Asia Global Institute

China's accountability system unique

Monday, April 15, 2019

China's accountability system unique

Asia Global Institute's Distinguished Fellow Andrew Sheng and Professor Xiao Geng talk about the success of the Chinese authorities' experimental approach in policymaking, characterized by trial and error and constant adaptation.

China has made unprecedented contributions to global economic growth and green innovation in recent decades, lifting close to 800 million people out of poverty since it launched reform and opening-up four decades ago. China- and the world-owes this success to the Chinese authorities' experimental approach to policymaking, characterized by trial and error and constant adaptation.

Contrary to popular belief in the West, where democratic elections are typically regarded as essential to holding governments responsible for their policies, China's approach supports accountability. Indeed, evidence shows that policymaking is responsive to feedback from both the Chinese people and the international community, with leaders correcting mistakes and updating outdated measures as they gain new information.

NPC and CPPCC present blueprint to deepen reform

Such adaptation is supported by the annual meetings of the National People's Congress and the Chinese People's Political Consultative Conference held in Beijing every March since 1998. At these meetings, top officials from the State Council, China's Cabinet, including key ministers and the premier, present detailed reports identifying the challenges China faces, as well as a blueprint for continued reform and opening-up.

The results are shared with delegates attending the meetings and broadcast live to thousands of official delegates, and Chinese and foreign reporters. These gatherings thus represent an important window into evolving Chinese policymaking and governance.

At this year's NPC and CPPCC meetings, policymakers weighed the backlash against the standard neoliberal economic model, based on free movement of goods, capital, information, and sometimes labor. The advanced economies and the international institutions they lead have long assumed that expanding these freedoms naturally leads to better outcomes for all.

But the neoliberal model has had grave unintended consequences, such as environmental degradation, rising inequality and the emergence of monopolies (especially in the technology sector). On a more emotional level, globalization and openness have fueled cultural insecurity. As frustration with the advanced economies' approach has grown, so has the mistrust of the experts and elites who championed it.

Calls for raising social spending

In response to these anxieties, rational "homo economicus" has morphed into emotional "homo politicus"-an agent susceptible to the sirens of nationalism, sectarianism, protectionism and populism. The result is escalating trade conflicts, rising isolationism, surging anti-immigrant sentiments, and calls for massive increases in social spending, based on concepts like modern monetary theory.

Despite the challenges China faces-including a high debt-to-GDP ratio and volatile stock markets-the country's leaders have proved adept at securing progress toward these goals. Consumer price index inflation stands at 2.1 percent. Last year, about 13.6 million urban jobs were added, underpinning an unemployment rate of just 5 percent, and more than 18,000 new businesses were launched every day, on average. China's international trade and payment position is largely balanced.

This is the result of a comprehensive and ever-evolving strategy aimed at improving the quality of life and work, reducing poverty, lowering the tax and regulatory burden for small private businesses, and championing green, innovative, open and sustainable growth. For example, last year, China reduced its average tariff rate to 7.5 percent from 9.8 percent in 2017; opened another 4,100 kilometers of high-speed railways; granted permanent urban residency to 14 million workers from rural areas; and implemented tax and fee cuts that reduced business costs by some 1.3 trillion yuan ($193 billion).

Tax cuts to fight global deflation

Also, the Chinese authorities now begin to further reduce the tax and social-security burden for business by another 2 trillion yuan, and increase the fiscal deficit by 0.2 percentage points of GDP to 2.8 percent, in order to counter the threat of protectionism-driven global deflation. Moreover, the NPC adopted the new Foreign Investment Law in March which will reduce the barriers for foreign investors and businesses to enter the Chinese market and substantially strengthen intellectual property rights protection.

While many in the West sacrifice "homo economicus" to appease "homo politicus", China's leaders are trying to satisfy both. They know that neglecting the needs of "homo politicus" could lead to social instability and fragmentation. But they also know that they must respond to internal pressures and rapidly evolving external conditions in ways that make good economic sense.

Not every decision will turn out to be the right one. But in China, when mistakes are made, adjustments follow. While this form of accountability is not perfect, it has produced a track record that is exceptional by any standard.

Andrew Sheng is a distinguished fellow at the Asia Global Institute, the University of Hong Kong, and a member of the UNEP Advisory Council on Sustainable Finance. And Xiao Geng, president of the Hong Kong Institution for International Finance, is a professor at Peking University HSBC Business School and the University of Hong Kong's Faculty of Business and Economics.

This article appeared in China Daily on April 15, 2019. The views expressed in the reports featured are the author’s own and do not necessarily reflect Asia Global Institute’s editorial policy.


Andrew Sheng

Distinguished Fellow, Asia Global Institute

Andrew Sheng

Xiao Geng

President, Hong Kong Institution for International Finance

Xiao Geng


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