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Now on to the main argument in John Lee’s brilliant analysis, which concerns the second phase of China’s economic reforms:

  • “In a rapidly industrializing system, the Party faithful realized, urban elites determined the fate of authoritarian governments. The great lesson of the East European and Soviet revolutions learned in Beijing was that authoritarian regimes become irrelevant to their own elites at their very considerable peril.”

Thus following the Tiananmen Square massacre, China’s leaders ensured that the “most important and lucrative sectors of the economy” would be dominated by a select group of state-owned enterprises (SOEs). For instance, the state controls almost the entire banking sector in China and thus the accumulated savings of the Chinese people:

  • “Even though state-controlled enterprises produce 30–50 percent of all output in the country, they receive more than 75 percent of the country’s capital, and the figure is rising. SOEs received more than 95 percent of the stimulus monies lent out in 2008–09 and an estimated 85 percent in 2010… the assets of SOEs amount to more than 66 percent of all assets in the country, up from 60 percent in 2003. This is the reverse of what occurred in China during the first ten years of reform, when the majority of new fixed assets were effectively controlled by the emerging private sector.”

While the state encourages the SOEs to compete against one another and allows the existence of millions of privately-owned enterprises, the whole system is ruthlessly managed to enhance the control of the Communist Party – and to do so despite China's participation in world markets.

Lee describes this system as “corporate Leninism” and he warns that it poses a massive challenge to the international liberal order created by the west. The cosy assumption that China will follow the same economic and political pathway as countries like Japan and South Korea is profoundly mistaken:

  • “It is a characteristic of the denatured Enlightenment mentality to think that the way the West developed in this regard essentially fell from the sky as the only logical possibility… China is too important to ignore, too big to intimidate and too formidable to browbeat. It will not march along a well-trodden path to some inevitable destination, just because Western observers are too intellectually lazy or culturally smug to imagine other possibilities.”

We have been warned.

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