The New China Playbook: Beyond Socialism and Capitalism Hardcover – May 16, 2023

There are at least two hot trends in today's China research: security studies and economic studies. When written from the outsider’s perspective, the former bends to a more hawkish look at China’s role in the Pacific. Economic studies on China, however, give the world’s second largest economy mixed reviews. Voices like Dr. Kerry Brown (British Diplomat) and Keyu Jin’s latest book encourage analysts, policy-makers and investors to strongly consider China’s cultural, historical and social context enriched with a linguistic lens that most China hands simply lack.Keyu was born in China, schooled in the United States and now lives in London as a sought-after China financial analyst. Her new book, “The New China Playbook” is a fair look at China and the Chinese Communist Party’s (CCP) strengths, weaknesses, challenges and future prospects as a global financial leader. Keyu dissects various stages of China’s economic growth since the late 1970’s arguing that CCP leaders opened China’s financial system up gradually, stimulating the economy from one decade to the next with consecutive top-level state-directed and manipulated reforms. Rural land ownership and private investment, WTO entrance and State-Owned Enterprise (SOE) privatizations, one-child policies, housing cost controls and private tutor bans etc. are each single examples of massive economic shifts; CCP levers and attempts to regulate what Keyu calls the Mayor+Market Economy or China’s Hybrid Economy.What makes each very readable, and thoughtfully organized chapter so impactful is how Keyu connects various economic phases and societal reactions to the important cultural context. Keyu shows how Confucian thought, visions of China’s past empire, scales of government trust or the embedded meritocracy all influence economic and development conditions. Keyu admits that China’s financial system is immature, lacking solid institutions, which is why the most successful businesses have learned to read and adapt to the specific demands and cultural perceptions of China’s consumer millions.Chinese citizens, as a result of the one child policy (1980), had 30% average savings; spending an average of 25% of income on education for their children regarded as the pathway to financial stability and success. Keyu’s earliest economic research revolved around the continuing impacts of China’s one-child policy and related new contemporary social and economic challenges. Even with the CCP encouraging more child births and banning nation-wide school-aged tutoring in the last two years (with billions of dollars-worth of losses to tutoring companies) other and unexpected global shifts continue to keep Chinese families small.Keyu provides dozens of examples to argue against the stereotype that the CCP top-down authoritarian management of China’s economic system is inflexible and shuts down innovation. Private companies, when given the opportunity, ran over the SOEs. Chinese savvy entrepreneurship took advantage of the new legal economic spaces, intentional loop holes, shadow banking and in some cases outrightly challenged inconvenient regulations (at the local level) which all contributed to millions of new capitalists founding thousands of companies and launching China into what will likely be the world’s largest economy in another ten years.But Keyu also provides some honest balance to China’s dragon economy. While the system is flexible, it is not efficient (pgs. 146-157). There is zero correlation between China’s GDP growth and its stock market values meaning that 100 RMB invested in 2000 was still 100 RMB in 2020. China is a long-way off on currency strength and currency proliferation, stock and bond investments. According to Keyu, China needs to work on its soft power indicators like transparency, predictability and reliable financial mechanisms before it is ready to offer its market as an alternative to the US system and dollar. The required reforms equate to a “complete overhaul”, China’s impressive growth and success since 1978 not-with-standing.In short, the CCP has not been willing to release its control on the Chinese market which on the one hand has likely guarded the system from any instance of financial collapse common to almost every other large free-market economy. On the other hand, were more predictable policies and transparency to be applied to this economic experiment, to what extent would it maintain its “Chinese characteristics”?China has other power influences besides its economy to include its tech and Artificial Intelligence research and application. Keyu’s book artfully interweaves a discussion on China’s innovative vs. revolutionary tech market. Indeed, it is a common argument to accuse China’s state-directed system of unfairly funding tech production and propping up otherwise failing industries. But unlike its superiority in revolutionary technology during the 14th century, in the 21st century, China’s edge is in adapting things like solar energy, electric vehicles, space vehicles, facial recognition and smarts phones to a more profitable, creative, high-quality and consumer-guided product.Turning to China's global influence, what of China’s financial system can be replicated elsewhere? China offers its model as an example to the developing world and has been active in building the economic connections through the Belt and Road Initiative (BRI) along with trillions of dollars-worth of infrastructure and development loans. How much of China’s economic outreach is more a political self-interested gambit demonstrating competition with Western sources of assistance instead of a model worthy of replication? How much of China’s Mayor + Market Economy depends on traditional cultural concepts, mercantile strategies, familial loyalties, guanxi and longstanding Chinese imperial dependency and pride? What exactly are Zambia, Algeria, Pakistan, Angola, Indonesia, Nigeria, Kenya and Sri Lanka learning about the Chinese model that can be applied to their specific contexts for long-term sustainable development?On the one hand, Keyu would like would-be investors to believe that China is not a “difficult market” as long as one understands how to navigate the cultural landscape, shadow-banking network and can comply with the government’s eyes and ears in every corner of daily life and business activities. The above, by definition, sounds exactly like a difficult market if still replete with opportunity and promise.Overall, Keyu’s book is a breath of fresh air in the way that it provides necessary critique and praise without supercharged geo-political inflammatory statements. To be sure, Keyu has an agenda as the daughter of the President of the Asian International Investment Bank, Jin Liqun. Keyu is a proud Chinese national, sharing her critique of China’s economic condition and a criticism of at least America’s shallow understanding of the same. If there was a Keyu alter-ego would he or she be able to provide similar honest feedback living in China and still receive the same positive reception without threats to their livelhood?Keyu’s thesis does not provide extensive comments on the South China Sea claims, Uighur controversy, espionage laws or economic calculations in relation to Russia’s Ukraine invasion. There is enough in the “new playbook” to tackle in direct relation to the economy and development. On the one hand, the majority of Chinese citizens care more about finances than global politics. On the other hand, ignoring tough security questions is exactly why the various main streams of Chinese culture studies, Chinese security studies and Chinese economic studies, often come to three very different conclusions on China’s overall system, vision and purpose.Finally, the book offered plenty on China’s past and current playbook but only minor prescription and general comments for what could be “new”. The “new playbook” seems to put all its hope in the young generation of big spending luxury-seeking Chinese nationals, which, ironically, is what the old generation claims is everything wrong with China. It would seem that in the near future China will continue an internal battle on the definition of traditional identity while at the same time balancing the desire for outsized external influence on the world’s economy.

The author was born in mainland China and grew up in Beijing. She remembers her family living on rationed food coupons and having the electrical power go out with regularity. The family cooked its meals on coal-burning stoves. Bicycles were the main mode of transportation. The people were poor. but hopeful.In 1997, she came to the U.S. as a high school exchange student in New York City. She went on to earn advanced degrees at Harvard and now is an Associate Professor at the London School of Economics. She currently lives in London and Beijing. She describes herself as an economist with “one foot in each world.”The 2023 book is not so much an explanation of some “new” China, as such, but more of a history of the evolution of China to get to where it is today and why. She generally praises the Chinese economic and political systems for their accomplishments, with the understanding that these systems do not have the goals of being totally in sync with the West, nor are they fully matured. They are, in fact, very much Chinese, drawing on the history of China, including some massive mistakes made along the way, but also with solid political and cultural foundations.She says that Deng Xiaoping, who became China’s supreme ruler in 1978, “shrewdly put an end to the febrile debate about the superiority of socialism and capitalism.” At that time, now 45 years ago, the Chinese economy was in shambles. 80 percent of the population was rural and agricultural. The average annual income was $380 per year. Since then, 800 million have been lifted out of poverty, and there has been a massive shift of a population from rural to urban. The average household income today is about $10,000 per year.The establishment of Special Economic Zones (SEZ) was a huge success. Today, there are new railways, airports, bridges, buildings, canals, cars and trucks and more in all directions.The author sees the Chinese economy now as slowing a bit, but also “coming of age.” It faces major challenges today. The new playbook is based on innovation and technology, rather than primarily manufacturing inexpensive goods to export.Some points about Chinese culture that she makes:• Chinese households (since the one-child policy rule) save 30 percent of their incomes, compared to about 10 percent for Americans• Most Chinese value security over freedom• The vast number of Chinese citizens have confidence in their governments, at the federal and at the local levels• Young Chinese tend to big spenders. They tend to seek happiness over wealth.• Young Chinese are better educated and more open-minded than their elders.• For the most part, the Chinese are “steeped in their own culture, bound by their own traditions.”• The Confucian traditions that include order and communalism, social order, and respect for government leadership are very much with China today.• The Chinese can be fiercely competitive• The one-child policy encouraged an emphasis on education• There are about 111 young men in China today for every 100 young women. 25 million women are “missing”• Chinese reasoning is circular rather than linear.If the average Chinese household reaches the economic level of the average American household, China will then have the largest economy in the world. This event is projected by some as early as 2030.Much of the book details the interactions and differences between State Owned Enterprises (SOEs) and private firms in China. I won’t try to summarize that discussion. She also details the roles of local government and how it gives incentives to business enterprises vs the role of the federal government to pitch in as it sees fit. Again, I won’t try here to summary that discussion, either.She points out that private companies did not have a place in China following the Communist takeover in 1949, but this policy was suspended to allow private firms to exist under Deng. And she points out that economic success at the local level can lead to promotions in the Communist Party. She also points out that the largest Chinese companies are never without government involvement.In 1979, Coca Cola became the first foreign company to sell its products in China. In 2018, China invited Tesla to join its economy.She says that it took hundreds of years for Western economies to mature. On the other hand, the modern Chinese economy is still in its infancy. China does not have a successful stock market, as yet, nor a bond market, or a shadow banking system, all of which are attributes to a successful modern economic system. To date, China has been overly dependent on banks as the primary base for their financial system. Now, the People’s Bank of China has been joined by four other large banks. But a sole dependency on banks is a weakness of a modern economy. Additionally, the banking regulatory system is underdeveloped in China compared with most Western countries.Corruption also has been prevalent in China, but she defends this, somewhat, as being an incentive to share in profits by those at all levels of a successful enterprise.China is a nation with a rising middle class. Deng began a goal of common prosperity. For decades, the Chinese delayed consumerism in favor of the nation growing as a whole. Increased buying by the Chinese consumers, by reducing their savings to more like 20 percent, should be good for China and the world, per the author. The company Alibaba has a reported 800 million users.The Chinese typically have stayed away from investing in their stock market. They like to invest in real property, including rental property or second homes. But this has led to serious appreciation of property values in recent years. Now, as in the U.S., it is difficult for the average household to buy the average home in an urban area. Despite this, per the author, the percentage of home ownership is 90 percent in China, compared with about 65 percent in the U.S. The author does acknowledge the existence of “ghost towns” and oversupply of new housing, but notes that several of the former ghost towns have since been occupied. She also notes that the pace of increased urbanization has slowed.China is at the forefront of technology, for the most part, when it comes to Internet products such as Tiktok or cell phones or artificial intelligence, as a start. And, more and more of its university students who study abroad are returning to China to find work.China has become the largest trading partner to more than 120 countries in the world. It dominates world shipping. Much of the U.S. economy depends on Chinese products. China has become the largest supplier of textiles and furniture. Per the author, as many new jobs in the U.S. have been created via globalization vs jobs lost due to globalization. The author quotes another author who says that globalization is “easy to hate, convenient to target, but impossible to stop.” Consumers around the world will continue to seek lower prices on quality products. Per the author, no other country in the world, except possibly India, will ever be able to produce more consumer products than China.“China’s interactions with the rest of the world must be seen as part of an evolution,” says Keyu. It wants very much to avoid any financial collapse or instability. But while China now is second only to the U.S. in its number of billionaires, income inequality continues to widen.Per the author, the dilemma for capitalism is maintaining social harmony alongside growing wealth. The new China Playbook involves “finding a balance between greater equality and market incentives….”China is maturing. There is room in the world for two great economic powers.

Excellent read. Highly recommended.

It is not an easy task to try to describe the China system and the mentality of a country of 1.4 billion souls in one book, especially when these days there is additional political pressure to present things a certain way. That would account, for example, for the acronym BRICS not being once mentioned. That said this is a must read book if you want to understand what has been going on in China for the past forty years or so. It also offers a glimpse into the future of the world, with China being definitely set to play a significant role in it. The author's personal views regarding this significant matter are not only factual, but sensitive and rooted in wisdom. Keyu Jin brings to the reader the best of the two worlds. In that, she brings the two words together so that everyone could, in the end, draw his or her own conclusion.