In the last 35 years, China has
lifted millions from starving. It is no small task. Otherwise, India would be
far wealthier than China and all the allied communist countries would not be in
bad shape today.
China was as strong as the Roman
Empire in the 200 BC period but she did not colonize any country. As late as
1800, she had 1/3 of the global GDP. She did not catch up with the West during
the Industrial Revolution. The Opium Wars and the alliance of eight nations
semi colonized China and bankrupted China by demanding unreasonable damages.
People’s Republic of China was
created in 1949. Mao was promoted from a
great revolutionist to a poor governor, a poster boy of Peter Lynch’s Principle
(promoting to a position one is not capable). Soviet’s withdrawal of the
financial aids made it worse. Great Leap Forward
and Cultural Revolution had done a lot of harm to the country.
The real recovery started when
the US took out the embargo. Then Deng promoted his reform. The Special Economy
Zone (SEZ) is his legacy. You cannot change a backward and poor country
overnight. His started his experiment in a small fishing village. The area was supplied with
electricity, road and other infrastructure. With cheap labor, it is an instant
success. Most genius ideas are so simple!
The next step was to convert the capital-intensive State Operating Enterprise (SOE) to labor-extensive and market-driven industry. With lower taxes
and incentives, Shenzhen, the first SEZ, became a choice for many foreign
companies.
Hong Kong was already a
first-class city with one of the best ports, trade expertise, finances, legal
laws, financial systems and know-hows to support this SOE next-door. Taiwan, S.
Korea and Japan were the models to follow.
Before long, it attracted huge
foreign direct investment (FDI). They can be viewed as renting China’s cheap
but educated labor force and avoiding the restrictions (pollution, union…) at
home. The same model is copied to other cities in China and the rest is
history.
Shenzhen today is one of the
wealthiest cities in China if not the wealthiest. It has its own stock exchange
to finance new ventures. With all the component factories such as cable,
transformer… available in the same area, it is the most efficient and cost
effective city to assemble new products. Today it is also a research center for
new products similar to our Silicon Valley.
China’s rise in her economy is
not straight line or without problems. Here are some noteworthy events.
In 1988, her inflation rate was
20%. Corruption was widely spread. Officials pocketed the different in official
prices and market prices.
In 1989, the Tiananmen Square
incident caused by protests due to social inequalities slowed down foreign
investments, tightened strategic import and a little brain drain. Chinese
students in US were allowed to stay in US and US received the top of the
cream of Chinese students.
In 1980s, Hong Kong factories
were no longer competitive and most moved to South China. It is similar to
electronic industry in Taiwan.
In 1992, Deng’s famous southern
tour started a new reform. In 2001 China’s entry to WTO expanded her global
market.
Quickly China became the number
one producer of steel and for many years used half of the global cement due to
its excessive infrastructure projects and buildings. It boosted its GDP and
jobs but created excesses.
As in most countries (US
included) moving to a developed country, China took the shortest route by
copying and using her cheap labor. The ‘copying’ is adaptive and sometimes
innovative. If they are not, most other countries should be more successful as
most have started earlier.
Has China cheated? Most if not
all countries cheated including the US. All countries manipulate their currency
rate, subsidize their own industry… It is more political than economical.
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The above is from my book "Can China Say No?". Click here for more info in Amazon.com.
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