Chinese finance and the future of authoritarian capitalism

The jury is very much out on how epiphenomenal the West’s post-1800 advantage will be.

Kenneth Pomeranz (2009)

Reevaluating China’s financial development in historical comparative context challenges existing ways of thinking about the dynamics of global order and China’s place within it. This global order is in a deep state of flux and uncertainty, yet our posing of questions surrounding the fate of the liberal world order occlude the possibility that China is constructing its own version of capitalist modernity. As Wolfgang Streeck (2012, 3–4) observes,

Capitalism must be studied, not as a static and timeless ideal type of an economic system that exists outside of or apart from society, but as an historical social order that is precisely about the relationship between the social and the economic – a social order that came into its own in Western Europe in the early nineteenth century and has been continuously evolving since.

The evolution of Chinese capitalism challenges us to reflect on the contingency – both material and ideational – of liberal democratic capitalism as a sustainable political form. This demands an understanding of Chinese development as a distinctive, unique, yet nonetheless thoroughly modern process of confronting the contradictions and tensions of capitalist governance.

This book has argued that one path towards this is to focus upon the mechanisms through which trust is achieved, thereby managing the inherent uncertainty of socio-economic action. China’s capitalism has achieved this through a gradual deepening of the market’s role in financial intermediation and the bureaucratization of the state, accompanied by the rationalized consolidation of the CCP’s role as political authority over both. China’s otherwise paradoxical path of development has flowed principally from conceptions of reform that saw the harnessing of capital as both a means of fostering economic growth, as well as of shaping the foundational political parameters of Chinese society. These conceptions revolved around the idea of capital and the markets through which it could be allocated as tools, rather than the subject of normative ends and policy objectives in themselves. Thus, even as the financial system has become increasingly commercialized and devoted to supporting economic growth, it has simultaneously lain at the heart of the ability of the CCP to ensure that this economic growth continuously supported the political needs of the Party.

Re-evaluating the course of Chinese financial development

What are the implications of this experience of reform and opening for China’s development of a specific socio-economic formation that we can identify as constituting contemporary capitalism? The uniqueness of China’s new capitalist society resides in the determination of the CCP to maintain its explicit role as custodian of the power of capital. This interpenetration of the market and the state in the pursuit of capital accumulation is thus unfolding in a direction distinct from that of Western conceptions of free-market, individualistic, and bottom-up capitalist development. This brings to the fore the illusion of a distinction between a liberal and illiberal politics in the structuring of capitalist society. What Redding sought to identify in his pioneering Spirit of Chinese Capitalism was less the spirit of capitalism, and more the sociological foundations of market exchange with Chinese characteristics. Capitalism as a mode of social organization is rooted firmly in discrete socio-historical circumstances, and it is only possible to identify something akin to its spirit by examining the macro-social processes through which it emerges, develops, and becomes entrenched within the cognitive, institutional, and structural matrices of social relations.

The way in which ideas, interests, and institutions have emerged and evolved in China’s political economy is the product of the emergence and evolution of Chinese capitalist modernity. Just as the experience of modernity in the West is a process of historical change that has roots extending far beyond the contemporary era of global capital, contemporary China can only be understood as the latest iteration of the deeply historical interplay of political, economic, and social forces, steadily accumulating through lineages and junctures that serve to both reinforce and disrupt ideational paradigms, institutional configurations, and networked topographies. To argue that the features of premodern China remain analytically salient in the study of modern China is not to mount a culturalist argument, but rather to decentre the Western experience of modernity as the only available theoretical and conceptual lens through which to study modern Chinese development. As we saw in Chapter 2, the Chinese experience of economic development in imperial China constituted a rational and sophisticated economic sociology of market behaviour and economic development that was distinct from that which led to European-style capitalism, but was not necessarily incompatible with it. Accordingly, the construction of a capitalist system in contemporary China – one that is now deeply embedded in the competitive dynamics of an integrated global economy – represents potentially the coalescence of logics of politico-economic organization that are as equally rational as they are qualitatively distinct.

Decentring the universality of the Western historical experience therefore places us then in a difficult position. Compelled to undertake a reflexive reappraisal of those concepts that have underlain the study of Western political economy but which may prove inadequate for the study of Chinese political economy, we must search for alternative conceptual foundations for the analysis of rational social action that provide useful insight into the construction of modernity, without assuming that actors embedded in such modernities abide by the same conception of rationality. This means also being ecumenically pluralistic about the study of capitalism, and to this end the analytic framework developed in this book has revolved around the role of uncertainty as one core conceptual feature of social action that enables one to marshal together theories of economic development and theories of political power. It does so, however, without ascribing a priori to a sociological or politico-economic ontology that focuses deterministically on concepts such as the Weberian bureaucratic state or Marxian creative destruction that may have been prominent in the experience of Western capitalism, but which cannot be assumed to be central to the story of Chinese capitalism. Rather, the concept of uncertainty, and the cognitive frames and the social institutions that enable us to manage it, can be deployed in order not only to develop better explanations of empirical phenomena such as the patterns of authority and power exercised by the CCP in the construction of a capitalist political economy, but also to place those explanations in the broader comparative context of global capitalist development and evolution.

What has been central to the story of Chinese capitalism is the economic role and political implications of capital itself. Harnessing the flow of capital throughout the economy can be conceived as a process of managing the uncertainty inherent in financial decision-making, one that has been underpinned in China through the role of the CCP at the nexus of the state and the market. Control over the flow of financial capital is a source of both the power to incentivize economic growth, as well as the power to distribute the benefits of this growth in uneven ways. Yet as this study has sought to demonstrate, the ways in which these flows of capital are managed and controlled are not deterministically reducible to either ‘the market’ or ‘the state’; rather, they must be assessed on the basis of a broader array of mechanisms that allow actors to generate stable reciprocal expectations, and thereby to manage the fundamental uncertainty that afflicts all social action. In China the CCP itself has grown and evolved to comprise a fundamental and crucial element in this array, and the reason that China’s path of development is too often mischaracterized and misinterpreted is because of an assumption that the institutions of capitalist modernity must all somehow be pressed out of the same mould. As we have seen, China presents many reasons to recognize that this is not in fact the case. Accordingly, this book has highlighted the complex, obscure, but critically important role of the CCP in underpinning China’s path of financial reform and economic development more broadly. It has argued that the CCP’s role is both the reflection as well as the source of particular ideas about how to manage the flow of capital that are reducible neither to the endogenous self-interested rationality of bureaucratic institutions nor to relapses into a premodern – and thus exogenous – set of interests that manifest in parochial personal networks or local biases. By placing specific ideas at the centre of the analysis and the role that they played in underpinning expectations of financial growth and stability, it becomes possible to cast China’s development in a new light by refracting it through the socio-economic foundations of capitalist development, rather than as a process of transition from a centrally planned economy to a market-oriented one.

Jettisoning such assumptions opens up space for deeper analytic appreciation of the role of different factors and variables in the study of China’s economic reform. The interests of financial elites within the Chinese political economy could not be determined ex ante in an environment characterized by extreme uncertainty, and there is no a priori reason to presume that the immediate institutional or networked positions or identities of particular actors would be determinative in shaping material interests over and above the ideas and frames to emerge out of a significantly broader social context comprising multiple and overlapping institutional contexts, the historical lineages of Chinese political and economic development, and the deeply rooted hierarchies and structures that continue to reside at the heart of Chinese society. The story of how these interests come into existence, and the effect that they had on the path of institutional change and the production of real socio-economic outcomes therefore cannot be recounted in ignorance of particular ideas about the relationship between financial capital and political authority. Yet this is not just to say that ideas mattered; this book has been concerned with developing a broader and more holistic understanding of how these ideas mattered, and in order to do this it has been necessary to displace analytic perspectives that locate China’s experience of modernity squarely within the parameters of the Western experience of modernity – assuming that as China embraces modernity it relinquishes and severs its ties to an equally modern historical experience of social, political, and economic development. The ideas that have guided intellectual debate, the politics of policymaking, and economic behaviour are firmly rooted in this historical experience, and this experience and its impact upon China’s contemporary development must be assessed on its own terms and in its own light.

Such a perspective compels us to rethink our analyses of a number of issues and areas within China’s financial system and its role in the country’s developmental trajectory. Increasing liberalization in the financial sector will not necessarily produce a more ecumenical and broad-based path of growth: as this book has argued, the process of marketization is itself contingent upon the continued role of the CCP as the guardian of financial stability. The nature of this role is changing along with the constitutive foundations of the CCP itself, as the institutions and networks of power that in aggregate comprise the CCP increasingly straddle the expanding private sector. As a result, the deepening contradictions and tensions of capitalist development will be reflected less in the evolving balance between state intervention and market autonomy and more in the variegated distribution of power and agency amongst actors according to their connections to existing structures of authority and control. The development of China’s financial system and its capacity to support broad-based and sustainable real economic growth is therefore tied closely to the ways in which the CCP manages and adapts to this process of constitutive change in the foundations of its ruling mandate and authority. As the market plays an increasingly significant role in allocating the flow of financial capital through the real economy, stability within the financial sector will be generated through its continued embeddedness in the political system, rather than as a product of unfettered market forces or an independent and technocratic regulatory regime.

The algorithmic foundations of authoritarian capitalism

This returns us to the banker mentioned in the opening passage of this book, who despite holding a position at the very centre of an increasingly modern, commercial, and international Chinese banking sector, remains firmly entrenched in the broader political system of control and authority over the flow of capital. As China’s new leadership under Xi Jinping has taken the reins of power, it has become ever clearer that the dynamics of continuous capitalist transformation and authoritarian governance are two sides of the same Chinese coin. That the CCP continues to pursue the ‘rejuvenation of the great Chinese nation’ without seemingly any indication of loosening its grip on the levers of political power yet is now firmly committed to deepening and enhancing the role of the market is testament to the need for more nuanced and reflective appraisals of the relationship between the market, the state, and society. China’s experience of financial development has brought it once again to the question of how to utilize the market, as Deng Xiaoping envisaged all along, as an ‘economic tool’ [经 济手段] that has little bearing on the fact of a society’s ‘socialism’ or ‘capitalism’.

Both the CCP’s vision for the Chinese nation, and the tools with which this vision can be pursued, have evolved continuously throughout the opening and reform era. In an era of deepening ideological and political consolidation, coupled with the advance of new modes of increasingly indirect data-driven governance and the embeddedness of Chinese corporate power in a CCP-dominated power structure, the implications for how we assess the future of authoritarian capitalism are profound. This is most apparent in the latest stage of the CCP’s nascent plans to interweave big-data driven financial services and broader regimes of social credit scoring. The former constitutes an essential infrastructural foundation for what Creemers (2017a) describes as the CCP’s placing of technology at the centre of an ambitious agenda for comprehensive reform of social and economic governance. The SCS provides an insight into the novel mechanisms of ‘algorithmic governance’ (Campbell-Verduyn et al. 2017) that will play an increasingly significant role in underpinning the political-economic stability of China’s authoritarian capitalism.

The preliminary plan for a comprehensive SCS was announced in 2014 (PRC State Council 2014) and forms the overarching blueprint of the broader plan of upgrading both social and economic supervision through technological innovation. The holistic systems-oriented focus of Chinese governance that blurs the boundaries between public and private also complicates liberal notions of public and private data. As Chen Gang (2016) opened a prominent Seeking Truth article, ‘in the present era, data has become a fundamental national strategic resource’.1 Accordingly, the process of constructing usable digital credit databases is taking place along two tracks within the private and state sectors. The construction by large e-commerce and tech platforms of large repositories of financially valuable consumer data is being complemented by coordinated efforts between financial regulatory bodies such as the PBOC and other central government agencies including the NDRC and the State Internet Information Office, charged with control over China’s internet censorship and propaganda regimes (see Table 7.1).

The core public repository of credit information is the PBOC Credit Reference Center (CRC), providing a high quality of existing historical credit data. The CRC system was initially established in 2004 and will constitute an important foundation for the broader SCS (PBOC 2015a). Amongst other existing certified financial institutions, the Postal Savings Bank of China, with the largest branch network in the country, is supplying financial data on otherwise difficult to evaluate rural customers (CFI 2016). Additionally, uncertified credit institutions provide lending information, alongside data from public sector entities handling credit transactions such as phone bills and property tax payments, information from law enforcement agencies, and from the court system. All of this is being further being integrated into the CISP, which has been operational since October 2015, and which currently includes almost 400 datasets from more than thirty central ministries and governmental agencies (NDRC 2016). The\nd processing infrastructures – one borne directly out of consumers’ online activities and the other founded upon public records and existing databases – are expected to merge over the next years, even if the intention is not to produce one single credit score as a result, but to enable data to be utilized for a variety of different purposes.2 This mutability between private sector initiatives to support commercial business and the government’s objective to implement broader systems of social governance is a natural reflection of China’s distinctive political tradition.

Table 7.1. Illustrative data sources for private and public financial credit scoring mechanisms

Source: Ant Financial, October 2016; PBOC

The initial plan for the SCS did not refer explicitly to the use of algorithmic big data analytics. Yet to assume that this means data collected purely for the purposes of financial risk management will never play a role in the broader matrix of social governance mechanisms would appear wilfully naïve. As one industry professional observed, the 2014 SCS plan extended through to 2020, but ‘that is not the end of the process. There will obviously be a new plan after that.’3 In this light it is less surprising that the more recent 2017 State Council notice on the Thirteenth Five-Year Plan for Market Supervision (PRC State Council 2017) refers specifically to establishing and ‘perfecting’ [完善] new regulatory mechanisms involving ‘credit supervision, big data supervision, multidimensional collective governance etc’. [信用管理,大数 据管理,以多元公职等]. The same document also places the role of technology front and centre in undergirding this system of market supervision that expands the concept of credit ratings far beyond financial metrics, to include social, political, and environmental factors both in terms of data inputs and rating outputs (PRC State Council 2017). Likewise, in the implementation of the Internet Plus Plan the State Council has underscored the importance of bigdata analytic techniques to enhance ‘social governance ability’ at all levels of government, and the expectation of collaboration and cooperation between government and tech firms in establishing the necessary credit information sharing platforms (PRC State Council 2015). Unsurprisingly, the substantive details of the algorithms themselves that produce these evaluations are as yet and will likely remain unknown. But the intent is clear: a constant monitoring presence of automatically generated and updated credit rating scores, which will – in the terms of official discourse – constitute ‘self-disciplining enforcement’ mechanisms at the level of both the individual citizen [个体自我约束] and the corporate entity [企业自我约束] (PRC State Council 2017).

Both the empirical data sources as well as the algorithmic scoring techniques being developed across the range of DFS players are thus integral elements in transferring the practice and methodologies of financial credit rating to a broader range of quantifiable social and political benchmarks (Yan and Li 2014; Xie et al. 2016b). Although unsurprisingly there is little public acknowledgement of this process, the extent to which the laws and regulations defining the limits of data-sharing between tech firms and the government reflect Beijing’s policy priorities is widely known amongst officials and industry alike.4 Xie et al. (2016a) describe this process of melding together the private and public functions of digital credit scoring thus:

Financial services will be available to all, and everyone will enjoy the benefits. In this way, internet finance is more democratic than a finance controlled by professional elites. …

Individuals (or institutions) have many stakeholders, who all have some information about their wealth, employment status, personality, and so on. If all stakeholders’ information is released and pooled on social networks, and inaccurate information is disputed or filtered through social networks and search engines, we will get a reliable picture of their creditworthiness. Social networks also enable the accumulation of ‘social capital’ among people, with which costs of financial activities will drop considerably and opportunistic behaviors will be constrained.5

Such visions underscore just how fine a line there is between the use of credit scoring algorithms for evaluating financial creditworthiness on the one hand and socio-political trustworthiness on the other. As part of China’s evolving regime of social management, those technologies underpinning financial data collection and processing are capable of taking on different functions and serving different functions, both political and economic.

Coda: a global capitalist order in flux

These nascent transformations raise questions that extend beyond the study of Chinese political economy. What do they inform us about how China is confronting the dilemma of authoritarian governance in a capitalist society increasing in its economic prosperity, technological sophistication, and cultural pluralism? And what are the implications of this for how we understand the further evolution of capitalism as a socio-political system on a global scale?

Heeding the above plea to decentre the Western experience when evaluating Chinese capitalism reframes questions surrounding the relationship between technology, political authority, and financial capital. Rather than merely asking how fintech is affecting Chinese politics and society, the question is one of how the significance of fintech – and underlying relationships between technology and society – are affected by its entry into a highly complex and historically formed political culture.6 As this book has argued, one key component of the Chinese political tradition in which fintech is developing is an emphasis upon systemic stability underpinned by a holistic integration or harmony of its constituent parts. As Hoffman (2017) has argued, in China’s ICT governance this tradition found form in a form of complex systems-thinking traceable to the 1970s that views technology as a mechanism for achieving Leninist social management. This conceptualization of governance evaluates elements with reference to their utility or function in achieving system-objectives: social harmony and economic development (Creemers 2018). The process blurs divisions between public and private, and lays responsibility for overall social development upon the citizenry, party members, commercial enterprises, social organization, and government officials alike (Thornton 2007). This has evolved into a ‘cyber-Leninism’ (Creemers 2017b) that has in turn undergone substantial upgrading since the start of the Xi administration, a turning point in the CCP’s approach to utilizing and exploiting technology to restructure the Party’s governing framework. New financial technologies are linked to this broader project of social engineering, seeking to form a ‘more civilized’ society via improvements in the natural, psychological, and social ‘quality’ (suzhi素质) of the citizenry (Barmé and Goldkorn 2013). This objective has taken on particular significance by virtue of the rise of the Chinese consumer, a socio-economic process now subject to careful ‘ideology management’ by the CCP (Goodman 2014). This represents a transmutation of the duality of the financial system as both political and economic tool, reflecting the twin imperatives of shifting the growth model towards domestic consumption, and harnessing rather than combating the political power of digital connectivity.

A key issue at the heart of this process of digitizing authoritarianism is one of how normative ideas and social institutions generate sufficient trust and mutual understanding between individuals to enable solidarity and cooperative activity. The CCP’s twenty-first-century challenge is to construct institutions that enable trust in an increasingly digitized market economy. At the same time, it must retain sufficient trust in the political system that contains and supports this market economy. For much of the twentieth century, Chinese society experienced numerous waves of eroding social solidarity, reaching a nadir during the Cultural Revolution when trust between individuals and within communities was replaced by blind and exclusive faith in Mao Zedong. Since 1978, the CCP has endeavoured to preserve residual trust and credibility in its guarantee of social and economic progress, which for much of the reform period has taken the form of rising living standards and greater personal freedom in choices of work and lifestyle. The intersection of these changes with technological progress therefore has deep and broad politico-economic implications. The reach of social media into all regions and strata of Chinese society is transforming existing social relationships and enabling experimentation with new relationship forms (McDonald 2016). The CCP seeks – however imperfectly – to guide, shape, and manipulate the social trust norms underlying these relations, a process involving now the use of technological infrastructures, without destroying trust in the CCP’s authority to largely control the process of norm generation itself.

This book began with the premise that a proper understanding of the evolution of global capitalism requires an understanding of the political economy of China’s financial development on its own historical, cultural, and conceptual terms. The duality of the financial system within China’s emergent algorithmic governance is emblematic of the blurring of boundaries between public and private that is possible in this current era of economic growth and development. Crucially, it is neither marketization nor state intervention that is responsible for China’s future course of technology-saturated development, but rather the CCP’s shaping of trust and confidence in both as necessary elements of this developmental path. The Chinese example illustrates how enfolding this socio-economic power of big data more closely within complex yet ideologically cohesive political structures may be establishing the foundations for a mode of capitalist governance that mitigates the political risks of authoritarian rule. This refracts in a different light the power struggles at the heart of Western liberal democracies, as the political agency wielded by those controlling the algorithms behind our multitudinous screens – tracking consumption preferences, spending patterns, financial proclivities – potentially comes to encompass not just how we spend our capital, but how we define the purpose and meaning of capital itself. Liberal democratic capitalism’s normative prioritization of a market exchange rationality occludes a fuller perspective on the social foundations of this agency, and how to sustainably control and harness it. In this respect, China’s nascent authoritarian capitalism at once represents a learning opportunity, a societal forewarning, and a politico-economic challenge.


1Seeking Truth [求是] is the pre-eminent journal of political theory published by the CCP.

2Interview 2 October 2016, Beijing – China Construction Bank; Interview 30 September 2016, Beijing – 01Caijing; Interview 29 September 2016, Beijing – Chinese Academy of Social Sciences; Interview 15 September 2017, Beijing – Yirendai.

3Interview 15 September 2017, Beijing – Yirendai.

4Interview 13 September 2017, Beijing – Peking University.

5This passage is worth quoting at length. The book’s lead author Xie Ping is one of the most respected senior financial policymakers in the Chinese financial system and one of the leading proponents of the Chinese fintech revolution.

6See further Creemers (2017b).

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