China's ailing economy needs a dose of Thatcherism with Chinese characteristics
Thomas Deng urges Beijing to trim the state and bolster free enterprise, as Thatcher once did
As the world mourned the passing of former British prime minister Margaret Thatcher, remembered her belief in small government, free enterprise and monetarism, and her contribution to world prosperity, we should look at what today's China can learn from her legacy.
At almost exactly the same time that Thatcher led Britain out of its economic slump, China embarked on its own social and economic reform - with tenets similar to what became known as Thatcherism - under Deng Xiaoping.
Deng understood how the free market functioned, giving people more power over their lives by granting private property ownership, motivating the formation of private enterprises and rolling back omnipresent controls of the government. China has since enjoyed a dramatic ascendance.
But despite its eye-catching growth, China remains a developing country with a per capita gross domestic product that is well below the global average. Its growth momentum has slowed noticeably over the past few years, partly due to a lack of reform breakthrough. Many economic challenges faced by Thatcher in the 1970s pose the same threats to today's China. These include:
First, big government. China's fiscal revenue as a percentage of GDP had increased to 23 per cent at the end of last year from 12.9 per cent in 1992. Its fiscal expenditure as a percentage of GDP has increased to 24 per cent from 13.9 per cent in the same period. These figures are now back to the levels where they were in 1981 when China first embarked on the economic reform programmes.
China's fiscal dynamics diverge from those of the developed markets, where fiscal revenue as a percentage of GDP has dropped a few percentage points over the past three decades since the beginning of the Thatcher-Reagan era to roll back the frontier of the state.
Second, an economy dominated by state-owned enterprises. Similar to Britain in the late 1970s when the government controlled most of the key industries, so the Chinese government today controls PetroChina, China Mobile, Air China and Baosteel, in addition to all the financial giants such as Industrial and Commercial Bank of China.