Yasheng Huang on the Development of the Chinese State

Yasheng Huang — MIT Sloan professor and author of Capitalism with Chinese Characteristics — joins Tyler Cowen to trace the long arc of Chinese state formation, from the civil service examination system’s homogenising grip on intellectual life to the structural vulnerabilities of Xi Jinping’s succession calculus. Ep. 173, recorded January 2023.

Key ideas

1. The Chinese state was simultaneously overdeveloped and underdeveloped. Where it reached, it was all-domineering, but it never built the administrative capacity to tax broadly, field a professional army, or sustain public services. Power was derived from the ability to appoint officials and control merchants, not from fiscal extraction — a pattern that left China structurally brittle when confronted by industrialising Europe.
2. The civil service examination homogenised precisely the people most capable of disruption. By channelling every ambitious mind toward rote memorisation of conservative Confucian texts, the system neutralised the intellectual class as a source of transformational ideas. The bottom of the pyramid aspired to join the system rather than challenge it, and the exclusion of women compounded the effect — halving the talent pool and removing the social constituency most likely to press for liberalising change.
3. China’s economic imbalance runs deeper than low consumption. The experts urging China to rebalance toward consumption are not wrong, but they are treating a symptom. The real cause is a chronically low household income share of GDP — squeezed by state and corporate sectors — which makes low consumption a mathematical outcome rather than a policy choice. Addressing it requires confronting the underlying distribution of economic power between the state, firms, and households.
4. Succession has been stable at the system level but catastrophically unstable for individual successors. Every leader installed since 1976 was effectively chosen by Mao Zedong or Deng Xiaoping — two founding fathers with outsized charisma and unassailable political capital. Xi Jinping has neither and relies instead on accumulated formal titles. The ability to contain the spillover of succession failures is likely to diminish, not grow.
5. The fragmented interregnum of 220–581 AD was China’s most inventive period. With no single dominant ideology and multiple competing states, intellectual life was relatively free, Buddhism competed openly with Confucianism, and technological creativity — measured in inventions per capita — reached its historical peak. Huang reads this as evidence that political consolidation, not development, has been the enemy of Chinese innovation.

Content

An overdeveloped state with underdeveloped capacity

Huang opens by complicating the standard question. The Chinese state was overdeveloped in one sense — it was essentially the only institution, with no meaningful private economy, independent intelligentsia, or organised religion alongside it. But it was underdeveloped in another: it never built the fiscal infrastructure to tax the population reliably, professionalise its army, or sustain institutionalised public services. China’s vulnerability to northern nomadic invasions across the centuries reflects this gap. Its power was administrative and coercive — the ability to appoint and dismiss officials, to control merchants — rather than fiscal in the modern sense. Tax revenue relative to GDP remained modest even by the Qing Dynasty (1644–1911), and that structural pattern persists today: the state is large in its ownership and regulatory role, but not exceptionally so as a share of national income.

The examination system as an ideological lock

Huang’s central argument in The Rise and Fall of the EAST concerns the civil service examination, first instituted in the 6th century and dismantled only in 1905. Its effects were paradoxically most damaging precisely where it worked. The system was genuinely meritocratic in execution — data from the Ming Dynasty show that family background did not predict examination performance, and a double-anonymisation protocol (examiner and examinee both blind to each other’s identity; scribes recopying papers to obscure handwriting) made corruption difficult to sustain at scale. But the content it selected for was stultifying Confucianism, backward-looking and hierarchical, chosen in its most chauvinistic version around the 13th–14th centuries and left frozen until 1905.

The mechanism Huang identifies is intellectual capture at the top of the distribution. Smart people in China were not merely educated — they were homogenised into the same ideology. Those most naturally disposed toward transformational thinking were absorbed into a system that rewarded conformity. The rest of the population shared the same aspirational norms, participating in the bottom of the pyramid even when they had no hope of passing. The result was near-total suppression of heterodox ideas and social movements.

Women were excluded from the preparatory schools and from the examination itself. Confucianism, weaponised by the examination, was explicitly hostile to them. The Tang Dynasty (618–906) produced relatively free depictions of women in art; by the 10th and 11th centuries the style had turned paternalistic; by the time Neo-Confucianism was embedded in the exam curriculum, the direction was irreversible. Huang reads the near-total absence of female emperors as one outcome of this — the sole formal female emperor, Wu Zetian, was a Buddhist, during the period when Buddhism could still compete openly with Confucianism.

Cowen presses on why the norms were so homogeneous given that southern China was commercially vibrant and internationally connected in the Song Dynasty (960–1279). Huang’s answer: it was not the volume of people controlled that mattered, but which people. The smartest and most ambitious were the ones most thoroughly socialised into Confucian ideology. The commercially active southerners who remained outside the system were not the ones naturally disposed toward ideological breakthroughs. The lock held at the top.

Literacy’s arrested development

The stagnation of Chinese literacy in the 19th century, Huang argues, had all the conditions of its own prevention already built in. The state had provided subsidised preparatory education since the 6th century, creating infrastructure and cultural premium around literacy. Yet several factors combined to cap the outcome. The system was designed for men only; female spillover was limited in scale. The content was memorisation of conservative texts — no liberalising value flowed from it, and no constituency inside the system advocated for extending education beyond its existing male base. And the absence of a large commercial economy suppressed demand for human capital: running a bureaucracy for a country the size of China required perhaps tens of thousands of literate people; running a commercial economy requires tens of millions. When the commercial sector fails to develop, the demand for basic literacy stays permanently low.

In the 16th century China was reasonably literate relative to some European countries. Europe then experienced a literacy explosion. China did not. The initial level proved self-limiting rather than self-reinforcing.

Civil society’s actual weakness

Cowen reads the sudden reversal of Zero-COVID policy and the breadth of WeChat-based complaint as evidence of a latent civil society. Huang rejects the framing. Civil society in the meaningful sense requires organised, funded, independent activity — not isolated individual expression. By that criterion China has essentially none.

He offers scale as a corrective: roughly 400 million people were under long-term quarantine at the peak of Zero-COVID, sometimes for months, sometimes unable to access emergency hospital care. Against that suffering, the protests in 17 cities — involving perhaps tens of thousands of people — are proportionally small. Compare Iran, where one woman’s death at the hands of the moral police triggered street protests involving millions. Individual brutalities of a comparable kind occur almost daily in China without producing organised response.

The CCP has, however, built a sophisticated substitute. It solicits opinion through state-controlled portals and surveys, inviting individual complaint while preventing collective organisation. A citizen who calls the hotline or fills in the web form does so as an individual, not as a member of a movement. The CCP can act selectively on such input — alleviating traffic complaints, ignoring political ones — while ensuring that expressing frustration does not become the first step toward organising. The Zero-COVID protests broke this containment model because so many people were suffering simultaneously and identically, enabling empathy across the usual isolation. The protesters who called for Xi and the CCP to step down were doing something qualitatively different from any prior protest wave.

Succession and Tullock’s curse

Huang distinguishes two kinds of stability in Chinese succession politics. At the process level, succession has been catastrophic: planned successors have been persecuted to death, killed in plane crashes, dismissed, and placed under house arrest. At the system level, stability has held: the CCP has not fallen, there has been no coup, and regime change has not followed even the most dramatic succession failures.

His explanation for system-level stability rests on two figures: Mao Zedong and Deng Xiaoping. Five of the six CCP leaders since 1976 were effectively managed by one of these two men. Both had founding-father charisma and political capital so deep that the spillover effects of their errors — including succession errors — could be absorbed and contained. Xi Jinping has neither. He holds power through formal titles accumulated over time, not through the unearned prestige that attaches to revolutionary founders. Huang’s expectation is that future succession failures will prove harder to contain: the capacity to absorb them has declined with the death of the last charismatic founders.

Fragmentation as creative freedom

Asked about his favourite period in Chinese history, Huang names the interregnum between 220 and 581 AD — the centuries of division following the fall of the Han Dynasty. His reasoning is systematic. The period resembled post-Roman Europe: multiple competing states, rapid turnover of governments, human capital moving freely across political boundaries. No single ideology dominated; Confucianism was powerful but had to compete with Buddhism and other currents. Intellectual life was open. Women occupied more prominent public roles, their depiction in art freer than what followed. And China’s invention rate — the dataset Huang and collaborators use as their primary measure of innovative output — reached its historical peak in this period.

The implication for the main argument is direct: it was not political unity that drove Chinese achievement, but the absence of ideological monopoly. Consolidation under the examination system reversed the direction of causality.

Xi’an versus Shenzhen

Huang closes with a travel recommendation that doubles as a political economy thesis. Xi’an — the ancient northern capital with deep roots in the imperial tradition and close ties to Xi Jinping’s biography — represents the political mindset of China: inward-looking, suspicious of the world, shaped by harsh environment and historical memory of past greatness. Shenzhen — created by economic reform, the private-sector capital of China — represents the economic reality: outward, entrepreneurial, connected to global supply chains. Huang’s prediction is that these two orientations cannot co-exist indefinitely, and that Shenzhen will win, not because economics automatically drives political liberalisation, but because the mistakes of the Xi’an mindset will become their own teachers.

Related

• What Makes Economies Grow — theme; Huang’s examination-system lock is a case study for the institutions camp — the rule that decided who China’s smartest people became
• Yasheng Huang — speaker
• Tyler Cowen — host
• What Makes a Great Investor — theme; Huang’s analysis of China’s investment-driven growth model and the unsustainability of suppressed household income speaks to capital deployment and political risk