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China Builds its Own Value Chain: Will Overtaking on a Curve Work?

Wu Jiemin, a researcher at the Institute of Sociology, Taiwan Academia Sinica, won the “Humanities and Society Academic Award” issued by the Academia Sinica for his book Rent-Seeking Developmental State in China: Taiwan businessmen, Guangdong Model and Global Capitalism. The book discusses in great detail the connections between China and global capitalism.

In an interview with Voice of America, Wu Jiemin said that China is trying to bypass the global value chain system controlled by Western countries to build a value chain system that Chinese capital can control on its own. The U.S.-China confrontation situation cannot be changed in the short-term. If China wants to succeed in the challenge, it must make a big breakthrough in science and technology. However, scientific and technological development is closely related to academic and free speech and China is currently under a highly authoritarian rule. Without freedom of thinking and speech, Wu doubts such “overtaking on a curve” would be successful.

According to Wu, one of the key features in China is a massive systematic and collective rent seeking undertaking. The so-called rent-seeking is a term in economics. The country is not directly engaged in production activities but intervenes in the industrial chain to extract a certain amount of interest. This interest is called economic rent or political rent.

Wu said that China has a special system design for extracting benefits, including value-added fees, management fees, approval fees for leased land, and social security fees. Further, local governments play an important and unique role. Rent-seeking activities in China are rampant.

“The local government acts like an intermediary or broker, which is to integrate the resources needed in various production processes to a certain extent. … In this process, the local government also obtains a lot of tax benefits from the manufacturers, including economic rents obtained from foreign capital and local manufacturers. This revenue becomes an additional income for the local government outside of its budget. Part of it goes to the hidden coffers for the officials, some goes to the personal pocket of the official and the rest becomes tax revenue to fund construction.” On the other hand, foreign investors in China are disgusted by the rent-seeking behavior of local officials, but they have to deal with them and seek their protection.

Wu believes that in the past 10 years, the Guangdong model transformation and the Chinese model transformation have focused on bypassing global value chain hegemony and trying to build a value chain system that Chinese capital can control by itself.

In Wu’s opinion, one side of China’s development model is its biggest gain in foreign exchanges and fiscal revenues that it has spent on the military, economic modernization, and urbanization. China’s subways, high-speed rails, and highways are examples. However, Wu said that the other side of China’s development model is high exploitation of labor, low welfare, and lack of human rights.

Source: Voice of America, January 20, 2021