Sunday, February 12, 2012

How Did China Do It?

How did China do it?

Sunday, 12 February 2012 00:00
Zimbabwe Sunday Mail

The Long March from October 1934 to October 1935 was a historic journey of 6 000 miles (9 656 km) where the Communist army forces led by Chairman Mao marched to Yan'an to establish a new Communist base.

They started out with 80 000 soldiers and ended up with about 9 000. Those 9 000 soldiers then reorganised themselves and won the war that led to the founding of the People's Republic of China in 1949.

China's economy has also taken a "long march" to become the fastest-growing and second-largest economy.

How did China do it?

I believe the answer can be found by looking at the economic history of China and identifying key moments that played a large role in forming what we see today.

Economic policies and reforms should begin with a vision of what is trying to be achieved.

Once a vision is in place, a commitment to succeed by the leaders who will drive the policies and reforms is necessary.

To fully appreciate the "long march" China's economy has taken, we have to analyse the economic policies and reforms under each era of leadership since the founding of the People's Republic of China in 1949.

The Mao Zedong Era

When Chairman Mao was the leader of China, he spearheaded policies that were ambitious and bold.

Two years after the founding of the People's Republic of China in 1949, Chairman Mao implemented the "Big Push" policy which included a land reform programme, building factories, industrialisation through the state and reducing consumption.

In 1958 he undertook the "Great Leap Forward" programme which attempted to make China what it is now.

The goal of the "Great Leap Forward" was to make China an economic superpower by overtaking the West in areas such as steel production.

All citizens were expected to contribute to achieving this goal; so, citizens set up furnaces in their homes.

Unfortunately, agricultural production fell as the focus was on steel production. The quality of some of the steel from these home furnaces was also not good enough.

The policy failed, but the lessons from this failure were invaluable for the next era.

As you can see, Chairman Mao had already envisioned China overtaking the West economically back in 1958.

It took China almost 50 years to fully achieve Chairman Mao's vision.

The Deng Xiaoping Era

Deng Xiaoping, who is largely credited with the economic transformation of China, took over from Chairman Mao in 1978.

He was committed to making whatever reforms were necessary to move China forward even if some of the reforms did not fit into a communist or socialist model.

His slogan was "Who cares if a cat is black or white, as long as it catches the mice". He recognised that the Communist Party of China (CPC) would become irrelevant if there was no economic growth.

Deng Xiaoping adopted the "Opening Up" policy.

He opened up the country to small amounts of Foreign Direct Investment (FDI) in special economic zones.

In these special economic zones, he reduced the red tape for foreign companies to do business and he built the infrastructure needed to attract foreign businesses.

He reformed the countryside by allowing surplus grain and other agriculture produce to be sold to the government at government procurement prices, or in free markets that did not exist before.

Under Chairman Mao, running private enterprises and retaining profits wasn't allowed as it was seen as capitalist.

Deng Xiaoping, however, allowed peasant farmers to now retain whatever profits they made.

This led to an increase in agricultural production.

Deng Xiaoping then turned his attention to reforming China's state-owned enterprises (SOEs).

China's SOEs were no different from the typical SOEs in that they were big, inefficient and unprofitable, overstaffed, had outdated technology and machinery and lacked innovation.

They were used to provide social welfare and profitability was not emphasised. Under Deng Xiaoping, SOEs were reformed through restructuring and the selling, merging or shutting down of various SOEs.

China's SOEs became the major drivers of the economy and the most profitable Chinese enterprises.

Deng Xiaoping called this system "Socialism with Chinese Characteristics".

1997 - Present

China continued to implement the "Opening Up" policy of Deng Xiaoping. China also modernised its banking system and continued to focus on keeping SOEs profitable.

In 1993, China's then leader, Jiang Zemin, coined the term "Social Market Economy" to move China's centrally planned socialist economy into a government-regulated capitalist market economy.

In 2001, after protracted negotiations, China entered the World Trade Organisation (WTO).
This boosted its economy through increased exports.

Trade relationships with various countries were also strengthened making Chinese products widely available in various countries around the world.

China continues to invest heavily in infrastructure development. It is estimated that during the 1990s and 2000s China invested almost 9 percent of its GDP into infrastructure, while other emerging countries invested between 2 percent and 5 percent.

China's good infrastructure, relatively cheap and efficient labour and size of market have made it one of the largest destinations of Foreign Direct Investment (FDI).

China led by Hu Jintao is currently focused on developing a consumer demand-driven economy to sustain economic growth and address imbalances.

Public spending on infrastructure, lowering of taxes and easing credit restrictions on mortgages and loans to SMEs are some of the economic policies China is currently implementing.

As we can see, China has implemented various economic policies in each era of leadership that have contributed to its economic transformation.

The one constant is the commitment by its leadership to making China an economic superpower.

This is how China did it. How can we do it?

--Manyika Kangai is a director of TGMK Consultants P/L, a China/Africa Trade and Investment Consultancy and can be contacted on

No comments: