One World Two Systems

China has announced the construction of a major new city called Xiongan.

See below.

If you read the media there are mixed responses.

Some say that this is planning trying to manage the market instead of allowing the market to find its own way.

Adam Smith recommended a mix of regulation and market forces. He felt the dynamic of the market was dangerous and its inherent characteristics required attention or it would be excessively destructive in its later stages – nb the financial crisis of 2008.

The context of this is a much bigger version of Trump’s vision of $1trillion of investment in infrastructure which is not criticised as interfering in the market.

It is a much bigger version of the Northern Powerhouse project in the UK which is designed to rebuild the North after the ravages of the 1980’s.

This new area is part of a reconstruction of the Chinese nation into 15 regions of which three – Pearl River Delta, Yangtze and the Beijing/Tianjin/Hebei (BTH) – are the pilots. These regions will become the backbone of the national economy and the provinces will reduce their roles to welfare and local issues.

Each of the regions had outlines plans for political, commercial and financial centres. Beijing/Xiongan/Tianjin appear to be the
three centres in the BTH region.

It would appear that the resistance to Xiongan as an interference with the natural flow of the market is a more obvious challenge to the Party policy of managing the phase of the market economy – what I named managed capitalism, but China more accurately calls Socialism with Chinese Characteristics.

Xiongan and the development of these three regions are to be understood as the foundations of the new Chinese state in the phase post 2021 of building Socialism with Chinese Characteristics. This will be based around learning from Adam Smith and the West and combining the value of a scientific approach to developing a market economy.

Neither the planners nor the market will lead the Chinese economy. It will be a blend and the SOE’s and regulators will be key partners of the private sector who can try to beat the system, but will ultimately probably fail. China is a planned market economy. The visible and invisible hands. This phase is a vital one for the necessary phase of innovation, which comes best in a market economy with rewards. But if left alone to rewards is, in the Chinese review of the world, dangerous.

Their approach to the Welfare State is yet another demonstration of their new economy where the costs are borne by those who earn the wealth with the state looking after the costs of only one third – the vulnerable.

It is worthy of serious study as it is the future of China’s 15 regions and represents the embodiment of what I call one world two systems.

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