Austerity with Chinese Characteristics

Why China's Belt-Tightening Has More To Do With Confucius Than Keynes

A Chinese one yuan coin and a Chinese 100 yuan banknote.
A Chinese one yuan coin and a Chinese 100 yuan banknote. (Courtesy Reuters)

This year, to the consternation of the world’s luxury-goods producers, “austerity” became one of Beijing’s most prominent political buzzwords. Since becoming head of the Chinese Communist Party last November, Xi Jinping has announced a steady stream of belt-tightening measures: government officials have been barred from hosting lavish banquets and wearing designer watches, and the construction of government buildings has been banned for five years. It’s only natural that Western commentators have been quick to interpret China’s austerity drive in terms of their own long-running debate about macroeconomics: from Athens to Dublin to Washington, D.C., politicians and economists are arguing the economic merits and drawbacks of budget-cutting and deficit spending. 

But it would be a big mistake to interpret Xi’s ban on shark-fin soup as an extension of what Paul Krugman describes as the West’s “turn to austerity” since 2010. Whereas Western austerity has been an economic policy tool, in China its essence is primarily political. China has a long history of turning to frugality not to stimulate business confidence but, rather, to combat the disease of corruption. It’s safe to say that Xi has been thinking less of Milton Friedman or John Maynard Keynes than of China’s own political reform tradition, stretching from Confucius to the Communists.

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