal model for the reform. Listening to such discussions, he wrote in his memoirs, “I felt…that I was at home in China, despite the distance and the historical and cultural differences. All the phenomena that came up and the cares and woes were familiar.” …

Kornai’s ideas, transmitted through diverse channels, flooded into Chinese debates, including the 1986 publication of the Chinese translation of Economics of Shortage. Dozens of articles in periodicals introduced an even wider readership to what Dushu, then a prominent liberal magazine, called the “enlightening” views of Kornai, whom they dubbed “the economic theorist that reform cried out for.” “Kornai fever” would go onto fuel sales of over 100,000 copies of the Hungarian economist’s book. Kornai was mentioned hundreds of times in academic and research journals in the period 1986-1989, including in regional and provincial journals in areas as varied as Guangxi, Hubei, Anhui, and Heilongjiang. …

These authors placed particular emphasis on two related aspects of the book: why the shortage economy was innate to socialism and how enterprise behavior under socialism created shortage phenomena—focusing, as a result, on Kornai’s arguments about the “soft budget constraint” and “paternalism.” These ideas, which the reviewers defined as priorities to address in future reforms in China, would remain the most salient aspects of Kornai’s thought for Chinese economists.

This jibes with my own experience; I discovered Kornai’s work from Chinese references to the term “soft budget constraint” in writings on state-owned enterprise reform. But while the soft budget constraint is brilliantly useful conceptual tool, being able to identify the problem of soft budget constraints has not enabled China to solve it. In fact the simplest diagnosis of the problems of the post-2008 Chinese economy is that probably budget constraints, which had been getting harder, became a lot softer.

Kornai’s most important contribution may actually have been to articulate the idea a market economy could still be regulated or managed by the government through indirect means–the fiscal and monetary policies used in Western economies–rather than the direct planning characteristic of socialism.

There is much testimony that Kornai’s presentation on this theme at the 1985 Bashan conference helped many Chinese reformers clarify the direction in which they wanted to head. They knew that they didn’t want a planned economy any more, but they were also very uncomfortable with the idea of an economy completely driven by random market forces. Kornai’s presentation helped square the circle, and Gewirtz shows how the deceptively simple concept of a “market economy with macroeconomic management” eventually became an official goal and (more or less) a reality. Kornai himself recognized how unlikely this whole chain of events was:

It’s very strange that in my own little country [I was ignored] most of the time, and in this giant country I was able to speak at a certain historical moment when one billion people wanted to hear exactly what I wanted to say. That was a very rare moment, and good luck.

Xi Jinping is a giant Deng Xiaoping fanboy

I have long been uncomfortable with the widespread view that Xi Jinping is effectively the second coming of Mao Zedong. With his ever-growing list of titles and powers and overwhelming presence in official propaganda, Xi is regularly accused of undermining the collective leadership system instituted by Deng Xiaoping and returning to an era of one-man rule and personality cults.

I think this view is less an actual historical analysis than an attempt to find a way to criticize Xi in a way that resonates within the Chinese political context. Since “everybody knows” that Mao was bad and Deng was good, saying that Xi is like Mao but not like Deng is just a way of expressing disapproval of the things Xi is doing.

While I’m not a huge fan of all the things Xi is doing either, I think we have to recognize that a lot of what he is doing draws very much on Deng Xiaoping’s legacy rather than Mao’s. Xi’s obsession with high economic growth targets is, for instance, clearly an attempt to show that he is Deng’s successor and is fulfilling the great goals passed down from the previous generation of leaders. I’ve also argued that Xi’s treatment of Mao’s legacy is very much in line with Deng’s own.

Even Xi’s obsessive power-gathering, culminating in his recent official recognition as the “core” of the leadership, can be justified as a Dengist move. While Deng always emphasized that China’s top leadership was collective, he knew that he was the core of that leadership, and he did not think the system could function without a core. Deng did not want arbitrary one-man rule but he did not want squabbling and indecision either. His most direct statement of this was in famous remarks made to senior officials in the Party, a couple of weeks after June 4, 1989 and the designation of Jiang Zemin as the new core leader (Chinese original here):

A collective leadership must have a core; a leadership without a core is unreliable. The core of our first generation of collective leadership was Chairman Mao. Because of that core, the “cultural revolution” did not bring the Communist Party down. Actually, I am the core of the second generation. Because of this core, even though we changed two of our leaders, the Party’s exercise of leadership was not affected but always remained stable. The third generation of collective leadership must have a core too; all you comrades present here should be keenly aware of that necessity and act accordingly. You should make an effort to maintain the core — Comrade Jiang Zemin, as you have agreed. From the very first day it starts to work, the new Standing Committee should make a point of establishing and maintaining this collective leadership and its core.

In this vein I have to recommend a new and brilliant piece by Alice Miller, the doyenne of Chinese politics-watchers, which provides a comprehensive assessment of Xi’s governing style and its relationship to Mao and Deng. She comes down firmly on the Dengist side, as is clear from the title “What Would Deng Do?“; here is an excerpt from the conclusion:

Much commentary among observers on Xi Jinping as the new Mao in Chinese leadership politics portrays him as ruthlessly asserting dictatorial power by purging political adversaries on charges of corruption and by assuming command over all major policy sectors as the “chairman of everything.” Xi has thus overturned the norms of collective leadership installed by Deng Xiaoping 30 years ago to inhibit the rise of another Mao, and he has begun building a cult of personality resembling Mao’s, despite a formal ban in 1980 enacted by the Deng leadership. On this view, Xi Jinping has emerged as the most powerful Chinese leader since Mao himself.

As prominent as this understanding of the Xi leadership has become, it nevertheless suffers from serious flaws. For one thing, several of its specific assertions are simply not the case. Judging by available evidence, Xi has not superseded normal Politburo processes as they worked under his predecessor Hu Jintao and, before Hu, Jiang Zemin. As attested to by public appearances of members of the Politburo Standing Committee, the key decision-making body, the division of policy labor—an intrinsic element of the collective leadership system that Deng Xiaoping implanted—remains in place. …

A more efficient reading of the dynamics of the Xi leadership arises out of the documents of the 18th Party Congress that installed him as top leader in 2012. … The upshot is that Xi and his Politburo Standing Committee colleagues received a mandate at the congress to press a broad array of renewed reforms deemed essential both to China’s advance toward the “double hundred” goals and ultimately to the party’s survival amid a rapidly changing society. To strengthen the ability of the new leadership to press the mandated reforms, the congress downsized the Politburo Standing Committee to make it easier to break the deadlocks that appear to have stymied reforms in Hu Jintao’s later years. And to the same end, Xi was given enhanced public prominence as the front man leading the reform movement, though not at the expense of the collective leadership system that Deng implanted. …

Xi’s model is not Mao Zedong, but rather Deng Xiaoping, the leader who launched the reforms that triggered China’s rise and whose transformative impact Xi and his colleagues hope to emulate.

Mao and Deng

Mao and Deng

How the anti-capitalist Cultural Revolution led to the revival of capitalism

Andrew Walder’s essay “Bending the Arc of Chinese History: The Cultural Revolution’s Paradoxical Legacy” was recently recommended to me, and indeed it is an excellent piece (sadly, the full source is behind one of those ludicrous academic paywalls). In it he argues that “the Cultural Revolution laid political foundations for a transition to a market-oriented economy whilst also creating circumstances that helped to ensure the cohesion and survival of China’s Soviet-style party-state.” The reason this legacy is paradoxical is, of course, that the professed goals of the Cultural Revolution were to tear down the Soviet-style party-state and prevent the re-emergence of capitalism. The exact opposite happened.

Furthermore, the historical effects of the Cultural Revolution are one of the fundamental reasons why China and the Soviet Union ended up on such different trajectories. China’s economic reforms of the 1980s were successful in part because they were part of a project of restoring state power and national greatness, and contributed to the strengthening of institutions. The USSR’s economic reforms of the 1980s were not successful because they were a battle against entrenched bureaucratic power, and undermined institutions. Here are some excerpts on this point:

One of the most consequential accomplishments of the Cultural Revolution was that it severely damaged the national bureaucracy, leaving it weak and divided. At the end of the 1970s, it was anything but an entrenched and powerful force capable of defending its privileges and vested interests. Officials at this point in time were grateful to be returned to responsible positions, given real authority over their designated areas of operation, and freed of the constant threat of political accusations for alleged errors. …

Deng would become the acknowledged hero of all those who sought to rebuild the structures of the party-state, purge it of disruptive rebels, and rebuild the Party, economy, and scientific and technical infrastructure. The way in which Deng rose to supplant Hua Guofeng as the Party’s pre-eminent leader at the end of 1978 is testament to the widespread political support that he earned for his efforts during Mao’s last years. …

Mikhail Gorbachev and Deng Xiaoping in 1989

Mikhail Gorbachev and Deng Xiaoping in 1989

When Gorbachev set out to restructure the Soviet economy along more modern and market-oriented lines in the late 1980s, he faced a fundamentally different situation. The Soviet Communist Party, its national apparatus of ministries and bureaus, its massive security apparatus and huge military establishment had not experienced extensive purges for almost 40 years. These centralized structures had grown and enhanced their authority, had accumulated bureaucratic privileges, and were well prepared to defend both against reforms that threatened the status quo. Gorbachev quickly found that his attempts to initiate economic reforms met with delay and obstruction. …

He eventually concluded that the only way to overcome bureaucratic resistance to reconstruction, or “perestroika,” was to reduce the power and influence of the bureaucracy and neutralize the security services and armed forces. This was the origin of “glasnost,” a greater transparency and openness about the flaws and inequities of the Soviet system, past and present, which was a prelude to an attempt to restructure the political system through competitive elections to new national assemblies. By the spring of 1989, Party secretaries of regions and cities were made to stand for election to legislative assemblies, and many of them lost. The momentum of democratization within Soviet structures, however, split the Communist Party and turned into nationalist mobilization that tore the Soviet Union apart. …

Gorbachev’s progressive ideas threatened the vested interests of an entrenched bureaucracy that had grown undisturbed for decades and which now oversaw an enormous military-industrial complex. Deng Xiaoping was in a fundamentally different position. … Deng represented the resurrection of the same forces whose vested interests stood in the way of Gorbachev. Deng was leading the way to their recovery towards a more secure and prosperous future, and as it turned out, an integral part of this package of national revival was the restructuring of China’s command economy. The Cultural Revolution eased the politics of economic reform by bundling that programme together with the revitalization of the party-state. This opportunity was not available to Gorbachev.

Walder also makes the point that the Cultural Revolution, which featured vicious ideological attacks on the Soviet Union, helped push China toward the US; the eventual normalization of relations with the US and the intellectual exchanges with Western economists that followed were also a big factor in the success of Deng’s reforms.

This explanation of the failure of Gorbachev’s reforms is quite close to that in Chris Miller’s new book The Struggle to Save the Soviet Economywhich I recently recommended. Such a historical perspective suggests that the key factor behind the very different Chinese and Soviet outcomes was not gradualism versus shock therapy, or privatization versus state control, but whether the government bureaucracy was enabling change or defending the status quo.

The debate over the alleged higher education glut in China

The latest issue of the Journal of Economic Perspectives has a good group of articles on issues in the Chinese economy; there’s a lot to talk about in there, but the piece on education by Hongbin Li, Prashant Loyalka, Scott Rozelle, and Binzhen Wu is particularly worth flagging. It touches on one of the hotter social debates in China over the past few years: whether the massive expansion of college education since 1999 has created an over-supply of graduates, or is just the beginning of the necessary transformation of the education system to meet the needs of a modern economy.


This debate is interesting not only because it is a very consequential one, but also because the two sides tends to use very different styles of argument. The case for the prosecution tends to rely more on close observation of current social phenomena in China (what you might call anecdotal evidence), while the case for the defense tends to rely more on economic theory. A good example of the argument for an education glut is a recent piece by Edoardo Campanella:

Education is never a bad thing in itself, but the move toward “mass universities” of the type that emerged in the West after World War II is occurring too fast. …

China, with a graduate unemployment rate of 16%, is producing more highly educated workers than the economy can absorb. The wage premium for workers with a bachelor’s degree has decreased by roughly 20% in recent years, and new graduates often must accept jobs – such as street cleaning – for which they are vastly overqualified.

As more Chinese students attend university, fewer are graduating from vocational schools, which teach the skills that the economy actually needs. In fact, the demand for qualified blue-collar employees is so high that in 2015 the country’s 23 million textile workers earned, on average, $645 per month – equal to the average college graduate.

Li et al. in the JEP piece note the same widely-reported factoids: that new graduates take a long time to find jobs, and their starting salaries are often of similar levels to manual laborers. But they counter with a combination of theoretical reasons not to be too concerned by these phenomena, and a more involved estimation of the financial returns to education:

In contrast to this common perception of too many college students, we believe that college expansion is a great policy achievement of China. If we assume that the demand for human capital is fixed in the short-run, then given the unprecedented increase in the supply of college graduates since 1999, it is not surprising that the return to college for young college graduates would decline for a time. However, in the long run, human capital investment can lead to investment in physical capital and skill-biased technological changes, which ultimately will increase the productivity of and return to human capital. In addition, regions and cities in developed nations that experience arguably exogenous shocks to the supply of human capital ultimately also experience increases in the productivity of skilled labor due to human capital spillovers. There is no obvious reason to expect that China’s case would be different in this respect.

Moreover, college expansion could well be a result of rising demand for human capital. Our analysis of data from China shows that the return to college education for the labor force as a whole has continued to rise despite the fast expansion of China’s colleges. In particular, the return for those with 5–20 years of work experience has risen from around 34 percent in 2000 to 41 percent in 2009. A possible reason is the rising demand for skilled workers driven by the influx of foreign direct investment and expansion of trade starting from the early 1990s. The high return to college education for experienced workers implies a high lifetime return (the 10-year lifespan return to college education for the year 2000 graduate cohort is as high as 42 percent), which explains why urban students flood into colleges in spite of the seemingly low short-term return.

My own impression is that the education-glut argument is more popular within China, perhaps because it can be more easily illustrated by tales of struggling new graduates. But the statistics that are usually used to support it seem questionable: if a recent college graduate is making the same wage in their first year of work as a migrant worker is making in their 20th, it’s not obvious that actually indicates the market is devaluing a university education. The proper measure is really the lifetime returns to education, and there seems little reason to doubt that today’s college graduates in China are going to have much higher lifetime incomes than today’s migrant workers without a degree. Perhaps the issue is that new graduates do not feel that the gap between themselves and manual workers is as wide as they expected it to be.

Li and his co-authors do point to some worrying evidence that the quality of higher education in China has in fact suffered as the number of students has massively expanded, an issue that Campanella also highlights. But while Campanella recommends making higher education much more restrictive and shunting most students into vocational education, Li and co. argue for decentralizing and deregulating higher education, so that universities are not mainly trying to meet government-set enrollment quotas but are instead competing to deliver a good educational experience.

A more serious problem than any over-supply of college graduates is likely to be the rather shocking under-provision of high school education for rural students, which the JEP article shows is weighing down the overall education level of China’s workforce.

Are Xi and Trump really so different?

The contrast last week between Xi Jinping giving a pro-globalization speech at Davos and Donald Trump giving his “America First” inauguration speech has captured the imagination of the chattering classes. It has led to the unusual spectacle of the arch-nationalist Steve Bannon and the arch-globalist Martin Wolf actually agreeing on something. Here’s what Bannon told the Washington Post:

“I think it’d be good if people compare Xi’s speech at Davos and President Trump’s speech in his inaugural,” Bannon said. “You’ll see two different world views.”

And here’s Wolf’s latest column:

Xi Jinping, president of China, made a speech last week on globalisation at the World Economic Forum that one would have expected to come from a US president. At his inauguration, Donald Trump made remarks on trade that one would never have expected to come from a US president. The contrast is astounding.

I think there is less to this contrast than meets the eye. A lot of the intellectual class is predisposed to see an epic battle of ideas between globalization and nationalism, and so that is what they saw in the headlines from the speeches. But it has been clear for years that Xi Jinping is one of the premier nationalists of our day: his “China Dream” rhetoric is a not very distant cousin to Trump’s “Make America Great Again.”

In reality, Xi’s speech at Davos had plenty of nationalist self-interest; it was just packaged in a different wrapper. Xi praised globalization not because it is good in the abstract but because globalization has made China rich and powerful.

In the Chinese view, globalization has worked for them not because they blindly embraced Western economic theories, but because they managed the process of globalization appropriately, with a keen eye to China’s national interests:

China has become the world’s second largest economy thanks to 38 years of reform and opening-up. A right path leads to a bright future. China has come this far because the Chinese people have, under the leadership of the Communist Party of China, blazed a development path that suits China’s actual conditions.

Other countries can and should be doing the same:

We should act pro-actively and manage economic globalization as appropriate so as to release its positive impact and rebalance the process of economic globalization. We should follow the general trend, proceed from our respective national conditions and embark on the right pathway of integrating into economic globalization with the right pace.

China has therefore succeeded not because globalization gave them something, but because China has been clever and hard-working in taking advantage of its opportunities:

Such achievements in development over the past decades owe themselves to the hard work and perseverance of the Chinese people, a quality that has defined the Chinese nation for several thousand years. We Chinese know only too well that there is no such thing as a free lunch in the world. For a big country with over 1.3 billion people, development can be achieved only with the dedication and tireless efforts of its own people. We cannot expect others to deliver development to China, and no one is in a position to do so.

Implicit in this line of thinking is that countries for whom globalization has not been a success–a group that Trump and Bannon seem to think includes the US–have only themselves to blame. They didn’t do it right; China did. Trump seems to agree, as he wants to renegotiate US trade deals.

Because China has successfully managed globalization, it thinks globalization is a good thing and wants it to continue. And this is why Xi’s speech is ultimately one of nationalist self-interest. This is not an altruistic conception. In particular, China sees the next stage of its development as involving the spread of its corporations out of its home market and around the globe. So Xi wants to make sure that new barriers are not thrown up in their way:

In the coming five years, China is expected to import $8 trillion of goods, attract $600 billion of foreign investment and make $750 billion of outbound investment. Chinese tourists will make 700 million overseas visits. … we hope that other countries will also keep their door open to Chinese investors and keep the playing field level for us.

If Xi is now trying to present China, however implausibly, as a defender of a liberal global economic order, it’s because he wants something from the rest of the world.

Who lost the battle for Manchuria?

A lot of mythology surrounds the Chinese Communist Party’s peasant origins and guerrilla tactics. But the Communist victory over the Nationalists in the civil war was not a mass uprising around the country, but a military campaign that started with victories in northeast China–Manchuria–and moved south from there. (Of course, when the Mongols and, later, the Manchus, conquered China, they also came from the northeast.) Here is Andrew Walder in his China Under Mao:

Victory was actually attained through conventional warfare fought between large modern armies, involving massive mobilization of material and human support for each side. Guerrilla warfare permitted the CCP to survive and expand during the Japanese invasion, but this survival strategy placed minimal demands on peasants to supply Communist partisans with food, material support, and recruits. Once the civil war began, the CCP abandoned guerrilla operations. As its armies poured into Manchuria after Soviet forces occupied the territory, Mao turned to a strategy of total mobilization for revolutionary war. The Red Army, renamed the People’s Liberation Army (PLA) in 1945, grew from 475,000 in 1944 to 2.8 million by 1948. …

The final years of the civil war resembled the Soviet army’s conquest of Eastern Europe in the last phases of World War II. The PLA rolled south from Manchuria and adjacent regions of North China, conquering vast regions that had never before been under CCP control, and regions like Tibet and Xinjiang that had not been governed by any Chinese state since the fall of the Qing dynasty.

Since the Communist victory was truly a military victory, many have looked to military causes to explain it. Chiang Kai-shek himself, in a book published after the war, focused attention on a series of events in 1946, around the city of Siping in Liaoning. Communist forces had occupied the city but were then dislodged by the Nationalists; at the same time, however, both parties were negotiating with the American envoy George Marshall, and a ceasefire was declared shortly afterward the Communist troops fled Siping. Chiang of course agreed to the ceasefire but in hindsight felt it was a mistake that allowed the Communists to regain the initiative:

This was a war that Chiang had lost in 1949, but which might have come out very differently, Chiang argued, if the Second Battle of Siping and its aftermath had been handled differently. The battle itself, Chiang said, had been “another decisive battle against the Communist troops.” As he described it, the three hundred thousand men under Lin Biao’s command had been utterly defeated: “More than half the Communist effectives became casualties.” Reports from the front, he said, “all agreed that barring some special international complications the Chinese Communists would not be able to fight anew after the terrific punishment they had just taken at the hands of the Government forces.”

Then there came the ceasefire and the suspension of [Nationalist general] Du Yuming’s pursuit of the Communist forces. Chiang believed that if his armies had continued their pursuit, “Communist remnants in northern Manchuria would have been liquidated.” Without a base area in northern Manchuria, the remaining Communist forces in Manchuria would have been deprived of Soviet support and “a fundamental solution to the problem of Manchuria would have been at hand.” Instead, “the morale of Government troops in Manchuria began to suffer” and Lin Biao rebuilt his forces in northern Manchuria. “The subsequent defeat of Government troops in Manchuria in the winter of 1948,” said Chiang, “was largely due to the second ceasefire order.” In this view, Siping was the decisive battle that could have been— if only a ceasefire, negotiated by George Marshall, had not intervened. Defeat had been snatched from the jaws of victory.

Chiang Kai-shek and Mao Zedong in 1945

Chiang Kai-shek and Mao Zedong in 1945

That is from Harold M. Tanner’s The Battle for Manchuria and the Fate of China: Siping, 1946, which reconstructs the events leading up to and following the battle, and tries to answer the question of whether Siping was truly the turning point that ensured Communist victory in the civil war. While Senator Joseph McCarthy also blamed Marshall’s intervention for “losing China,” a number of more reputable historians have also seen Siping as a key turning point. Tanner however concludes that Chiang’s hope was a false one, in part because the Soviet Union was quietly but effectively supporting the Communists, and both the Nationalists and the Americans were afraid of getting into a direct confrontation with the Soviets:

The Truman administration had decided that while the United States would support Chiang Kai-shek, there would be limits to the extent of that support. Chiang desperately wanted the United States to take a more active role in supporting his government and his army in their struggle against what Chiang portrayed as the Soviet Union’s imperialist designs on Chinese territory. The Truman administration, however, was determined not to get directly involved in the Chinese Civil War, and especially not to challenge the Soviet Union by getting drawn into the struggle in Manchuria.

America was willing to transport Nationalist armies and to supply substantial amounts of weapons and ammunition, but, as we have seen above, American equipment alone could not give the Nationalists a substantial advantage on the battlefields of Manchuria. Even if the United States had been willing to do so, extending unlimited military aid to an army that was pursuing a fundamentally flawed strategy and a government that was proving incapable of winning the political struggle is not likely to have changed failure into success. In any event, the United States did not have unlimited resources to expend on Chiang’s government. Truman’s decision to limit support for Chiang was based on his assessment of American interests and capabilities, including American commitments elsewhere around the globe, and the very real possibility that American embroilment in China could lead to conflict with the Soviet Union.

Marshall’s decision to push for a ceasefire in June 1946 was made in this context, as well as on the basis of his assessment (backed up by the intelligence reports available to him) that the Nationalist Army was simply not capable of achieving victory in Manchuria. Chiang agreed to the ceasefire not only because Marshall was pressuring him to do so (although this was certainly an important factor), but also because he was aware of the limitations of his own armies, the challenges of further operations in North Manchuria, and the possibility that military operations north of the Songhua could elicit a dangerous reaction from the Soviet Union.

The Communist victory in China’s civil war, in this analysis, is ultimately the result of the Cold War and thus of how the Second World War ended. In fact, Peng Shuzhi, a Chinese Trotskyist, made much the same argument back in 1952:

Placed in an unfavorable position in the international situation created by the Second World War, American imperialism was obliged to abandon its aid to Chiang and its interference with Mao. At the same time, the Soviet Union, which had secured a superior position in Manchuria at the end of the war, inflicted serious damage to Chiang’s government and offered direct aid to the CCP. This enabled the latter to modernize its backward peasant army. Without this combination of circumstances, the victory of a party like the CCP, which relied purely on peasant forces, would be inconceivable.

For example, if Manchuria had not been occupied by the Soviet Union but had fallen entirely under Chiang’s control, Chiang Kai-shek would have utilized the economic resources and the Japanese arms in Manchuria to cut off direct connection between the CCP and the Soviet Union. This would have blocked the USSR’s armed support to the CCP. Similarly, the situation would have been quite different if direct intervention against the CCP by American imperialism had been possible. Under either of these two circumstances the victory of Mao Tse-tung would have been very doubtful.

To approach this from another direction, we could recall the defeat of the CCP’s peasant army in the Kiangsi period, 1930-35, when the bourgeois KMT’s power was considerably stabilized as a result of continual aid from imperialism, while the CCP was isolated from the Soviet Union. From this we can also derive sufficient reason to justify the conclusion that today’s victory of the CCP is entirely the result of the specific conditions created by the Second World War.

China raises its target for private-sector hospitals

Amid the generally disappointing news on economic reform out of China, one signal I have been keeping an eye on is the government’s intentions on healthcare. A significant component of the previous five-year plan for healthcare, which ended in 2015, was a commitment to raise the private sector’s share of hospital beds to 20% of the national total. In the event they didn’t quite make the target–the final figure was 19.4% for 2015–but I still thought it was a promising way to use China’s planning system to drive liberalization and not just higher output. Healthcare is a fast-growing part of the economy and one where the private sector’s role is obviously increasing, so it is one of the more positive stories in China at the moment.

As many of the healthcare system’s problems, such as corruption and inequality, can arguably be traced to the overwhelming dominance of state-owned institutions, some within China have argued for targeting a much larger private-sector role. But there is an active debate: an authoritative report recently questioned the need to have a quantitative target for raising the private sector’s market share. A regulatory system designed for state institutions is arguably not able to ensure quality as private institutions rapidly proliferate, and scandals and public distrust of private hospitals are a clear issue. So it was not at all clear what would happen to this initiative.

Now the 13th five-year plan for healthcare has finally been published (full Chinese text here), and it does retain a target for raising the private sector’s market share. The new target is to raise private hospitals’ share of total hospital beds to above 30% by 2020 (the plan does not actually use the word “private,” which remains a loaded term in China, instead referring to hospitals “managed by society,” i.e. not the state). This is not a radically higher figure that would force drastic restructuring of the whole healthcare system, but it does maintain a clear, transparent and public commitment to a greater private-sector role. I would call this pretty good news, especially given that there has recently been some backward movement on state-owned enterprises and some other issues.

Public and private hospital beds