The World in 2023: Events that shaped our world

Six experts from various fields list the defining events of the year and their impact

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The Chinese conundrum

There are many who continue to believe that Chinese entrepreneurship has flourished under a magical formula of statism. In his book The Rise and Fall of the EAST: How Exams, Autocracy, Stability, and Technology Brought China Success, and Why They Might Lead to Its Decline, Professor Yasheng Huang, leading China scholar and Professor at MIT Sloan, argues, “Among commentators and scholars, there is a deeply rooted view that China has discovered and crafted “a third way” to foster dynamic innovation: a development model that harnesses the efficiency of the market economy and the power of the state without having to rely on the institutional prerequisites of capitalism, such as rule of law and market finance. I disagree.”

Starting in 1978, the tipping point was China’s post-reform era, when it began to move in an entirely new direction from its imperial past.

Professor Huang writes: “As the reforms took root and blossomed, China began to develop a large, dynamic private sector with many entrepreneurs who were highly motivated and capable of bringing technologies to scale. More importantly for China’s economy, they were regularly deployed to generate growth, employment, and tax revenues that helped keep the Communist Party of China (CPC) in power.

Under the reformist CPC, China became such an innovation machine. Yet China’s vibrant high-tech sector remains puzzling to many. Especially since China remained top-down, hierarchical, and repressive, stifling individual initiative. So how did China become a startup nation? Chinese entrepreneurship flourished even without the rule of law and market-based finance, and even though autocracy is widely assumed to be antithetical to innovation.

“It ignores the role that Hong Kong played in providing the conventional pillars of market finance and the rule of law. Without this escape valve, China’s great economic success story never would have happened. Though mainland China does not have rule of law and market finance, it effectively outsourced those functions to Hong Kong.” It helped Chinese high-tech entrepreneurs gain access to large pools of Western capital and provided a safe harbour that promised the rule of law. As the mainland continues to control and swamp Hong Kong, the Western capital is now actively seeking out safe harbours in Singapore.

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The West and the Rest