East European “BigBang” Revisiting East Asia? Why Chinese “Gradual Transition” Can End Up with “Shock Therapy”
Polish and Russian “shock therapy” policies in 1990 and 1992 respectively were – in fact - forced deregulation packages, aimed at preventing total macroeconomic and institutional collapse. Some important features of these packages were contrary to neo-classical prescriptions, since the “shock therapists” operated in unprecedented setting of imploding “command economy”. This setting as such never was a subject of neo-liberal theoreticians before it became empirical reality.
Marxist-Leninist single party-state regimes are prone to macroeconomic implosion, since the socio-economic actors they create during forced “transition to market” prefer neither “plan”, nor “market”, but a grey “no-man’s land” between the two. This position allows them to “privatize the profits” and to “nationalize the costs”, contributing to accumulation of tremendous macroeconomic imbalances on the aggregate systemic level. It also creates socio-economic, political and institutional impasse of financial deleveraging, which may eventually turn into a forced “big-bang” package amidst systemic implosion.
Chinese “gradual transition” – with all singularities – still fits quite well into this dynamic empirical pattern. Sharp decline in the Chinese growth rate since spring 2013 was a manmade phenomenon. The leadership’s intend to deregulate interest rates and upgrade financial discipline scared investors making them to withdraw money from the state and non-state assets. The overall systemic setting increases the chances of financial deleveraging in China to turn eventually into a forced “big-bang” upheaval.