Keyu Jin on China's Decentralized Economy, Competitive Culture, and the Blend of Capitalism and Socialism

Keyu Jin challenges common Western misconceptions about China's economy, emphasizing its highly decentralized nature despite political centralization. She argues that the "mayor economy," where local officials are incentivized by the central government to drive GDP growth and innovation, is a primary engine of its rapid development, fostering intense competition among regions. This system, while efficient in mobilizing resources for strategic sectors, also leads to inefficiencies like duplicated efforts (e.g., 80 EV companies) and misallocation of capital. Jin highlights the unique blend of fierce capitalism, characterized by ambitious entrepreneurs and ruthless competition, with a strong socialist social fabric evident in state enterprises, communal activities, and a focus on "common prosperity."

The discussion delves into the nuanced relationship between Chinese people and authority, which involves deference but not blind submission, allowing for radical entrepreneurism. Confucianism is presented as a foundational moral philosophy emphasizing social harmony, filial piety, frugality, and education, which historically underpinned a meritocratic system. While meritocracy was crucial for social mobility and economic success, Jin notes its erosion in recent decades, with connections increasingly influencing job opportunities, posing a challenge to social stability and fairness. She contrasts the overt, public display of competition in China with the more subtle, "secret" competition in the West, discussing the pros and cons of each approach, particularly regarding creativity and critical thinking.

Jin explains the transformative reforms under Deng Xiaoping, initiated in the late 1970s, which shifted the national focus from politics to economy. Key reforms included the "open up and reform" mandate, the establishment of special economic zones like Shenzhen, agricultural reforms allowing farmers to keep surpluses, and China's accession to the WTO in 2001. These reforms, driven by pragmatic leadership and local government incentives, spurred decades of growth. However, she notes a slowdown in the pace of reform over the last 15 years, attributing current barriers more to national security and political considerations than economic ones.

A critical challenge for China's future growth is shifting from a production-driven to a consumption-driven economy. Jin suggests that modifying the yardstick for local government success to include consumption measures, alongside innovation and environmental protection, could stimulate demand and improve social security, healthcare, and elderly care. She also explores the paradox of Chinese economic actors being both "most patient" (long-term planning, parental investment, saving) and "most short-termist" (the "short flat fast" motto in business and personal life), reflecting a dynamic and sometimes contradictory cultural and economic landscape.

The biggest misunderstanding is somehow that a group of people or even just one person runs the entire Chinese economy. It is far from the reality. It is a very complex large economy and even if there is an extreme form of political centralization, the economy is totally decentralized.

There's paternalism. Uh they think that they're responsible for you. Um but uh deference a certain amount of deference to authority is not blind submission. It's been written implicitly in our contract uh for thousands of years that in exchange for some difference uh we are given stability, security and peace and hopefully prosperity.

I've rarely seen a more capitalist uh society than China from the pure economic uh uh side. I've rarely seen companies that are as competitive as Chinese companies. uh people as ambitious and obsessed with making money as Chinese people uh kind of ruthless actually.

Competition is ferocious in China, especially when it comes to Chinese companies, but also in education... In China, if the coffee shop does well, everybody wants to open the same coffee shop.

Confucianism is more of a moral philosophy uh than let's say religion or a belief system. It prioritizes um social harmony above anything else.

If China were relatively successful economically, a huge part of the reason is by and large it's been meritocratic.

The only reason is that you believe that your children have a future through meritocracy. And even though it's imperfect, it's highly imperfect. standardized testing, all this competition, all of the the the hours and the tutorials to studying for standardized exams. Well, that is a very realistic um scenario in China because there that many people...

Deng Xiaoping famously said that it doesn't matter whether the cat is black or white as long as it catches mice.

China's biggest challenge is consumption, right? It's not production. We know that China is very very competitive in production and supply. China needs to be a consuming country to be a rich country.

But in the beginning that big push is not not really in any of the canonical models that I've studied in economics in the western school of thought state push state mobilization state initiation that's not there but I think if you look at EVs solar panels even just thinking about the idea of reforms in the first place um that initial state push was vitally important.

The Chinese are both the most patient and the most short-termist um economic actors I met.

there is a very popular motto in China which is called short flat fast.