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Do more, say less – understanding the rise of the Chinese dragon

The population/area ratio of Beijing is roughly equivalent to ten million people living in Cyprus

By Stefanos Evripidou

CHINA is a big country with a lot of people. Apologies for stating the obvious, but I don’t think people get just how big it is, and how many people there really are. It covers an area of 9.6 million km² and is home to around 1.35 billion people, give or take the population of Poland. To bring it home, China’s second largest city, Beijing, has a population of around 21 million people in an area less than twice the size of Cyprus. As a Chinese friend put it: “People don’t understand why China is what it is. Try putting 10 million people in Cyprus and see what happens.”

Another thing that’s less obvious to the uninitiated is the impact a once reclusive China now has on the world economy, and how this influence is only going to get stronger and deeper, expanding into all areas of global affairs, including the environment and international relations.

The country is run under one-party rule; the Communist Party of China (CPC), which is no longer communist but like our home-grown talent AKEL, wants to ditch the concept but keep the label.

After Mao Zedong’s failed Cultural Revolution, involving the purge of perceived enemies and capitalist elements, the country’s influential leader Deng Xiaoping brought about a watershed moment in 1978, the “reform and opening up” of China to the globalised economy, ushering in a new era of “socialism with Chinese characteristics”.

Deng took gradual steps to move from a centrally planned economy to a market-based one, guided by the proverb: “Crossing the river by feeling the stones.” The message of the first stone was clear, “Feed and clothe me”, written by the hundreds of millions of Chinese living in poverty.

The CPC promoted a bottom-up approach, where local authorities and entrepreneurs, could experiment with the fusion of dense state regulatory control and a gradually liberated market.

Some provinces and districts took the provision of cheap land, labour and credit and ran with it, becoming pioneers attracting foreign direct investment (FDI) and dominating the export market with cheap products.

The party secretary (effectively the top dog in local government) of one such district, Shunde, said local people operate on the motto “Do more, say less.”

The proof is in the pudding. With a population of 2.5 million people in an area less than a tenth the size of Cyprus, Shunde achieved a GDP of just under €33 billion last year.

The next stone in the river marked the development of commercial and state-owned enterprises, after which came the inevitable urban economic development, as farmers had to give up the land they’d toiled over to become workers in a new industrialised economy.

China’s urban population is now something like 54 per cent and according to the Chinese Academy of Social Sciences, is expected to hit 60 per cent by 2018.

As one senior Beijing official put it: “China is going through the largest scale of urbanisation in human history.”

In the more wealthy districts straddling the Pearl River Delta in South China, clusters of skyscrapers are wrapped by a protective green curtain while under construction. They will house the cities’ future residents.

According to the World Bank, since initiating reforms over three decades ago, China has achieved rapid economic and social development, with GDP growth averaging around 10 per cent a year, lifting over 500 million people out of poverty. It still has the second largest number of poor in the world after India.

China’s system of internal migration, which has fuelled the manufacturing miracle, leaves a lot of the ‘floating population’, known as ‘migrant workers’, without similar access to housing, education or health as local, registered residents have.

 

Green netting shrouds the skyscrapers to house future residents
Green netting shrouds the skyscrapers to house future residents

Rapid economic growth has also caused great income disparity – only recently in decline – while the constant smog over Beijing’s skies is emblematic of the environmental impact caused by development.

China’s leaders remain focused on food and clothing, but in reality, have long been preparing for the next stage, taking China out of the ‘middle income trap’ to unleash the world’s biggest domestic consumer market.

Huang Yiping, an economist at Peking University and top adviser to the government, notes that China saw a massive rise in GDP per capita to US$7,000 but getting out of the middle income trap and hitting $12,000 is the tough part. As low-cost resources like capital, land and labour rise in price, the country loses competitiveness, needing advanced technology to reach the next level.

Local companies are no longer fixated on luring FDI and finding foreign markets for export, but are instead eager to attract collaboration with developed countries, to use their know-how in management and adopt their advanced technologies to produce high value products, with a somewhat improved carbon footprint.

Rising wages and improving living standards are forcing Chinese industries to slowly abandon low-end product manufacturing to countries like Vietnam and Ethiopia.

Huang argues that another challenge is institutional reform and the transition from a central to a market economy. Unlike the “shock therapy” of the post-Soviet Union space, China’s leaders took a gradual, dual track approach to reform.

If the rebalance is done right, domestic consumption will rise to such a degree that the most populated country in the world will suffer a labour shortage, prompted by its one-child policy.

“When 1.4 billion people’s income rises, this will be good for the world,” and especially the luxury goods market, said Huang.

The economist noted that Chinese tourists are quite capable of staying in a 3-star hotel, eating instant noodles and spending $10,000 in a gift shop.

At the same time, the authorities (read the CPC from grassroots to top level) are keen to nurture and inspire home talent through education and training to mirror the innovation that has seen neighbours Japan and South Korea bring prosperity to their people.

As the Vice Governor of China’s largest province, Guangdong, with a population of 106 million, put it, Apple makes a huge profit from the sale of its iPhones made in China but only a fraction of that stays in the locality of production.

Investing in research and development will transform China from a “sweat economy to a smart economy”, said Xu Shaohua.

Though it remains to be seen whether the one-party system which encourages hard work and stable, orderly living can also act as an incubator for creative expression and groundbreaking indigenous innovation.

The driving force behind these efforts is the new reform process, documented in a series of CPC guidelines on over 300 reforms, ranging from the most sensitive – land – to the most basic – primary school teachers should give less homework.

The CPC has abandoned the bottom-up approach and instead is going for a meticulously prepared top-down reform agenda. In Chinese proverb speak, “there are no more stones to be touched” and China will have to learn to swim, said Huang.

He argued that the US and EU models of free market with minimal intervention no longer seem attractive, perhaps due to the massive income disparity witnessed in the US or the EU’s eternal stagnation. If the government acts wisely, it can play a positive role in economic development, he said.

China expert with 35 years experience as an EU technocrat Pierre Defraigne argues that the CPC is using capitalism to modernise China but questions whether the Asian giant can provide social justice and ecological protection in addition to the CPC leadership taking on its global responsibilities.

“In a decade, China will likely be the number one economy in the world. Any decision taken in Beijing will affect every household in the world. It will have an impact upon trade, finance, environment, taxation etc. Wealth and power brings responsibility… Whether it likes it or not, China is a global player.”

Workers in a medical factory, the domestic economy is increasingly important
Workers in a medical factory, the domestic economy is increasingly important

Right now, China’s core interest remains its modernisation drive, forcing other global issues like climate change, the shifting power centres in the international system, and even global economic governance to the side.

A retired senior Chinese diplomat acknowledged that, unlike before, China can have a real impact on world affairs. But first it needs to improve its knowledge of the world, understand the complex nature of problems, and then establish a model on how to deal with neighbours and others.

China’s leaders are quick to point out that its particular history, people, and journey dictate that the Chinese miracle model is not for export. At the same time, some argue that western democracies and the IMF’s structural adjustment programmes failed to come up with good models for developing countries.

They point to the need for strong leadership in a market economy, to understand the concrete conditions of the country, the needs of development and to mobilise the people in the right direction.

A fair number of students in Hong Kong currently disagree with that view. For most Chinese though, as long as the economic locomotive is still bringing growth, jobs, stability and higher living standards, democratic rights like freedom of expression and universal suffrage appear to take a back seat.

And the CPC is well aware of that. “We know which direction we’re going in, we’re building on reforms of the last 30 years,” said one Beijing official.

Today’s reforms throw a much wider net though, covering the economy, politics, culture, society, the environment, but also, the Party.

“Studying the CPC is key to opening the gates of China. Studying the reforms is key to looking at the future of the CPC,” he added.

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