I was invited by the Asian Development Bank headquarters in Manila last year to give a talk on China’s economic challenges including whether its economy could ‘rebalance’ away from investment by increasing consumption, and whether the county was ready for its demographic challenges ahead. After accepting the invitation, I was subsequently told that it was standard ADB policy that I refrain from criticising the Chinese Communist Party and its role in the country’s economy, and it would be preferable if I did not directly criticise their policies.
In the end the talk did not go ahead. I suspect an executive decision by a more senior official was made to effectively withdraw the invitation. As several of my articles in Business Spectator (for example, here and here) would reveal, I would have very little to say about these topics if no criticism of CCP policies were allowed.
But it did reaffirm a few reasons in my mind why international organisations like the ADB, the World Bank and International Monetary Fund are among the last to diagnose structural problems in China.
Take the World Bank’s ‘landmark’ China 2030 report which came out in early 2012. The diagnosis about reform needed in China’s state-dominated economy, and in particular its financial sector, was fairly old news by then. Likewise the argument that China needed to enact these reforms in order to encourage a consumption driven economy: an argument that the IMF ‘ummed and ahhed’ about until very recent times when they overwhelmingly accepted the logic of it (for example, see here.)
Given that the evidence of China’s structural problems have been around even before the Global Financial Crisis and China’s unprecedented investment surge in response to it, why are these well-resourced and authoritative organisations late to the party? I would suggest three reasons – one is institutional, and two are based on human psychology.
Let me explain the institutional. Non-governmental organisations (or NGOs) like the institutions mentioned above serve different functions. But they need the cooperation of national governments to effectively do their work. When the IMF, for instance, analyses the debt and fiscal crisis in the European Union and policies responding to these problems, it can do so without fear or favour because EU governments will see it as their duty and obligation to cooperate with IMF researchers no matter the conclusion of the research. It would be unthinkable for Italy or Spain to deny IMF officials access to briefings, interviews, data or other information if the IMF were to make an adverse finding against the policies of governments in Rome or Madrid.
In contrast, cooperation by officials in Beijing cannot always be assumed, while Chinese officials are not afraid to attack and even intimidate organisations (and individuals) that publish adverse findings. At the very least, denial of access to briefings, interviews, data and other information is not uncommon for individuals and organisations publishing findings that contradict those of the Chinese government. Take the recent Doing Business report by the World Bank which ranked China a lowly 91st out of 185 economies. Rather than accept the criticism as countries with open economies and governments tend to do, Beijing is lobbying to eliminate the rankings altogether. China’s deputy executive director at the World Bank, Bin Han, made the accusation that the report used the “wrong methodologies, failed to reflect facts, misled readers and added little value to China’s improvement of the business environment” – suggesting that Han sees his role as spokesperson for Beijing’s official narrative rather than as a World Bank employee. This is despite the fact that the report and its methodologies are well established and regarded amongst international experts, and that China had little complaint about the World Bank annual initiative when its rankings were improving.
The point is that pressure is brought to bear on high profile institutions and individuals that deviate from Beijing’s official version of developments and analysis. In doing their work these NGOs understandably want to avoid incurring the annoyance or anger of Chinese officials since they need the cooperation of Beijing. The result is usually institutional self-censorship for fear of stirring controversy with a very defensive country despite it being the second largest economy in the world. The final product also tends to be a watered down document that is agreed upon by consensus between researchers, and even sometimes with the subject country when it comes to China.
This is a shame because there are many excellent and ground breaking studies on China by researchers in these NGOs, especially the World Bank, which do not see the light of day. Several have complained to me that pieces of work critical of the Chinese growth model several years ago – and by necessity the role of the CCP in the Chinese economy and policies – languished as ‘working papers’ read by an academic few. They did not see the light of day because taking those positions would have been too awkward for the organisation vis-à-vis Beijing.
Indeed, the World Bank’s China 2030 report was only possible because it reflected a growing consensus formed within China that the role of state-owned-enterprises (SOEs) had become too dominant and that the whole model needed to be reformed. The report was drafted and redrafted in cooperation with many officials in Beijing. By the time one waits for, and secures, that kind of official endorsement and expert-consensus, one is generally way behind the cutting edge of economic research. Tellingly, the report refrains from overtly criticising the CCP or its motivations in maintaining an SOE-led political economy. One has to pity the excellent researchers within these organisations who knew and published about China’s faltering model years before, but will never receive the credit for it.
The other reasons why these NGOs tend not to take positions on China that are ahead of the curve are based on human psychology. One is that it is very difficult to get senior managers and researchers to change their mind, even when contrary evidence comes to light. Consider your own workplaces. How many people in decision-making positions openly admit that they were wrong on some important matter? Such stubbornness is even more apparent among well-credentialed researchers, whether they are in NGOs, academia or think-tanks. Most people will defend their long-held position by ignoring contradictory evidence or else dismissing it – and those with PhDs will tend to do so eloquently.
To be sure, the future of the Chinese economy is unknown. But the evidence that it is an increasing dysfunctional and unsustainable model has been out there since early this century. Until the last couple of years, the minority who were bearish on China were dismissed and mocked as ‘alarmists’ and ‘provocateurs’ by many who had invested their careers and credibility (and also money) in believing that the Chinese model was invulnerable.
Then there is the matter of herd intellectualism. It is not fatal to the career of a researcher or decision-maker to be wrong – provided that they share the error with the vast majority of other experts and peers. But to be in error when you have stuck your neck out in a minority position is potentially fatal to your standing and reputation. I remember conferences and workshops several years ago when experts would confide in me that they had grave concerns about the Chinese economy. Because this went against the consensus view, their true convictions were rarely aired in public and their instinct was to self-censor when it came to delivering bad news about China.
Given the weight of evidence, it has now become fashionable to be a China bear. Those who once mocked China bears now offer sage warnings about the Chinese economy – a phenomena that annoys those who have long been sceptical about ‘capitalism with Chinese characteristics’ to no end. As I argued, there is little reputation loss or deleterious career consequences for turncoats because they are in the majority position – then as China bulls and now as China bears.
Coming back to the point of this article, it takes an act of intellectual courage and a willingness to risk one’s career in order to be ahead of the curve in these large institutions. Unfortunately, one is more likely to get ahead by spruiking received and majority wisdom more eloquently and persuasively than the guy next to you.
Whether you are a long-term China bull or bear is up to you to decide. The point of this article is the following:
1. Don’t exclude awkward evidence or lines of argument, as the ADB demanded that I do.
2. Dissect and attack the arguments of those with whom you disagree, not their standing or motivation – avoid labels like ‘alarmist’ or ‘provocateur’.
3. Do not defend your errors at any cost. Remember the allegedly famous quote by John Maynard Keynes: ‘When the facts change, I change my mind. What do you do, sir?’
4. If you are in a position to do so, reward those who stick their necks out – provided that they give sound evidence and argument for doing so.
Dr John Lee is the Michael Hintze Fellow and adjunct associate professor at the Centre for International Security Studies, Sydney University. He is also a non-resident senior scholar at the Hudson Institute in Washington DC and a director of the Kokoda Foundation in Canberra.