Learning from China’s economic philosophy and policy — VII

There is a lot to learn from how China conducts its economic policies to achieve sustainable macroeconomic stability and economic growth. Overall, the guiding principles include gradualism, avoiding “shock therapy, ” and maintaining a non-neoliberal, meaningful role for the public sector. For instance, a major approach being taken is the adoption of a “dual-track” pricing mechanism. This provides a supportive environment for reaching productive and allocative efficiencies, while also catering to the transition toward green energy and adopting cutting-edge technologies, like AI, for overall productivity gains. Under the neoclassical and related monetarist schools of economic thought—which provide a strong foundation for the neoliberal and austerity consensus—the standard recipe stems from Milton Friedman’s famous statement that “inflation is always and everywhere a monetary phenomenon. ” This perspective views inflation primarily as an aggregate demand-side problem that requires monetary austerity policies, chiefly raising the policy rate, to control it. However, the experience of developing countries has shown that inflation is often at least equally a fiscal phenomenon. As a corollary, central bank independence has attained significant primacy. This shift has equated minimal regulation with a virtually automatic alignment of non-elected, technical advisors at the central bank toward inflation targeting, a focus that takes little cognizance of the strong, two-way causal correlation between inflation and economic growth objectives. By appropriately regulating the central bank by government – although government there comes with a strong footing in political stability, and continuation provided by the Communist Party of China, which is important to have meaningful benefit from high level of regulation, but even when on weak grounds like in Pakistan is not a natural qualification of least regulation of central bank’s independence – the Chinese government has meaningfully aligned overall macroeconomic objectives towards stable, predictable, affordable, and overall supportive role of prices for inclusivity, productivity, and welfare gains. The overall setup to regulating the banking sector has meant putting in place a ‘nested arrangement’ of economic institutions, and underlying organizations for providing overall alignment with the broad economic objectives, and of placing effective regulation of the sector for productivity, and efficiency gains. China has adopted a whole-of-government approach by placing all economic policy – monetary, and fiscal – below one ‘The State Council [SC]’, which is the highest administrative organ below their highest organ ‘The National People’s Congress [NPC] of the People’s Republic of China’. Moreover, the process underlying the selection of the President and the Vice-President in the National People’s Congress (NPC) is democratic in nature. This contrasts sharply with policymaking under monetarist and related neoliberal frameworks—such as in Pakistan—where excessive central bank independence and an increasingly diminishing role of government (including the adoption of shock therapy policies) have led to under-regulation. Consequently, the limited ‘co-creating’ relationship between the public and private sectors has resulted in significantly high transaction costs, elevated information asymmetries, a lack of productive and allocative efficiencies, sub-optimal pricing, and a lack of appropriately planned positive and negative incentive structures. Ultimately, under weak economic institutional quality and the absence of a whole-of-government approach, these supportive governance structures have failed both in organizations and markets, thereby reducing the role of public opinion and weakening accountability to the demos. An official document of China ‘State structure of the People’s Republic of China’ indicated with regard to NPC in the following words: ‘The National People’s Congress of the People’s Republic of China is the supreme organ of state power. .. .Its permanent body is the Standing Committee of the National People’s Congress. .. .The President and Vice-President of the People’s Republic of China are elected by the National People’s Congress. Citizens of the People’s Republic of China who have the right to vote and to stand for election and who have reached the age of 45 are eligible for election as President or Vice-President of the People’s Republic of China. ’ Also, their official document indicated with regard to SC as ‘The State Council, that is, the Central People’s Government, of the People’s Republic of China is the executive body of the supreme organ of state power; it is the supreme organ of State administration. The State Council is composed of the Premier, the Vice-Premiers, the State Councillors, the Ministers in charge of ministries, the Ministers in charge of commissions, the Auditor-General and the Secretary-General. ’ In addition to taking responsibility of formulating policies, SC has also taken up important function of ‘audit’, unifying in addition to policy under one umbrella of SC, but also drastically enhanced capacity to implement policy, by adopting the function of audit, and through it, appropriate level of checks and balance with regard to policy implementation. Hence, these are all important lessons for Pakistan—and all nations following neoliberal policies that reduce the democratic footprint on economic policy by diluting the impact of public opinion and weakening overall resilience in favour of highly unregulated systems driven by profit rather than people. Moreover, by empowering both the central and local governments, China’s policy has reaped the benefits of a holistic approach to fiscal federalism. By appropriately incentivizing and regulating local administrations, China has opened the door to a deeper understanding of regional issues. This approach logically empowers those closest to local problems to take the lead in resolving them, while simultaneously strengthening the democratic process by bringing accountability directly to the local demos. In addition, by appropriately reining in the independence of the central bank and consolidating the audit function under a single umbrella, China—through the State Council (SC)—has been able to provide a unified, “one-window” economic signal for both policy and auditing. At the same time, the government has evolved highly sophisticated policies to direct finance through banks, the bond market, and shadow banking toward broader economic goals. For instance, the use of Local Government Financing Vehicles (LGFVs) has allowed China to channel significant infrastructure-related financing from off-budget sources, thereby creating greater space for social and welfare spending. Consequently, this mechanism has made local governments more accountable for delivering outcomes; a significant portion of the income generated from these infrastructure investments is directly linked to repaying the financed capital, while the central government provides the remaining portion to incentivize such investments. (To be continued. ..) Copyright Business Recorder, 2026

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