What's Next, China?
It is without argument that a new player has revealed itself on both the Asian and the world market. It is a new stem sprouting from one of the most ancient civilizations of the world. In the twenty-first century, it faces new challenges of growth and sustainable development. A series of political instability and class conflict between 1800 and 1950 completely hindered its economic progress. Since the birth of the Communist state in 1949, China’s rapid economic growth has been characterised by infrastructure investment and the integration of mass labour forces. Shortly following creation of the state, the Great Famine as a result of the Great Leap Forward as well as the Cultural Revolution crippled what was already a struggling nation on the world stage.
China pulled itself out of its lowest economic trench in 1978 when it quivered as one of the poorest nations in the world. (Zhu, 112) To do so, the Chinese government strongly subsidized traditional methods of industrialization including heavy machinery, steel production and real estate properties. As a result, the average growth in the annual GDP value sustained seven percent over the past three decades. (Husna, Rida) At the same time, many prominent sources of Chinese revenue are tightly regulated and with total state monopoly. Even today, the top ten highest grossing Chinese companies are state-owned. Examples include the oil giant Sinopec and the four largest Chinese banks topping the list of highest gross revenue year after year.
(Agarwal, Shreya) Beyond its dominance in Asia, the state-owned Industrial and Commercial Bank of China generated three point four trillion dollars in 2016, topping Forbes list of the World’s Largest Public Companies. (Agarwal, Shreya) The recent Chinese economy triggered great speculation for the future of the awoken giant. Despite rapid aggregate economic growth in the past decades, the Chinese economy has seen a gradual yet worrisome slowdown. Therefore, to ensure a stable and prosperous economic future, the state should innovate production, fortify property rights, diversify economic activity, and proactively resolve current development issues. Innovation is the word of the twenty-first century. Innovation in technology, medicine, engineering, food production and even energy sources redefines the modern era.
The United States is, without a doubt, the nexus for the new and the mesmerizing. However, behind the scenes of the lavish new iPhone or the breathtaking new PlayStation is the expense of millions of toiling workers. Made in China has become the most infamous non-brand related words to exist on Western consumer goods. The state has been attempting to replace imitation by innovation for years. Surprisingly, education and the cost of production are not barriers towards the ideal of popularizing the term “designed in China.” To explain, China’s competitive markets and consumer culture shifts motivation of innovation towards pricing, production and distribution.
(Andre, Thibauld) To foreign competitors, China may seem to lack originality. However, they are in a fierce dog-eat-dog firefight to both gain state subsidies and consumer interest. Thus, government funding should shift away from infrastructure and the state sector to focus on private development. China faces erosion of industries as low wage employment begins to migrate towards countries in South America and Southeastern Asia. It is time for China to move past focus on mobilizing mass labour and towards human capital based goods.
Investing in growth of the technology and service sectors is an appropriate decision today for sustainable industries tomorrow. Furthermore, Chinese technology is especially accused of unsavoury imitation. The Google equivalent of China, Baidu, is creating driverless cars currently in the stage of testing. Apple continues to condemn Xiaomi and Huawei on the topic of copyright. It is true China encounters untimeliness to pioneer innovation in comparison to the US or Europe. A limiting factor resides in the state’s policy which indirectly discourages innovative production. (Chibber, Kabir) For the future, investment innovation is a decision worth discovering for China. Human capital has reached capacities suitable for a reinvention of the Chinese reputation away from low-skill production.
Similar to private industries, government subsidies should be provided to deserving production. The race for a technological revolution of the future has begun and China should be quick to join the course. The Communist Party of China, when written in Chinese, entails a literal translation of the Party of Public Property. A legacy of Lenin, Marx and Mao, the communist economy has shifted focus of state-owned corporation towards private companies and foreign investment. With the private sector accounting for approximately two-thirds of the country’s GDP, the rules of the economic game has changed. (Zhu, 171) An important topic for the nation which deserves greater attention is the subject of economic property rights.
Protection of rights for the over nine million private corporations with capital over eleven trillion dollars is crucial for future growth. (Feng, Xingyuan) Multiple amendments in years 1982, 1988 and 2004 of the national constitution created support for individually owned corporations. (Feng, Xingyuan) In rural communities, property rights can effectively empower those in the agricultural or textile industry towards expansion. For example, the growth of the cotton industry during the late nineteenth century paralleled he government’s gradual recognition of land and factory ownership rights. Nevertheless, the collectivisation system during Mao’s reign leaves a legacy that counters individual property rights for many rural communities.
The development of urban communities has pressured rural land rights and often lead to friction. Farmers are compensated meager amounts for the highly biased negotiations of land ownership. In the future, rights of those who live in rural communities must be taken into account. Expansion of urban landscapes is only sustainable with cooperation of resources and economic activity of countryside. This is especially true in China where an enormous portion of the population live outside of urban areas, property rights should not be taken for granted. Government and fiscal transparency should be also highly promoted to benefit businesses.
Confidence in the state and solidified property rights will drive China towards higher productivity and growth. A facade of party ownership and socialism has become irrelevant in modern day China and quickly replaced by capital-based systems. For the resilience of the nation to endure future challenges, property rights must be a mandate supported by the state, trusted by the people and quintessential to all corporate entities. Globalization of trade and investment has undeniably diversified the Chinese market in the past decades. Both domestic entrepreneurial activity and foreign investment brought inflows of capital and assets at an exponential rate. This is growth which China has never seen before.
In fact, it is not long since the Chinese government released consent for domestic private corporations to flourish. In 1997, the 15th Congress of the Chinese Communist Party officially announced the legalization of private corporations. (Zhu, 117) From 1998 to 2007, the percentage of domestic workers employed by private corporations and international enterprises grew from 8% to 24%.(117) The total factor productivity growth rate was 13.4% during the same time period as a result of liberalized trade and private production.
(117) Also in 2007, the domestic private corporation employed 51% of people in urban areas.(117) During this era, even though the Chinese government allowed selective privatization, services in urban areas of 2007 remained 77% state owned. It can be observed that privatization of China’s economic system stimulated growth. Thus, industrial privatization should be another strategy towards the long term progression of the Chinese economy. Over the past year, the amount of private enterprises increased by 45% and the private sector generating 60% of the Chinese GDP. (Macquarie, 1) The epitome of a globally successful private Chinese corporation is Alibaba Holdings, with assets over 150 billion dollars in 2016.
(Ranasinghe, 1) With technology and free trade becoming cheaper and more convenient, e-commerce companies can become economic spearheads of the future. Beyond growth of industries, the Chinese banking industry is another channel towards economic stability. In 2006, China announced a series of regulations on foreign investment in state-owned banks, marking its initial state of complete openness. (Yin, 3) In order to escape from previous investment and labour capital lead economy, privatization and financial liberalization goes hand in hand. From these factors, it is crucial for China to move towards a sustainable consumption and service based economy.
To achieve this, the state should work together with banks should actively fund successful private corporations. As a result of these financial and corporate adjustments, the Chinese economy can diversify and heighten productivity for an edge on the world stage. The future of the Chinese economy has been and continue to be a topic of vigorous debate and controversy. International economic analysts and experts has speculated for both boom and bust for the rapidly emerging nation. Amidst the arguments, one claim remains evident; the Chinese GDP is likely to become the world’s largest in the upcoming decades. Despite the projected growth, China still retains numerous issues as residue of the arguably unsustainable development of the recent past.
Environmental concerns, income inequality, corruption, healthcare remain relevant and at times undermined concerns for the over a billion Chinese. These are all issues which require attention and great exposure within the public and more transparently resolved by the government. Currently, the Chinese GDP per capita remains one fifth of the level of the United States of America. It is evident that improving productivity is an asset that can shape China towards becoming the next great world superpower. Whether or not China’s GDP per capita will reach half, three quarters or even double of the U.
S level depends on both state control and private corporations, domestic and abroad. It is speculated that China’s total factor productivity can grow a further thirty percent from its rate of thirteen percent in ratio to the United States. (Zhu, 121) This hypothetical claim relies upon effective elimination in distortions and inefficiencies in production. However, the possibility of said proposal remains drastically difficult. To request government investment into the private sector is much more difficult in comparison to funding for public infrastructure, water, education or entertainment projects.
(121) China in recent years has changed economy policy without the reciprocation of updating political outlines. The Party either possesses or outsources total monopolies of industries, leading to corruption and palpable income inequality. Another argument of negativity for China’s economic activity is on the aging population. The One Child Policy has steered the nation towards an era of reduced young and working individuals. However, with the country’s debt amounting to over 280% of its GDP, the state must partake meticulous action for the welfare of this generation most effected by influx in the economy. In short, China faces a myriad of challenges in the twenty-first century as all eyes turn to the financial elephant, expecting both boom and at times, total bust.
China’s recent economic development headed towards a direction away from populist theory and installed focus on significant figures who drive change. The unusual communist-capitalist hybrid has created a market with great potential. In the next decade, as China’s GDP is forecasted to lose momentum, action is needed. Guiding the economy towards stable growth will not be an easy task. Compromise between foreign and domestic markets, state and private sectors as well as service and production industries throws China in a juggling act. It is crucial to state however, the Chinese economic productivity level is far from the level of European nations or the U.
S. Productivity is projected to grow to only 40% of that of the U.S in the next two decades of successful development. (Zhu, 171) When China reaches those levels, the state of world economics could encounter entirely new challenges to face. Therefore, with policies proposed previously, the Communist state should reform production, fortify property rights, diversify economic activity and proactively resolve current development issues.
The world of the twenty-first century is one of extraordinary interconnectedness, but also tremendous interdependency. The Chinese economy is one of incredible potential and can drive the world into success or send the world into recession. Thus, the question must be asked. What’s next, China?