On the afternoon of April 4, the 40th forum of Chongyang Institute for Financial Studies at Renmin University of China (RDCY) as well as the new book themed as Don’t misread the Chinese economy issuance conference were held in Beijing. In terms of the topic about reasons for misconceptions of China’s economy, John Ross, who is author of the book and former official of Britain, has delivered a keynote speech and carried out deep-seated exchanges with professor Wu Xiaoqiu, vice president of Renmin university of China, and Wang Wen, executive dean of RDCY.

John Ross said that China still stays on the track of socialism construction. Despite some reforms in policies after 1978, the process of new era featuring openness and reforms actually builds on the past achievements contributed by former leaders. It is consistent for China to remain committed to facilitating its socialist modernization. Likewise, we must be keenly aware of the fact that there is still a long historical journey ahead to cement and evolve the systems.

Western misunderstandings for China since 1949

Despite fast growth of China, the fact is that America and some western countries still enjoy great influences. Since the founding of new China, leaders of Communist Party of China have made the pledge that China is bound to prosper again. However, western world is skeptical about the pledge as China doesn’t follow their systems and ushers in its unique political regime instead.

Misunderstandings actually ignore three points that the new era of China builds on its past progress, western people misread reasons for Soviet collapse and there is no need to build a parliamentary system just like Britain to achieve rejuvenation.

Chinese politicians champion the principle of serving the people, and they actually make it. For example, with regard to life expectancy index, China has improved its medical facilitation to provide better medical care for its people, finally elevating its index. Compared with China, India is also a big developing country but its life expectancy is a bit beyond satisfaction. China’s index is even higher than that of Brazil and Indonesia by virtue of its economic and social development. A lot of data can prove the truth.

Second, China is different from the Soviet Union as it has a great designer. Den Xiaoping, who emphasized the core of socialism and made adjustments timely, develops China’s economic theory in the new era and embraces the work-based distribution pattern. It is obvious that the pattern is distinct from that of the Soviet because the Soviet pursues a risky way of realizing industrialization and even completion of communism in a short period, which deviates from ideas of Marx and Lenin. In human history, there exists three economic systems including capitalist market economy, socialist planned economy and market-oriented economy. The third model is the one that China upholds.

Third, Western world fails to have a thorough understanding of such system so that many misconceptions exist. To pursue this misunderstanding in an in-depth way, we must keep eyes on a fundamental question. The word "socialism" comes from large-scale socialized production, and Marx's genius reflects in his recognition that the scope of economics is actually a reflection of the social relations between people. This is the basis on which the whole Marx theory is derived. Labor force and skill input are also a reflection of labor socialization. For developing countries, the contribution of labor input to national GDP growth is very small, accounting for about 34%, and many people work for very long hours. In developed countries, much of the growth has come from increases in technical skills and education. The mistake in the early western marginal economics was that it was not as well founded as Marxism. This is now widely accepted in the west.

Reasons for China’s sluggish economic growth

Why does China's economy grow slowly now? We can compare Marxist economics with western modern economics to explain the reasons behind the phenomenon. The growth accounting method introduces three points: first, state-owned enterprises or the market mechanism are inefficient, if this is true, the main performance of TFP growth is slow and has low efficiency.

Secondly, it is related to population factors, and the number of working populations will not increase.

Third, it is related to the reduction of capital investment.

It is worth pointing out that China's slowdown is related to growth data. On a per capita basis, China's economic growth is still very fast. From 1990 to 2017, China's economy far exceeded that of other major economies in the world.

The main reason for China's slowing growth rate is a drop-in capital investment. China's net fixed capital formation as a percentage of GDP has experienced a huge decline since 2009 -- from 30.5 percent in 2009 to 21.5 percent in 2016, basically down by a third. There is a strong correlation between the decline in net fixed investment and the slowdown in GDP growth, which is 0.76%. The economy took off and investment without net fixed capital was impossible.

In addition, China's net savings, which were 39.3 percent in 2007, 36.7 percent in 2009 and 24.9 percent in 2016, show that the pace of China's economic slowdown is related to the slowing of capital formation in the economy. The correlation between net savings and GDP growth is very, very high, at 0.88. The correlation between total savings and GDP growth is also very high, at 0.8425.

In the west, the decline in investment coincided with the great depression. Fixed investment fell, causing an overall decline in investment. What about China? As China is a socialist economy, state-owned enterprises account for a large proportion. If state-owned enterprises continue to make such investments, they can be insulated from the international situation. As long as China's investment is rising, its economy is still taking off fast.

Conclusion: China’s economic theory doesn’t deviate from Marxism

It proves right for China to develop through its own ideas. China can adhere to Marxism by means of resolving its own problems.

Professor Wu said that the success of China's economy, as stated by professor John Ross, is the result of our persistence in the basic principles of Marxism and combining them with China's national conditions. We used to be so rigid that it was hard to translate one set of arguments into reality. Marx once said in "das Kapital" that it was exploitation for private enterprises to employ more than five people. What will we do then? Exploitation is not allowed in socialist countries. How can it exist? And then we broke through this thing, and it was hard to break through this rigid and inflexible system. The private sector is also engaged in big industry, five people can only open a snack bar, and run a big industry to hire hundreds, thousands, and even tens of thousands of people, which is a breakthrough. This was in line with China's national conditions and the goals of development and reform. Consequently, we broke out of the box. At the same time, we also adhere to the basic principles of Marxism, such as the distribution according to work. We also insist on a balance between fairness and profitability.

The article was originally published at RDCY.org. It  was translated by Kuang Chuang, an intern of Chongyang Institute for Financial Studies at Renmin University of China.

>>>John Ross Dialogues with Wu Xiaoqiu: "China's Economy for 70 Years: Why Is It Frequently Misread?"