The most spectacular economic miracle has been flying under the radar for two decades now, but its impact will be universally acknowledged very soon. This is the story of China. The flip side of that miracle is a coalition of a superpower and former empires, straddled with shrinking middle class, rising debt and dwindling hegemony. This is the story of America and Europe. Let’s take a look at these stories and see how they’re intertwined.
Most people still think of China as a “communist,” polluted, poor country that either makes cheap stuff or assembles expensive products for western corporations. In terms of GDP per capita, China is ranked 70th in the world, below many Latin American countries. And there are 40 million Chinese who live on less than $2 a day.
However, 87% of Chinese say their country is going in the right direction (that number is 43% for America). Why? Without much fanfare, China has become a global powerhouse. China’s GDP is now the 2nd largest in the world. China is also #1 in the world in foreign-exchange reserves – worth more than $3 trillion, including $1.2 trillion of U.S. treasury bonds. Can’t be that poor, right?
If you had shown the chart below to experts back in 1992, they would’ve laughed at you! China’s growth in the last 25 years is simply astounding.
China’s GDP growth comes not from casino capitalism but labor-intensive production of tangible goods. Rather than cheap t-shirts, China’s top three exports now are computers, TVs and smartphones. Here’s China’s astonishing growth in exports over the years, compared to the U.S.:
Thus it’s no wonder that China is #1 in world trade, #1 in exports, #2 in imports, and #2 in stock market valuation ($7 trillion). What do USA, Germany, Australia, Japan, South Korea, India, Saudi Arabia, Qatar, Brazil and 100+ other countries have in common? Their #1 trading partner is China.
China has become the king of infrastructure. Between 2011 and 2013, China used more cement than America did in entire 20th century! It now has 12 out of Top 25 tallest buildings (U.S. has 4). In the last three years, China built 200 skyscrapers (U.S. built 12). To link all the major industrial regions of China, there are 14,000 miles of high-speed railway lines where the fastest trains in the world fly by at 220 mph.
China has become the undisputed leader in green energy. It’s #1 in manufacturing of solar panels (producing 2/3rd of solar panels in the world). In 2017, it will install 4 times as much solar power as the U.S. China is also #1 in wind energy, installing on the average one new wind turbine every hour, and it is #1 in production of electric cars. China makes electric scooters and electric buses (those that run purely on batteries). There are also hydrogen-powered trams whose only emission is water!
Technology and other areas
From assembling iPhones for $1 an hour, China has become a global leader in smartphones. Four Chinese companies – Huawei, Oppo, Xiaomi and Vivo – combined have twice the global market share as Apple.
Chinese hi-tech startups are also proving their mettle in innovation. There are now 96 “unicorns” in China – startups that are valued at $1 billion or more. China’s venture capital fundraising is now almost as big as the U.S.
China has eagerly embraced acquisitions and corporate investments. Last year alone, it invested about $250 billion in the U.S. In a reversal of roles, China is building manufacturing plants in the U.S. and employing Americans. For example, GM had closed a manufacturing plant in Ohio in 2008; a Chinese company reopened it and now employs 2,000 people! In California, a Chinese company – BYD – has a factory to build 1,500 electric buses every year. There are now more than 140,000 Americans who are employed by China-affiliated companies.
In the last few years, China has bought many valuable brand names such as Volvo, Motorola, GE appliances, Lenovo, Hoover U.S., Waldorf Astoria, Radisson Hotels, Club Med, Syngenta, Smithfield Foods, AMC Theaters etc. In Europe, Chinese companies have bought soccer clubs (such as AC Milan), retail stores, luxury clothing brands, pharmacy chains, hotels, robotics companies and more.
How did they do it?
The quick answer that many people give is China copies everything. If it were that easy, many other countries would’ve done it. In 1981, more than 88% of Chinese lived under $2/day. Today, China has the largest middle class in the world, more than 300 billionaires, and 2 million millionaire households. As for extreme poverty, it has now been reduced to 4%.
It may come as a surprise to many that China had one of the highest GDP in the world for 1800 years. They became poor only when the British colonized India and then brought China down using opium. In China, the period between 1840 and 1940 is called the Century of Humiliation.
Make and sell; save and invest
To make China great again, Chinese leaders and the people understood they had to start small. Thus they first made deals with the West to manufacture low-end products. Then they offered 50-50 partnership for western corporations to open manufacturing plants for cars and computers. This meant Chinese workers could become engineers, managers and accountants rather than remain as laborers in an assembly line.
While Americans were told to consume, consume and consume … Chinese were told to invest, invest, invest.
In the last twenty years, China exported $5 trillion worth of goods to America, while importing only $1 trillion. They worked hard and we sent them IOUs. The result is seen in the picture below:
In China, government and corporations are also strongly interlinked. This means that the government can set specific goals for corporations, as well as provide massive subsidies and bailouts. They call it the “socialist system with Chinese characteristics.” Although this system has many inherent problems, it has worked so far.
Rising humbly & harmoniously
To avoid conflicts with established world powers, China shared its profits with western oligarchs and corporations. These western elites, driven by short-term thinking and greed, quickly outsourced as many American and European jobs as possible. For the bean counters in the west, a Chinese worker who works for $10/hr is obviously a better choice than an American who demands $40/hr. For an American investment bank which facilitates mergers and acquisitions, it makes no difference if a Chinese company buys an American company or vice versa.
China never challenged America’s military-industrial-media complex (unlike Putin). Playing defensive, it focused on creating partnerships – BRICS (Brazil, Russia, India, China, South Africa) being a good example. Harmony has been an important concept in Confucianism for 2500 years.
While the U.S. bombed Iraq, Libya and Syria, China is lending $45 billion of its own money and expertise to build a new capital for Egypt – Libya’s neighbor. In fact, since 2000, China has given almost as much foreign aid as the U.S.
Throughout Africa, China has adopted a win-win approach. While buying natural resources from Africa, China has also spent a lot of money building Africa’s infrastructure. A recent McKinsey report shows that there are over 10,000 Chinese companies in Africa, creating millions of good jobs for Africans. Compare that to the U.S., which builds military bases all over Africa.
China has become the #1 exporter to EU. Every day, numerous freight trains leave China with tens of millions of dollars of goods to be delivered to 15 different major European cities.
Beyond selling goods, China is also involved in various projects all over Europe – building a nuclear power plant in the U.K., joint venture with France to build electric SUVs, construction of an industrial park in Serbia, funding a massive health care center in Spain that would combine Chinese and western medicine, partnering with Poland to launch a satellite, and much more.
While analyzing China’s success, the cultural aspect certainly cannot be ignored. Hard work, discipline, sacrifice, moderation, shared values, focus on education, saving money, and investing for the future are all deeply ingrained in the Asian/Chinese culture.
China’s top leaders have a vision of greatness for their country. President Xi Jinping describes this vision as the “rejuvenation of China” and the “China Dream” for the “New Era.” In the 1990’s, Chinese elites could have simply enriched themselves by turning the country into a giant pool of cheap laborers for the West. Instead, China’s leaders took the patriotic but challenging route.
Geopolitical experts in the 1990’s never expected China to become a global power. Now, China is recreating its ancient Silk Road. Only this time, it’s called Belt and Road Initiative and it involves China spending $1 trillion in 67 other countries to build all kinds of infrastructure – highways, railways, sea ports, airports, pipelines, hydroelectric dams and so on.
By 2030, China is projected to overtake the U.S. in nominal GDP. China still lags behind the U.S. in military, several key technologies, soft power, currency hegemony (petrodollar) and in the general concept of innovation. However, one would be gravely mistaken to assume that the advantage would last for long. The 21st century might very well be defined by the ascendant Chinese dream.