What is the political logic of China’s “gilded cage” and how did it influence developmental policy in China during the mid-2000s?

The key idea behind this logic is the scientific concept of development. During this period, the Chinese government wanted to take a scientific approach to statecraft and governance. At the same time, they also wanted to “scientize” the economy, their so-called “birdcage economy.” In China, government officials have used this term, “birdcage economy,” to describe their economy since beginning of the reform period. The idea is that they want to let the bird, the economy, grow, but they don't want to let it fly away. The Chinese government has always had a profound distrust of the market economy, so they use the visible hands of the state to coordinate it. In the mid 2000s, the Chinese government decided they wanted to use scientific methods to better guide their economy, leading to an evolution of the so-called birdcage economy, where they used legal and technical instruments to help the government's visible hand. So, at that time, they decided to use more scientific, technical, and legal tools to make more effective economic decisions. That's the logic behind what I called the gilded cage.

What prompted this shift in policy, and what distinguished the valuable or “high end” sectors from the “low end” ones?

In China, since the late 19th century, there has been a cultural discourse of using science and technology to rejuvenate China. This kind of ideology has been the cultural DNA of China. In the mid 2000s, before the financial crisis, several local governments in coastal China began to realize the limitations of the original economic development model that was based on more labor intensive and export-oriented manufacturing. In China, economic development in coastal areas and inland areas is very different. Coastal China is the area where economic development began first. Around the mid 2000s, the local government there began to realize that there was a limited supply of energy and land. When we talk about labor intensive manufacturing, we usually neglect the fact that it requires a lot of land. In the past, when companies went to China, the government just gave them a large piece of land, and they provided cheap labor and favorable conditions. Thus, a lot of factories were built to operate in China. However, they eventually realized they didn't have enough land. At the same time, the real estate market began to grow, and if you allocate more land in manufacturing, that means that the government wouldn't make as much money in real estate. To address the problem of scarcity, these governments tried to shift to a more technology-oriented developmental model to save land. For example, some local governments tried to calculate the output per unit of land to decide what kind of economic activity should be conducted on a specific piece of land. This also exemplifies how local government officials believed they were making scientific decisions. That was before the financial crisis, but they had already begun to see the problem. And then the financial crisis in 2008 worsened the situation because the export markets of China, specifically Europe and the US, were hit severely by the crisis. The previous developmental model was based on exports; so when the markets were hit, the Chinese government turned to a more technologically driven development model. In terms of what distinguished the high-end and low-end sectors, the Chinese government generally used the term the low-end sectors to refer to those that rely on cheap labor. However, they didn't consistently define what they considered low end, and they used a lot of different terms interchangeably. All in all, the government tended to dislike small businesses, and they wanted businesses that look cutting-edge and fancy.

What were the roles played by local governments and the central state government in guiding China’s techno-developmental policy, and what kinds of instruments did they use to implement it?

In the beginning, the kinds of initiatives I mentioned came from local governments in coastal China. But then, around that time, in 2006, the central government began to come up with its own industrial policy to pursue more technology-oriented development. Local governments also had their own initiative, because in China, local governments are in charge of development in their specific locality. In the history of the post-reform era, local governments played a very important role. Many of the local government officials wanted to have a higher GDP as it improved their chances of promotion. A lot of local governments developed different kinds of technical and regulatory tools to classify and evaluate labor and capital so that they could decide how to allocate resources to specific businesses or to specific social groups. Then the central government came up with similar strategies, for example, they defined what was considered a high-tech company. Local governments selected businesses that they thought were promising and gave them subsidies, bank credit, and land use rights. They also created a lot of government procurement opportunities. Local governments were also in charge of implementing regulation. They decided how they wanted to implement regulation, like if they wanted to impose regulation in a very strict way, or if they wanted to tolerate some violations of the regulation. The local governments had a lot of power in terms of distributing resources for production. Additionally, local government officials were also in charge of resources for what we call social production. In China, there is something called the household registration system. Not everyone has the same kind of citizenship in a specific locality. By coming up with standards to allocate local citizenship rights, and in doing so, the opportunity to access public school and access affordable housing, local governments could decide what kind of workers—professionals or the working class—they wanted for the local economy. In order to develop a more technology-oriented economy, many local governments preferred people with higher human capital, with higher levels of education. People without these advantages tended to face discrimination. And then, the central government also could make national regulations and national laws, like, for example, revising antitrust law. These have been the kinds of instruments used by both levels of governments.

What were some of the unintended consequences of China’s “scientific” approach to techno-development? What kinds of efficiency and risk-related challenges does the bird/cage logic pose to policymakers?

Because of this kind of scientific logic, the government paid a lot of attention to instruments. For example, they came up with a lot of numerical targets, and asked local government officials to achieve those targets. The bureaucracy today operates according to that kind of logic. Higher levels of government design a metric and ask the lower levels of governments to implement it. This kind of process has created a disparity between appearance and reality. Through the design of various instruments, higher levels of government aim to attain efficiency and gain insight into the local-level operations. They collect data so that they can make better decisions. But this kind of incentive structure based on numerical targets has some problems. For example, lower-level government officials try very hard to achieve these numerical targets, but they don't really care about whether those statistics are true or not. That kind of incentive structure also distorts the incentive for business actors, so many of them scam the system. Even workers, in order to get better scores for their children and increase the chance that their children can go to a public school, try to get some kind of occupational certificate to boost their score, even though those kinds of certifications aren’t really helpful for their work or career. In trying to game the system, people focus on the means, the instrument themselves, and neglect the ultimate purpose of having these kinds of instruments. When I was doing field work, I saw that business owners and managers colluded with government officials to improve statistics concerning the number of workers replaced by robots, as well as the numbers of patents, new high-tech companies, business incubators, and data platforms. In short because these were all the targets that upper-level governments wanted to see, that’s where they focused their energy. In the end, they do things at surface level. A lot of businesspeople and lower-level government officials understand the limitations of this kind of model very well. China has a lot of very brilliant businesspeople, and they told local governments officials that this kind of model wouldn't really work. The feedback was often neglected, however, because it wouldn't contribute to the performance metric of local government officials. As a result, there has been a lot of waste of public resources. 

Another unintended consequence is the emergence of China's internet companies as potential threats to the Chinese government. Although the Chinese central government sought to ensure greater control and predictability in the regulatory system, officials also recognized a trade-off between development and regulation. For example, when they really wanted to develop the internet industry, which I described as a “new bird” in the book, they didn't implement very rigorous regulations, and they allowed a lot of internet companies to operate in many sectors, including the finance sector. The lax regulation gave a lot of opportunity to internet companies, and in the end, these internet companies became very powerful. They have access to all the data. Moreover, they are very influential in all kinds of sectors, and they also control some of the infrastructure, like the cloud system and the online payment system. Normally, it’s the state-owned companies that control or operate infrastructure. But these internet companies are private companies, and many of their headquarters are not actually in China, they are in the Cayman Islands. In the end, these companies became so powerful that they threatened the government's power. And so, while they initially wanted to cultivate these birds, the internet sector grew beyond the government's control, which led to the government's crackdown on the internet sector.

How did cultural values and perceptions of the role of Science and Technology in development interact with Hu Jintao’s “human-centered” approach to developmental policy? 

President Hu Jintao came up with the so-called human-centered approach to development in the mid-2000s. This was when Chinese leaders began to realize that the level of inequality was very high in China. Since the late 1990s, there were a lot of protests in China because of the rapid developmental processes. For example, many farmers protested because their land was taken by local governments. In general, the Gini coefficient, which measures the level of inequality, grew a lot in that period. President Hu Jintao wanted to tackle that problem because that kind of inequality is not good. After all, China was still a socialist regime, and socialism is still a principle written in their constitution. 

When Chinese leaders talked about how to use technology to develop the economy, they had different views, and some central government officials thought that using technology to develop the economy would increase the level of inequality. While people with higher human capital, like professionals, tend to benefit from the process, China has many peasants and workers. Those people would suffer from this process. While the leaders discussed whether to use science and technology in development, they did not acknowledge these issues publicly, and often sidelined the consequences of this kind of strategy for equality. You can see the contradiction. On the one hand, they wanted to solve the inequality problem, but on the other hand, unequal distribution was deemed justifiable due to meritocracy and the pursuit of a technology-driven economy.  

Looking forward, how do you believe recent political and economic developments will affect China’s ability to cultivate new “birds” as it aims to cement itself as an economic superpower?

The developmental strategies described in my book have a lot of problems. First, as I mentioned, the increasingly repressive political environment does not encourage people to give feedback; plus their feedback is not taken seriously by the government. This hurts further development because they can’t learn from mistakes. Once upon a time, there was a better political environment in which people could express their different views, and their views were taken more seriously. Also, local government play an important role in the allocation of resources. As I mentioned, they allocated substantial resources, including subsidies and contracts, to "birds" they perceived as deserving. Now, it's hard to envision local governments having a lot of money for such investments, particularly given their substantial debts and the reduced profits from the real estate market compared to the past. This model is not sustainable because it relies heavily on so much government investment. Additionally, both businesses in China and investors outside of China can already see the problem of a political regime without a rule of law. Specifically, the way in which the Chinese government has regulated business has created a lot of risk and uncertainty, so many business owners and investors cannot calculate the risk. People have been losing confidence in the environment. We have seen capital flight in recent years, and many business owners have decided not to invest in China because of the risky environment. This is not good for long-term development. 

Finally, I would like to bring attention to issues concerning the "old birds." In many parts of the world including the U.S., when new technology is developed, how do people who rely on old ways of production continue to survive in the new economy? The Chinese government has tried very hard to automate everything and use robots to replace human beings. But how should the government deal with the workers who are being replaced? In the U.S., you can see this issue in the energy transition. There's a new energy sector and an old energy sector. There is an electric car, and there is a traditional car. There are workers who suffer in the transitional process. The same thing happened in China. In both contexts, we have to think about how to protect people who suffer as a result of this process, and make sure that they can still have some kind of basic living standard. In the Chinese system, no one can speak for this disadvantaged group. Instead, people can only rely on the mercy of the government, but then that kind of mercy is not very reliable.