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Economic planning and societal control: The digital transformation is changing the rules of the game in the global systemic competition. China's determined pursuit of a "digital Leninism" presents a major challenge to liberal market economies and democratic political systems. 

Main image Big Data, A Chinese mobile phone user shows the icons of mobile apps on his iPhone

When China’s Communists hold their 19th Party Congress in October, the choreography of the event will be as stiff as ever and broadcast the image of a rigid and unchanging political system. This image is wrong. With the help of Big Data and Artificial Intelligence, the Chinese leadership is thoroughly reshaping its approach to economic and social governance. China’s determined pursuit of the digital transformation presents a fundamental challenge to democratic political systems.

Technological innovation may be tilting the systemic competition between models of political and economic governance in China’s favor. Ten years ago, the internet revolution seemed to present a threat to authoritarian rulers. Today, the Big Data revolution plays into their hands. China’s Communist Party has embraced this opportunity and is equipping the country’s political system with the hardware and software that the digital transformation provides. In this reconfigured system, central co-ordination and control, termed “top-level design” by the Xi Jinping leadership, are intended to become an asset, not a restraining factor, for technological innovation, economic performance and political stability.

Big Data facilitates return of economic planning 

With the help of Big Data, China’s leadership strives to eliminate the flaws of Communist systems. In the former Soviet bloc, administrative planning created a shortage economy due to a lack of price signals and reliable feedback on supply and demand. Today, a growing number of Chinese economists and technology experts believe that Big Data will fix these deficiencies of national economic co-ordination.

The planning ambition is back on the agenda of Chinese economists and regulators. They believe that real-time, company-level microdata, for instance on currency, investment and credit flows, will allow to guide markets and contain financial risks such as real estate or stock market bubbles, in a fine-tuned and swift manner. This in effect would allow for smarter resource allocation than market-based price mechanisms.

Alibaba’s founder Jack Ma shares this ambition to “plan and predict markets” with the Communist Party’s central leadership. Beijing’s leaders are confident that state-controlled enterprises and banks can operate in a much more managerially efficient and politically desired way in a Big Data context than private companies in the freewheeling markets that are held in such high regard by Western economists.

At a time when a few super-large companies have built up data oligopolies and dominant online ecosystems, market competition will no longer be as important and effective as in traditional economies with multiple small-scale market participants, dispersed information and recurring regulatory failures. China’s control-fixated central government has the means to become a data super-hub through close collaboration with a few state-licensed commercial data conglomerates Alibaba, Tencent or Baidu.

Western governments are detached from the digital revolution

The prospect of reaching a goal that has historically eluded Communist rulers, the perfection of centralized control, propels the CCP’s intense and long-term commitment to digitization. Western governments, on the other hand, often seem detached from the digital revolution. In Western countries, integrated big data strategies may exist in parts of the security apparatus and are increasingly used during electoral campaigns, but this is usually where the ambitions end. Few large democracies have made coordinated efforts to transform their institutional set-up, beyond organizational tinkering or add-ons, as a response to the IT revolution.

In contrast, all of China’s major development strategies rely on Big Data-driven solutions. “Healthy China 2030” aims to expand online health services that can generate diagnoses and treatment advice with the help of Big Data. Local governments in China are investing heavily in the provision of public services by way of IT applications.

Most importantly, the “Social Credit System” that is currently being built aims to nudge citizens and companies into rule-abiding behavior by evaluating data ranging from payment morale or compliance with traffic rules or environmental regulations to opinions voiced in online chat rooms. What sounds like a nightmare for proponents of a free and open society is a dream come true for authoritarian regimes focused on maintaining order. Algorithms, not laws, policemen or judges, will assume regulatory and enforcement powers in the future of Chinese governance.

The Social Credit System illustrates why it is easier for an intrusive state to exploit Big Data solutions than for a liberal democracy bound by strict privacy and data protection laws. China’s leaders have more flexibility to experiment with the technologies of the future than elected leaders in the United States or Europe. China’s top-down approach meets with a playful bottom-up enthusiasm for new technologies in Chinese society. From facial recognition to sharing of consumer data, China has become a laboratory for everything from mobile payment systems to online surveillance.

U.S. and Europe need better digital policies

What can Western liberal democracies do – within the obvious restraints – to prevent a future in which they become takers, not makers of these technologies? Leaving this development to the markets, and to chance, is not an option at a time when others use Big Data to reshape basic practices of economic and regulatory governance.

Our economies are in need of more sophisticated economic policies for the digital age. European governments in particular must do much more to promote and protect digital “infant industries.” The Chinese experience is telling: Alibaba and Huawei would not exist any more as discernible companies today, if foreign investors such as Bay or Cisco had been allowed to acquire the Chinese IT firms in their “infant” stages.

As an indispensable element of digital policy, our governments also must launch massive infrastructure projects to facilitate the huge data traffic that networked manufacturing and e-mobility will require in the near future. And future transatlantic trade co-operation should focus on formulating common standards in the IT industry to avoid leaving this crucial field to Chinese investors and firms.

China's "Digital Leninism": a model for authoritarian regimes?

China’s success as a digital superpower is not guaranteed. The system’s capabilities for smart economic or social planning will depend on the quality, integration and processing of the data that feed it, but also on the government responsiveness and agility that is essential to make use of feedbacks from data analysis.

So far, Xi Jinping has advanced his "digital Leninism" further than most had thought possible within a short time. Other authoritarian regimes are closely watching the CCP’s approach. If China manages to harness Big Data technologies to build a top-down, yet responsive system of governance that turns out to be politically effective, economically productive and socially stable, it has the potential to become a global model. European democracies must not become the laggards in this competition for adaptive governance in the age of Big Data.

This article was previously published on the Financial Times' beyondbrics blog on September 29, 2017.