The COVID-19 pandemic, anti-globalization sentiments, and geopolitical competition have significantly impacted the global economy, including China. In recent years, there have been systemic changes in the Chinese economy, with increasing challenges for private enterprises and weakening confidence in the future market. Foreign enterprises face concerns about sanctions and overreaction from the West, while ordinary consumers have restrained confidence in consumption and investment due to unfavourable expectations.
Entering 2024, researchers believe that there will be no significant change in the overall economic and geopolitical environments, leading to unlikely reforms and changes in the Chinese economy. An objective analysis of the operational mechanisms and institutional characteristics of the future Chinese economy is necessary.
The future trajectory of the Chinese economy has sparked various opinions, with some suggesting that China will move towards a “war-driven economy,” focusing on military industry, cutting-edge technologies, food security, Kung Chan, founder of a low-end consumption economy, disagrees with the notion that the generation, born into a war-driven economy, understands the consequences of warfare. Historically, “war-driven” and “economy” have been incompatible, with the emphasis on war causing economic suffering and vice versa. The “war-driven economy” refers to a sustained state of preparedness, driven by and subordinated to the goal of preparedness for war, rather than normal defense investments.
The Soviet Union’s “war-driven economy” is a cautionary tale for the future Chinese economy. During the Cold War, the Soviet Union focused on military preparations to compete with the United States, leading to the development of a massive military apparatus at the expense of economic capabilities. This approach eventually contributed to the disintegration of the Soviet Union, which ranked as the world’s second-largest economy under Leonid Brezhnev. The military industry’s share of the total industrial output remained consistently between 73% and 75%.
The inherent contradictions of the “war-driven economy” lie in the fact that while armament is crucial infrastructure development, it is also a long-term liability for the nation. The outcomes of intense armament can be either used for war, which means sacrificing the economy, or it drags down the economy due to the massive military apparatus. Infrastructure represents materialized debt, and if the quantity is excessively large, repayment is inevitable. This logic highlights the incompatibility between “war-drivenness” and “economy.”
If the “war-driven economy” is not China’s option, it is more likely for China to move toward a “centralized economy”. This model involves achieving effective coverage and control in strategic fields, such as commercial banking, insurance, securities, telecommunications, oil, coal, grain, electricity, infrastructure, automotive manufacturing, and critical mining. In areas like real estate, semiconductors, venture capital, bank card clearing, digital technology, and asset management, state-owned enterprises will maintain a dominant position.
The “centralized economy” model allows the central government to regulate and control most private enterprises, even if they are the primary operators in these sectors. The People’s Bank of China (PBoC) has approved the change of Alipay Network Technology to a state without an actual controller, allowing it to be governed by major shareholders independently exercising their voting rights. This change originated from Ant Group’s decision to adjust its voting power structure in early 2023, reducing Alibaba founder Jack Ma’s voting power from 53% to 6.2%. A year later, the central bank approved Alipay under Ant Group to become a private enterprise without an actual controller, signifying the central bank’s recognition of Ant Group’s equity rectification.
This transformation enhances the perceived security and controllability of Alipay’s financial operations from the perspective of policy authorities. Transforming a company into one without an actual controller provides an important prerequisite for the PBoC to implement financial supervision and exert control over Alipay. The “centralized economy” could become an important characteristic of China’s future economy, with the key distinction being the addition of a market element. Under a planned economy, there is no market in China, but under a “centralized economy,” there is a market that continues to expand with economic growth, operating according to market rules. Policy systems or major projects, along with fiscal and financial resources, can be utilized to achieve this indirect control over the market.
