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mengjue · 1 year

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What's Happening in China? The November 2022 Protests

Hello! I know that there's so much going on in the world right now, so not everyone may be aware of what is happening in China right now. I thought that I would try to write a brief explainer, because the current wave of protests is truly unprecedented in the past 30+ years, and there is a lot of fear over what may happen next. For context, I'm doing this as someone who has a PhD in Asian Studies specialising in contemporary Chinese politics, so I don't know everything but I have researched China for many years.

I'll post some decent links at the end along with some China specialists & journalists I follow on Twitter (yeah I know, but it's still the place for the stuff at the moment). Here are the bullet points for those who just want a brief update:

Xi Jinping's government is still enacting a strict Zero Covid policy enforced by state surveillance and strict lockdowns.

On 24 November a fire in an apartment in Urumqi, Xinjiang province, killed 10. Many blamed strict quarantine policies on preventing evacuation.

Protests followed and have since spread nationwide.

Protesters are taking steps not seen since Tiananmen in 1989, including public chants for Xi and the CCP to step down.

Everyone is currently unsure how the government will respond.

More in-depth discussion and links under the cut:

First a caveat: this is my own analysis/explanation as a Chinese politics specialist. I will include links to read further from other experts and journalists. Also, this will be quite long, so sorry about that!

China's (aka Xi Jinping's) Covid Policy:

The first and most important context: Xi has committed to a strict Zero Covid policy in China, and has refused to change course. Now, other countries have had similar approaches and they undoubtedly saved lives - I was fortunate to live in New Zealand until this year, and Prime Minister Ardern's Zero Covid approach in 2020-2021 helped protect many. The difference is in the style/scope of enforcement, the use of vaccines, and the variant at play. China has stepped up its control on public life over the past 10 years, and has used this to enforce strict quarantine measures without full regard to the impact on people's lives - stories of people not getting food were common. Quarantine has also become a feared situation, as China moves people to facilities often little better than prisons and allegedly without much protection from catching Covid within. A personal friend in Zhengzhou went through national, then provincial, then local quarantines when moving back from NZ, and she has since done her best to avoid going back for her own mental and physical health. Xi has also committed China to its two home-grown vaccines, Sinovac and Sinopharm, both of which have low/dubious efficacy and are considered ineffective against new variants. Finally, with delta and then omicron most of the Zero-Covid countries have modified their approach due to the inability to maintain zero cases. China remains the only country still enacting whole-city eradication lockdowns, and they have become more frequent to the point that several are happening at any given time. The result is a population that is incredibly frustrated and losing hope amidst endless lockdowns and perceived ineffectiveness to address the pandemic.

Other Issues at Play:

Beyond the Covid situation, China is also wrestling with the continued slowdown in its economic growth. While its economic rise and annual GDP growth was nigh meteoric from the 80s to the 00s, it has been slowing over the past ten years, and the government is attempting to manage the transition away from an export-oriented economy to a more fully developed one. However, things are still uncertain, and Covid has taken its toll as it has elsewhere the past couple of years. Youth unemployment in particular is reaching new highs at around 20%, and Xi largely ignored this in his speech at the Party Congress in October (where he entered an unprecedented third term). As a result of the perceived uselessness of China's harsh work culture and its failure to result in a better life, many young Chinese have been promoting 躺平 tǎng píng or "lying flat", aka doing the bare minimum just to get by (similar to the English "quiet quitting"). The combination of economic issues and a botched Covid approach is important, as these directly affect the lives of ordinary middle-class Chinese, and historical it has only been when this occurred that mass movements really took off. The most famous, Tiananmen in 1989, followed China's opening up economic reforms and the dismantling of many economic safety nets allowing for growing inequality. While movements in China often grow to include other topics, having a foundation in something negatively impacting the average Han Chinese person's livelihood is important.

The Spark - 24 Nov 2022 Urumqi Apartment Fire:

The current protests were sparked by a recent fire that broke out in a flat in Urumqi, capital of the Xinjiang province. (This is the same Xinjiang that is home to the Uighur people, against whom China has enacted a campaign of genocide and cultural destruction.) The fire occurred in the evening and resulted in 10 deaths, which many online blamed on the strict lockdown measures imposed by officials, who prevented people from leaving their homes. It even resulted in a rare public apology by city officials. However, with anger being so high nationwide, in addition to many smaller protests that have occurred over the past two years, this incident has ignited a nationwide movement.

The Protests and Their Significance:

The protests that have broken out over the past couple of days representing the largest and most significant challenge to the leadership since the 1989 Tiananmen movement. Similar to that movement, these protests have occurred at universities and cities across the country, with many students taking part openly. This scale is almost unseen in China, particularly for an anti-government protest. Other than Tiananmen in 1989, the most widespread movements that have occurred have been incidents such as the protest of the 1999 Belgrade bombings or the 2005 and then 2012 anti-Japanese protests, all of which were about anger toward a foreign country.

Beyond the scale the protests are hugely significant in their message as well. Protesters are publicly shouting the phrases "习近平下台 Xí Jìnpíng xiàtái!" and "共产党下台 Gòngchǎndǎng xiàtái!", which mean "Xi Jinping, step down/resign!" and "CCP, step down/resign!" respectively. To shout a direct slogan for the government to resign is unheard of in China, particularly as Xi has tightened control of civil society. And people are doing this across the country in the thousands, openly and in front of police. This is a major challenge for a leader and party who have prioritised regime stability as a core interest for the majority of their history.

Looking Ahead:

Right now, as of 15:00 Australian Eastern time on Monday, 28 November 2022, the protests are only in their first couple of days and we are unsure as to how the government will respond. Police have already been seen beating protesters and journalists and dragging them away in vehicles. However, in many cases the protests have largely been monitored by police but still permitted to occur. There seems to be uncertainty as to how they want to respond just yet, and as such no unified approach.

Many potential outcomes exist, and I would warn everyone to be careful in overplaying what can be achieved. Most experts I have read are not really expecting this to result in Xi's resignation or regime change - these things are possible, surely, but it is a major task to achieve and the unity & scale of the protest movement remains to be fully seen. The government may retaliate with a hard crackdown as it has done with Tiananmen and other protests throughout the years. It may also quietly revamp some policies without publicly admitting a change in order to both pacify protesters and save face. The CCP often uses mixed tactics, both coopting and suppressing protest movements over the years depending on the situation. Changing from Zero Covid may prove more challenging though, given how much Xi has staked his political reputation on enforcing it.

What is important for everyone online, especially those of us abroad, is to watch out for the misinformation campaign the government will launch to counter these protests. Already twitter is reportedly seeing hundreds of Chinese bot accounts mass post escort advertisements using various city names in order to drown out protest results in the site's search engine. Chinese officials will also likely invoke the standard narrative of Western influence and CIA tactics as the reason behind the protests, as they did during the Hong Kong protests.

Finally, there will be a new surge of misinformation and bad takes from tankies, or leftists who uncritically support authoritarian regimes so long as they are anti-US. An infamous one, the Qiao Collective, has already worked to shift the narrative away from the protests and onto debating the merits of Zero Covid. This is largely similar to pro-Putin leftists attempting the justify his invasion of Ukraine. Always remember that the same values that you use to criticise Western countries should be used to criticise authoritarian regimes as well - opposing US militarism and racism, for example, is not incompatible with opposing China's acts of genocide and state suppression. If you want further info (and some good sardonic humour) on the absurd takes and misinfo from pro-China tankies, I would recommend checking out Brian Hioe in the links below.

Finally, keep in mind that this is a grass-roots protest made by people in China, who are putting their own lives at risk to demonstrate openly like this. There have already been so many acts of bravery by those who just want a better future for themselves and their country, and it is belittling and disingenuous to wave away everything they are doing as being just a "Western front" or a few "fringe extremists".

Links:

BBC live coverage page with links to analysis and articles

ABC (Australia) analysis

South China Morning Post analysis

Experts & Journalists to Check Out:

Brian Hioe - Journalist & China writer, New Bloom Magazine

Bonnie Glaser - China scholar, German Marshall Fund

Vicky Xu - Journalist & researcher, Australian Strategic Policy Institute

Stephen McDonnell - Journalist, BBC

M Taylor Fravel - China scholar, MIT

New Zealand Contemporary China Research Centre - NZ's hub of China scholarship (I was fortunate to attend their conferences during my PhD there, they do great work!)

If you've reached the end I hope this helps with understanding what's going on right now! A lot of us who know friends and whanau in China are worried for their safety, so please spread the word and let's hope that there is something of a positive outcome ahead.

#孟珏’s china corner #中国 #上海 #习近平 #习近平下台 #共产党下台 #China #Shanghai #China protests #China protests 2022 #Xi Jinping #Xi Jinping step down #CCP step down #Xi Jinping resign #CCP resign #乌鲁木齐 #Urumqi #Urumqi fire #Urumqi apartment fire

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zvaigzdelasas · 3 months

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Inflation has pulled back significantly from its pandemic-era peak. In fact, some categories have fallen into outright deflation, meaning consumers are seeing the prices decline instead of rise.[...]

Demand for goods soared early in the Covid-19 pandemic, as consumers were confined to their homes and couldn't spend on things such as travel or concerts. The health crisis also snarled global supply chains, meaning volume couldn't keep pace with demand for those goods. Such supply-and-demand dynamics drove up prices.

Now, they're falling back to earth.[...]

"Supply chains are going back to normal," said Jay Bryson, chief economist for Wells Fargo Economics. "And on the demand side, there's been somewhat of a rotation from goods spending back toward services spending."

"We're kind of reverting back to the pre-Covid era," he added.[...]

14 Feb 24

Deflation may soon start biting into Chinese growth, as Beijing looks at another three to six months of a "very painful economy," according to one analyst who covers the country.

"This is something investors need to be cautious of. The economy here is bad, it's pretty ... it's really bad. I've been in China for 27 years, and this is probably the lowest confidence I've ever seen," Shaun Rein, founder of the China Market Research Group, told CNBC's "Squawk Box Europe" on Monday.

��So deflation is starting to wield its ugly head[sic]. Consumers are waiting for discounts. They’re very nervous.”

Linked to a decline in the prices of goods and services, deflation is generally associated with an economic slowdown — raising questions over the growth outlook for China, whose post-Covid-19 recovery has already fallen short of some expectations in 2023. In December, depressed prices for pork — which makes up around a fifth of China’s CPI basket — heralded the possible advent of deflation.

“Deflation is a serious issue, I know the Chinese government doesn’t want me saying it, but it’s an issue that we need to be worried about,” Rein stressed. [...]

Economic slowdown is widely seen as a potential threat to Xi Jinping, whose Chinese Community Party has cultivated national political legitimacy through rapid growth.[...]

″[Buyers] think housing prices might continue to drop, so even if there’s pent-up demand for housing, a lot of home buyers are telling us, we’re not going to buy this month, we’re not going to buy this quarter, because we’re scared prices are going to drop another couple [of] percent in the coming months,” Rein said Monday.

22 Jan 24

Curious 🤔

#deflation (good) vs deflation (bad comma chinese)

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argumate · 9 months

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The problems facing the Chinese economy were obvious to some of us over a decade ago.

They are the same problems that every country that has followed a similar growth model has faced. China implemented a high savings, high-investment model that was extremely successful when the economy was severely underinvested for its level of institutional development.

But once China closed the gap between the investment it had and the investment it could productively absorb, given its particular set of business, legal, financial and political institutions, like every historical precedent, instead of switching to a different model, it continued with the same model of high savings and now-excessive investment, which led – as in every one of the precedents cases – to asset bubbles, especially in real estate, and an ultimately unsustainable rise in debt.

As this happened, the locus of economic activity automatically shifted from hard budget-constrained sectors to soft budget-constrained sectors. The turn against the private sector, in other words, was a consequence of China's rising imbalances, and not the cause.

For certain economists, any rapid growth is by definition a consequence of private sector initiative, while any slowdown, also by definition, is a consequence of government intervention. But this is not at all what happened in China.

China's ferocious growth in the first three decades of reform was the result of heavy government intervention. This included policies that forced up the savings rate and corralled the resulting savings into a highly controlled banking system that was designed to flood the investment and manufacturing sectors of economy with cheap financing. It also included heavy currency intervention, tough labor restrictions, and a whole series of direct and indirect subsidies to the manufacturing sector that led to explosive growth in infrastructure and made Chinese manufacturers the most competitive in the world, albeit at the expense of Chinese households. To say that three decades of some of the most spectacular growth in history came simply from "unshackling" the private sector makes no sense at all.

What perhaps should've been obvious a decade ago has now become obvious to most economists in China: China's biggest problem isn't "government intrusion" (although that certainly doesn't help). It is the distortion in the distribution of income that keeps domestic demand too weak to support domestic business investment. Without resolving weak domestic demand, it is all but impossible for China to maintain high levels of economic activity except by maintaining the high levels of non-productive investment that have caused the very malaise it is supposed to cure. Business investment is weak, in other words, not because of government intrusion but because of weak demand. Government intrusion is the consequence of weak business investment. The way to fix the economy is to fix the demand side of the economy.

I've mentioned before but I'm amazed at how well Pettis types this analysis out from scratch each time, multiple times a day, every day, for years

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racefortheironthrone · 11 months

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Was looking at old photograph taken circa early 1880s of the same area where Johannesburg now stands and there's obsoletely nothing beyond plant life there (unlike even nearby Pretoria the local Sotho-Tswana peoples didn't have any settlements in present-day Johannesburg prior to the gold mining) and then a photograph taken circa late 1880 and it like million tents are there (maybe that's an exaggeration). Made me wonder about the last "overnight city" was founded in recent history?

This is a fascinating question!

It's true that the "boom town" phenomena occurs in the case of gold rushes - like California in 1849, West Australia in 1851, the Klondike in 1896 - or the construction of railroads or highways or the development of new factory towns or the like.

I would say that the most recent example of this phenomenon is the "new cities" built in China as speculative real estate developments premised around the need for affordable housing for manufacturing workforces, especially during the 2005-2011 housing bubble. In some years, these developments hit big and you get brand-new megacities out of nowhere.

In the past couple of years, with the slowdown in the Chinese economy and particular problems in the real estate sector, the fascinating phenomena of "ghost cities" (originally observed in 2006) where there are massive empty developments in various stages of construction just lying vacant has become more prominent, as developers run out of money or credit, or find it hard to attract industry and residents in a time of COVID lockdowns and the relative decline of Chinese manufacturing as a basis for urbanization.

#history #urban history #urban studies #boomtowns #ghost cities

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beardedmrbean · 1 month

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China, China, China. Scarcely a day passes without some new scare story about China. The Middle Kingdom was struggling with its image overseas long before Covid, but the pandemic cemented attitudes in the West. Ever since, and with plenty of justification, its every move has been regarded with growing “reds under the bed” paranoia. The feeling is mutual.

The mood has darkened further in the past week. British democracy is under threat from Chinese cyber attacks, the Deputy Prime Minister, Oliver Dowden, told MPs this week in imposing sanctions on a number of Chinese officials. If that’s what standing up to China means these days then the central committee doesn’t have a lot to worry about.

Rather more seriously, the US and Japan are meanwhile planning the biggest upgrade to their security alliance since the mutual defence treaty of 1960.

Not to be outdone by the US ban on exports of hi-tech chips to China, Beijing responded this week by saying it will be phasing out even the low-tech variety on all government computers and servers, replacing foreign chips with its own home-grown ones.

And then of course, there is China’s de facto alliance with Vladimir Putin’s Russia, forming a new axis of authoritarian powers with an overtly anti-Western agenda. The rupture with the West seems virtually complete.

Years of integration into the global economy, in the hope that it might make China more like us, have backfired and are now going powerfully into reverse.

But does the nature of the threat fully justify all the noise which is made about it? In military terms, possibly, even if China plainly poses no direct threat to Europe, and unlike Putin, has no plans to lay claim to any part of it.

It does, however, pose a clear and present danger to Taiwan, where President Xi Jinping would plainly like to crush the life out of this vibrant, free enterprise economy in the same way as he has in Hong Kong. His rhetoric is bellicose and hostile, and we must therefore assume he means what he says.

In economic terms, however, the China threat is receding fast. After decades of stellar growth, China’s medium to long-term economic prospects are at best mediocre and at worst grimly dispiriting.

Now gone almost entirely is the idea of China as an unstoppable economic leviathan that will inevitably eclipse the US and Europe. Already it is obvious that this is not going to be the Chinese century once so widely forecast. Instead, Western commerce is looking increasingly to India as the economic superpower of the future.

Nor is this just because of the immediate causes of China’s economic slowdown – a woefully unbalanced economy which in recent years has relied for its growth substantially on debt-fuelled property development.

For China is indeed, to use the old cliche, getting old before it gets rich. Demographic factors alone are highly likely to floor President Xi’s grandiose ambitions for economic hegemony before they can be realised.

The fundamentals of China’s predicament, in other words, do not support the narrative of democracy under threat from an insurgent totalitarian rival.

There’s been a lot in the papers about demographics over the last week following a new study, published in the Lancet, on declining fertility rates. At some stage in the next 60 years, the global population will peak, and then fast start contracting.

The birth rate is projected to fall below population replacement levels in around three-quarters of countries by 2050, with only a handful of mainly Sub-Saharan nations still producing enough babies to ensure expanding populations by 2100.

In China, however, it has already started, with the population falling in 2022 for the first time since the Great Famine of 1959-61. This wasn’t just a one-off blip: last year deaths continued to significantly outnumber births.

There may be a slight pause in the decline this year. Some couples may have delayed their plans for children in anticipation of the Year of the Dragon, synonymous in Chinese mythology with good fortune.

Any relief will be only temporary. According to projections by the Shanghai Academy of Social Sciences, which correctly forecast the onset of Chinese population decline, it’ll essentially be all downhill from here on in, with the population more than halving between now and the turn of the century.

This is a huge fall, with far-reaching implications for economic development and China’s superpower ambitions. What’s more, there is almost nothing the Chinese leadership can do about it, beyond imprisoning China’s fast-declining cohort of women of child-bearing age and forcing them to breed.

Across much of the developed world and beyond, the birth rate has long since declined below the 2.1 offspring per woman generally thought to be the level required to maintain the population. But thanks to its dictatorial one-child policy introduced in 1980 to curb China’s then almost ruinous birth rate, China has a particularly acute version of it.

China abandoned the one-child policy – limiting urban dwellers to one child per family and most rural inhabitants to two – in favour of a “three-child” policy in 2016, but too late.

Even if women of child-bearing age could be persuaded to have more babies, there are simply not enough of them any longer even to maintain today’s population, let alone increase it.

The one-child policy may have perversely further accentuated this deficiency because of the Chinese preference for male offspring over female, though most studies on this are inconclusive.

In any case, China finds itself classically caught in a “low-fertility trap”, the point of no return, where precipitous population decline becomes inevitable.

The implications are as startling as the statistics themselves. The Shanghai Academy of Social Sciences forecasts that the working-age population will fall to 210 million by 2100, having peaked in 2014, and the ratio of working-age citizens to notionally non-working from 100 to 21 today, to 100 to 137 at the turn of the century.

One thing we know about ageing populations is they like life to be as comfortable and settled as possible. They also don’t like fighting wars, which have historically required a surplus of testosterone-fuelled young men desperate to prove themselves on the battlefield.

The turn of the century is of course still a long way off; there is easily enough time for several wars in between. The nature of warfare has also changed. It no longer requires the bravery of the young.

Even so, totalitarian dictatorships may well struggle with selling the multiple other hardships of war to an elderly population. Putin may seem to disprove this observation, but in doing so he is also demonstrating anew the futility of expansionist warfare. They make a desert, and call it peace.

A couple of other points seem worth making about our propensity to exaggerate the Chinese threat. Anyone would think that China is already a dominant force in the UK economy. It is not; in fact it is still only our fifth-largest trading partner after the US, Germany, the Netherlands and France. Even on imports alone it’s not as big as the US and Germany.

Whether because of the growing diplomatic standoff or other factors, moreover, this position is eroding. The size of trade with China fell last year. The same is true of direct investment by China in the UK economy, which was just 0.3pc of total foreign direct investment in 2021.

We worry about China’s imagined ability to close down our critical infrastructure, but should that really be allowed to influence decisions on whether the Chinese battery company EVE should be building a new gigawatt factory at Coventry Airport, or for that matter whether super-tariffs should be charged on Chinese EVs?

Should they exist at all, these risks can surely be managed. In any case, no nation that hopes to trade with others would deliberately turn the lights off, even if it could. In over-reacting to the Chinese threat, we only shoot ourselves in the foot.

China has lied, copied, stolen and cheated its way up the economic league tables, but ultimately it is a closed economy which increasingly repudiates foreign influence and thereby severely limits its own powers of innovation.

The danger is that now at the peak of its powers, it hubristically lashes out. But in the medium to long term, the demographic die is cast, and it spells a future of waning influence and economic heft.

#nunyas news #my only fear is that they start a war #in order to reduce their population #it's china so not something historically I'd put past them

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mariacallous · 8 months

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In case you hadn’t noticed, the world economy’s gone rather topsy-turvy.

Japan is up while China is down—and in danger of Japan-like deflation. The United States is practicing Japanese-style protectionism and industrial policy, while Japan is championing what Washington used to promote: newer, better open trade rules.

These trends represent a virtual reversal of the neoliberal narrative we had grown used to since the end of the Cold War, when the disintegration of Soviet communism appeared to discredit the whole idea of government-directed economic growth. This was followed by the collapse of Japan’s bubble economy in the early 1990s, which in turn touched off a long period of slow, geriatric growth in the granddaddy of the East Asian “miracle.” But the economics profession, having made so many bad calls since this long, strange trip of globalization began, can’t keep up. That’s because most mainstream economists still have trouble admitting that their model of free-market fundamentalism—the “Washington Consensus”—has failed catastrophically, and in several dimensions.

While Brexit has proved a disaster for Britain and the U.S. is floundering with ever-worsening inequality, Japan may well have entered a new chapter of its extraordinary postwar story. It is enjoying a new spurt of activity, including annualized growth of nearly 5 percent in the second quarter and some price and wage increases. These indicators “suggest the economy is reaching a turning point in its 25-year battle with deflation,” as the government said in its annual white paper. Japan also remains socially stable to a degree that should make Americans envious, since it doesn’t suffer the huge income inequality problem that bedevils the United States, though Japan is, of course, far less ethnically diverse. Japan is hardly a perfect model—it is still backward, for example, in recognizing women’s rights—but its Human Development Index is rising among the rich countries. Whether measured by equality, life expectancy, or its stellar jobless rate of 2.7 percent, Japan is today in the “top rung of the most affluent and most successful societies in the world—and now seven and a half years longer than for America,” as economics historian Adam Tooze puts it.

Other economists who have long invoked the Japanese and East Asian “middle way” of market-sensitive government industrial support agree. “I wouldn’t attribute too much to Japan’s quarterly growth rate—but I would give them some credit for not leaving as many people behind,” said Nobel-winning economist Joseph Stiglitz of Columbia University. “The big advantage they had was that before their malaise set in, they had achieved a far more egalitarian state.” Or as International Monetary Fund (IMF) economists Fuad Hasanov and Reda Cherif conclude in one recent paper, the Asian miracles’ economic models—mainly the ones used in Hong Kong, South Korea, Singapore, and Taiwan—“resulted in much lower market income inequality than that in most advanced countries.”

How did East Asia do it? By focusing on export competitiveness and forcing subsidized firms to compete in global markets, these countries created good jobs for the middle class and avoided the pitfalls of failed “import substitution” policies that have characterized bad industry policy in the past across countries from Latin America to Africa. Building upon that, they also imposed progressive tax systems.

By contrast, there is also some agreement that one reason for China’s slowdown is that its dictatorial leader, Xi Jinping, has cracked down too harshly on the market part of the economy, disturbing the delicate balance of government-vs.-market control that began in the late 1970s. Xi “doesn’t seem to know how to use the levers of government with subtlety or within a market framework,” Stiglitz said.

All this is surprising, because in the policy debate with advocates of East Asian-style market intervention, the Washington Consensus had until fairly recently been winning, hands down. “Industrial policy” of the kind practiced by Japan and other East Asian nations was toxic and had to be practiced, at best, below the radar, especially in the United States. Capital flows were heedlessly unleashed around the world and market barriers eliminated at the insistence of both Democrats and Republicans in Washington. When the Asian financial crisis hit in the late 1990s, the neoliberals at first claimed vindication, saying corrupt crony capitalism and heavy government interference were to blame. But after the 2008 crash sank Wall Street—and nearly the entire U.S. financial system—it was clear that the crisis was, in fact, one of global capitalism and the excesses of neoliberalism. The problem in both the U.S. and Asia wasn’t the heavy hand of government so much as its opposite: totally unregulated capital flows and financial markets, not to mention (in the United States) regressive tax policies that favored Wall Street and capital gains earners.

As Eisuke Sakakibara, Japan’s former vice minister of finance and international affairs and one of Asia’s intellectual champions for an alternative model, told me presciently back then: “Global capital markets are responsible to a substantial degree. If you look at the so-called Asia crisis, the root cause has been the huge inflow of capital into Malaysia, Thailand, South Korea, and China. And all of a sudden … all of that has [fled] from those countries. Borrowers have been borrowing recklessly, and lenders have been lending recklessly. And not just Japanese banks. American banks and European banks as well.” Sakakibara proved to be correct, and something similar—indeed, much worse—struck the U.S. economy nearly 10 years later.

Beyond that, it was also clear during this three-decade period that China was paying scant attention to trade rules, deploying among other systematic violations industrial espionage, investment controls, currency manipulation, and intellectual property theft. During the same period, American confidence was badly misplaced that the nation’s high-tech advantages would automatically translate into a new manufacturing age for the middle class. It wasn’t just American capital that was fleeing abroad: By the mid-1990s, it was obvious that Silicon Valley-style startups don’t take one’s economy very far when most of the scale-ups—the manufacturing and downstream jobs, in other words—are happening overseas in low-wage countries.

So neoliberalism’s been dying ever since, and Donald Trump and Joe Biden have delivered the death blows. The most significant failure, perhaps, was not purely economic but social and political. It has become clear that in the United States, as well as in other major Western economies such as Great Britain, deepening inequality brought about by an almost religious devotion to neoliberal thinking has generated jarring social instability and populism on the right and left. Trump and former British Prime Minister Boris Johnson turned the two democracies that built the postwar global economic system into anti-globalist, inward-looking confederacies. Trump focused his ire on starting a trade war and crippling the World Trade Organization (WTO), and Johnson stormed out of the European Union. How did we get to this topsy-turvy place? A little historical perspective might help.

What’s been playing out on the global stage all this time has been nothing less than a historic test of alternative approaches to economic development—and an unprecedented test of social stability, too.

It began about three decades ago, when U.S. President Bill Clinton rolled into office in the triumphalist aftermath of the collapse of the USSR and decided that markets and globalization were the answer—even for formerly progressive Democrats like him. Command economies were utterly discredited. So was big government in the United States. And in the developing world, government intervention—so-called import substitution, meaning the support of domestic industry and the closing of trade barriers to foreigners—had also been an abysmal failure, especially in Africa and Latin America, leading to corruption and endemic poverty.

But then there was that strange outlier, East Asia. The East Asian “Tigers,” inspired by the postwar champion of managed economies, Japan, had dared to tinker with market forces like demiurges playing with elemental fire, and they had largely succeeded. Around that time, Masaki Shiratori, Japan’s executive director at the World Bank, lobbied passionately for a study of East Asia’s unusual success, its unique and savvy combination of deft government promotion of markets.

The World Bank came up with one—350 pages long—that hesitantly concluded that “market-friendly state intervention” might sometimes work. But it was so heavily hedged that it had little impact. Washington didn’t want to risk turning countries like India into government-supported export giants with East Asian-style policies, especially when U.S. markets were already seen as being under assault and Clinton was preaching “jobs, jobs, jobs.” And U.S. policymakers didn’t want countries like Russia to find excuses for only half-reforming their way out of command economics.

Mainstream economists rolled out their big guns against the idea that East Asia had a viable alternative. In a 1994 Foreign Affairs article, “The Myth of Asia’s Miracle,” Paul Krugman argued that pouring all that capital into industry at home was only going to yield “diminishing returns” and compared the Asians to the Soviet Union, saying that people forget “how impressive and terrifying the Soviet empire’s economic performance once seemed.” Krugman cited in particular the work of economists Alwyn Young and Lawrence Lau, who argued that East Asia’s “total factor productivity” numbers showed East Asian economic growth was entirely based on “inputs” such as rapid labor force increases, not on improved efficiency. It was merely “economic growth on steroids,” Young told me in an interview for Institutional Investor magazine in 1993. “You look impressive, but inside you’re rotting.”

Young and others pointed to Japan’s slow-growth period as evidence of this, but he and other economists failed to take into account the ultra-long time frame of the East Asian model—the fact that these countries were laying the institutional groundwork for later improvements in productivity and efficiency. And all the while neoliberalism was being slowly undermined by the departure of U.S. capital for foreign shores, along with cheaper labor. What the Clintonites and their advocates failed to see was that “[a]s capital becomes internationally mobile, its owners and managers have less interest in making long-term investments in any specific national economy—including their home base,” Robert Wade—then a renegade World Bank economist—argued at the time.

Wade and others were, of course, ignored. The historical tide of neoliberalism was too powerful, and the Japanese too meek about asserting their views. Japan, as ever, was bad about “forming universal theories from the economic success of Japan,” Naohiro Amaya, one of the country’s legendary bureaucrats, told me in 1992 when I lived there. It was a culture of pragmatism; the Japanese had no Keynes or Marx of their own. And frankly, few bureaucracies were as savvy as those of the East Asians, with their agile technocratic class and Confucian tradition of service. India, for example, which had grown up with Nehru socialism, had suffered for decades under the “license raj,” which involved a bureaucratic tangle every time someone wanted to start a business.

Yet much of this long-entrenched economic “wisdom” is now cracking—much like the melting glaciers that neoliberal capitalism, during its rampage across the planet, has helped to promote. As Cherif and Hasanov write in “The Return of the Policy That Shall Not Be Named”: “Our summary of 50 years of development showed that only a few countries made it from relative or absolute poverty to advanced economy status,” giving rise to the idea that government can’t make much of a difference. East Asia proved that it could, but “until recently, the experiences of the Asian miracles have been mostly considered as ‘accidents’ that cannot and should not be emulated, at least from the point of view of standard development economics.”

That is no longer the case. For better or worse, a new global economic consensus is being born, if rather painfully. As John Maynard Keynes wrote in the preface to The General Theory of Employment, Interest, and Money: “The difficulty lies, not in the new ideas, but in escaping from the old ones…”

The new look in economics is being driven by two related factors. One is the anger of the Western middle class—which has been hammered by globalization and the spread of technological advances around the world—and the other is the rise of China. As if awakened collectively from a Pollyannaish, post-Cold War dream, the U.S. political class has, in the space of a few years and across both political parties, cast off Reagan-era free-market thinking and re-embraced the mindset of the early Cold War. In particular, the China threat has reawakened memories—so long buried—of how successful industrial policy was back then.

As Wade—author of one of the original East Asia studies, Governing the Market—has pointed out, the U.S. remains by far the most innovative economy in the world due in no small part to an ongoing, if stealthy, industrial policy. The Defense Advanced Research Projects Agency, the National Institutes of Health, and several other federal agencies have helped produce U.S. breakthroughs in “general purpose technologies.” Among them, the National Science Foundation funded the algorithm behind Google’s search engine, and early funding for Apple came from the Small Business Innovation Research program. In her 2013 book, The Entrepreneurial State: Debunking Public vs. Private Sector Myths, economist Mariana Mazzucato notes that all the technologies that make the iPhone “smart” are also state-funded, including the internet, wireless networks, the global positioning system, microelectronics, touchscreen displays, and the voice-activated SIRI personal assistant.

Hence a new conventional wisdom has come out of the closet, economically speaking—at least among policymakers. This fresh approach amounts to what one critic, Douglas Irwin, a Dartmouth College economist and nonresident senior fellow at the Peterson Institute for International Economics, disapprovingly calls “the new Washington-Beijing-Brussels Consensus of building up certain national industries through government subsidies and trade restrictions.” Instead of the Washington Consensus, we are seeing the rise of what some are calling the “Washington Constellation,” a collection of many disparate growth theory concepts.

But the economics profession itself is still not sure it ought to abandon its neoliberal convictions. “Prominent people in the profession still have convictions against this,” said Nathan Lane, a young economist at Oxford who wrote a pathbreaking paper that employed neoclassical economics to explain the success of South Korea’s state investment in heavy industry. “It’s a very uncomfortable thing that’s going on, which is economics made this empirical turn the past couple of decades, and people like myself, who are not attached ideologically to the Washington Consensus, said, ‘We’re just empiricists. Let’s explore this.’ People said, ‘Don’t do that.’ People get extremely reactive to even asking the question of whether it works.”

At the IMF, once the face and voice of the Washington Consensus, acceptance of industrial policy has been an uphill battle over the past few decades. That’s why, in 2019, Hasanov and Cherif were forced to coyly title that working paper “The Return of the Policy That Shall Not Be Named.” A year later, they followed with a higher-ranking departmental paper, “The Principles of Industrial Policy.” But the IMF still published a rebuttal from Irwin this past June.

“The debate over industrial policy has long been locked in a stalemate,” Irwin wrote. “Some see it as essential to productivity growth and structural transformation, while others see it as abetting corruption and fostering inefficiency.” Irwin echoed generations of neoliberal thinking in concluding that “quantitative models suggest that the gains from even optimally designed industrial policies are small and unlikely to be transformative.”

Yet new empirical data from the last few years indicates that many of East Asia’s industrial policy investments from decades ago have paid off big time. Younger economists such as Ernest Liu of Princeton University have debunked some of the old biases against industrial policy—mainly that it lacks the reliable information necessary to target appropriate sectors—by showing that new measures of market distortions can supply just that.

Even as the Biden administration has fully adopted industrial policy, it uses, instead, the term “industrial strategy.” As IMF First Deputy Managing Director Gita Gopinath said in a speech earlier this month, the fund’s advice is “to tread carefully. History is replete with examples of IPs [industrial policies] that were not only costly, but also hindered the emergence of more dynamic and efficient companies.”

Nowhere does the success of industrial policy play a greater role in the world today than in Taiwan. One of the reasons Taiwan has become such a hot issue geopolitically—as the U.S. and China vie over its future as a state—is because of its world-beating semiconductor industry, which produces an astonishing 60 percent or more of the world’s chips. This was not the work of the private sector alone but the creation, in 1987, of the Taiwan Semiconductor Manufacturing Company, which received at least half of its initial funding from the government and over subsequent decades emerged as the preeminent maker of advanced chips. In South Korea, the World Bank once advised against setting up an integrated steel company, saying it wasn’t in Korea’s comparative advantage. But what became POSCO (formerly Pohang Iron and Steel Company) “fairly soon became the most efficient steel plant in the world,” Wade said.

So it’s unavoidable to conclude that a subject that was once taboo—the idea of government-directed industrial subsidies, along with semi-closed markets and economic nationalism of the kind practiced by Taiwan—is being embraced on all sides. A paper summing up these effects, “The New Economics of Industrial Policy,” by economists Réka Juhász, Nathan Lane, and Dani Rodrik, is slated for publication early next year by the mainstream Annual Review of Economics. And the chairman of Biden’s Council of Economic Advisors, longtime progressive economist Jared Bernstein, has invited the co-authors to speak to the council later this month, according to Lane.

In the last two and a half years, Biden has enacted what his former National Economic Council director, Brian Deese, calls its “modern American industrial strategy” based mainly on “four foundational laws”: the American Rescue Plan, which brought our economy back from the brink, and more recently the Bipartisan Infrastructure Deal, the CHIPS and Science Act, and the Inflation Reduction Act (under which Washington is subsidizing low-carbon technologies and prioritizing homemade technological leadership).

What this means, Deese said, is that rather than “accepting as fate that the individualized decisions of those looking only at their private bottom lines will put us behind in key sectors,” the government plans a long-term strategic investment “in those areas that will form the backbone of our economy’s growth over the coming decades, areas where we need to expand the nation’s productive capacity.” There have been some promising early results: U.S. manufacturing employment has hit its highest levels since the early 2000s, and the White House boasted in June that nearly 800,000 new manufacturing jobs have been created under Biden, while private-sector companies have announced more than $480 billion in manufacturing and clean energy investments since he took office.

The key factors: building sophisticated industrial sectors with government seeding, export orientation, competition, and accountability for the support received. While the policy is not yet fully articulated, the administration is seeking to emulate some of the key principles of the Asian miracle’s success—and at the same time recognize the deficiencies of neoliberalism.

“If neoliberalism is going to generate inequality, then you need government to compensate the losers,” said former World Bank economist Nancy Birdsall, referring to education, retraining, and other major investments. “That didn’t happen in the U.S. The government came up with sort of pathetic little programs that did not come close to dealing with the China shock” of jobs moving there in the last two decades.

In a recent essay in Foreign Policy, Adam Posen, president of the Peterson Institute, argued that while industrial policy is occasionally useful, the “zero-sum” economics it embraces is bound to backfire based on “four profound analytic fallacies: that self-dealing is smart; that self-sufficiency is attainable; that more subsidies are better; and that local production is what matters.”

Deese has sought to address these common neoliberal objections to industrial policy, arguing the administration is not cherry-picking winners and crowding out private investment but instead seeking to use “public investment to crowd in more private investment, and make sure that the cumulative benefits of this investment strengthen our national bottom line.” By this he means transportation infrastructure, which “literally lays the groundwork for private investment”; government-funded technological innovation; and government investing in STEM education and training at schools and universities nationwide. Harking back to the glory days of the Cold War, Deese said Biden is “making a larger investment in innovation than even President [John F.] Kennedy and the Apollo program that took us to the moon.”

Another major area for industrial policy is clean energy, Deese said. “We know the climate crisis cannot be addressed by market forces alone. We know public leadership and investment is key to the solution. And yet for decades, our country stood by. But now, with our industrial strategy, we’re making the largest investment in clean energy ever in our nation’s history” so as to “encourage the private sector to invest at massive scale.”

And yet aspects of the new policy scheme remain incoherent. One such area in Biden’s plan is his embrace of Trump’s tariffs: Economists such as Hasanov say the East Asian model works much better if there is a vibrant export market around the world to sustain competition.

These inconsistencies arise partly “because the mainstream is still coming up with bogus arguments about crowding out other ‘good’ investments,” Stiglitz said. “It’s an embarrassment. The U.S. is all over the place. The Republicans have no coherent framework for thinking about the role of industrial policies—other than the market can’t compete with China. The Democrats can’t come up with the kind of coherent approach that is needed because of the politics of [Sen. Joe] Manchin—the policy is whatever we can get through Congress.”

Today, ironically, Japan is one of the countries carrying the banner of free trade in the absence of Washington. During the Trump administration, Tokyo helped resurrect the Trans-Pacific Partnership after Trump pulled out by joining with other members such as Canada to renegotiate the successor Comprehensive and Progressive Agreement for Trans-Pacific Partnership. In a 2019 interview, James Carr, Canada’s then-international trade minister, told me that “the Japanese position, attitude, and support for the rule-based multilateral trading system and fair trade has been exemplary and very important.” This year, Japan sought to rescue the WTO by joining the Multi-Party Interim Appeal Arbitration Arrangement, a multilateral framework that duplicates the Appellate Body by enabling members to resolve WTO disputes among themselves.

The European Union is also embracing industrial policy, launching the Green Deal Industrial Plan and Net-Zero Industry Act—which emulates Biden’s IRA by giving member states greater flexibility to incentivize private investors and match foreign subsidies such as those available under the IRA. The European Commission also recently launched a European Critical Raw Materials Act, to aid in identifying and securing access to those raw materials that are critical across various sectors of the European economy, and is leading multiple initiatives in artificial intelligence and digital technologies. Today, it is the policymakers who are surging ahead, while economists straggle behind.

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