How 40-year reform has paid off China in economic development
Written originally for China Pictorial, Beijing
Back in 2013, I was conducting a training module on Aviation Leadership for a newly-recruited, smart cohort of officers of Pakistan’s Civil Aviation Authority (CAA) at their residential campus in southern city of Hyderabad. Giving them a case of China’s Comac assigned to manufacture Chinese passenger planes in 10 years that beat 100-year-old Boeing and Airbus at their game, I asked if this capability was achievable in five-to-10 years. Most of them shook their heads, saying it was impossible. Someone said only if a miracle happens. And I said the miracle will happen. Indeed, the miracle happened. In May 2017, Comac-made C919 made its first test flight.
This is the story of China’s 40-year reform and opening up. Pick any area – from technology to education to culture – China has surprised the world.
In two areas – poverty reduction and economic development – China’s miracles are remarkable and unparalleled.
Taking 700 million out of poverty in four decades was unthinkable in the eyes of global economists and China defied their belief. Back in 1978, over 97 percent population was under extreme poverty; in 2018, only 3 percent (30 million) was accounted for as poor. This is nearly 20 million people each year coming out of poverty.
Let me concentrate for a few moments on China’s economic-development miracle.
In 1978, when the reform and opening up began with Deng Xiaoping speech and setting up of four SEZs, China’s share in the world economy was merely 1.75 percent, at $150 billion. In 2018, it rose to 15 percent of the world economy, making China the world’s second largest economy.
In the 40 years since reform, China beat all other countries by achieving the maximum growth in a 40-year period to the tune of 3,500 percent. This is unprecedented.
Since 2014 when China first overtook the US economy by GDP purchasing power parity (PPP), China has been leaving the US economy behind by nearly a trillion dollar every year.
With $23.2 trillion in size by PPP in 2018, China is now $4 trillion ahead of the US, currently at $19.4 trillion, according to World Data Atlas which monitors the global economies through a variety of indicators.
The US had been the world’s largest economy for over 140 years. In 1872, the US had deprived Britain, then the world’s largest economy, of this title. In 2014, China did the same for the US.
In terms of GDP Nominal, the US is still the largest economy in the world, with 2018 GDP at $19.4 trillion, compared with China’s $12.2 trillion.
In 1980, the US GDP PPP was $2.9 trillion, nearly 10 times more than China while China was at merely $306 billion that year.
Per capita income in China has increased 50-fold from $156 in 1978 to nearly $9,000 in 2018.
In 2018, China’s foreign trade volume exceeded $4 trillion, 200 times the size in 1978.
Since 2006, China has held the world’s largest foreign exchange reserves, which in 2018 stood at $3.15 trillion. In 1978, China’s foreign exchange reserves were at measly $170 million.
Other recent indicators of China’s economic rise
According to the 2018 Forbes ranking of world’s biggest public companies, five of world’s 10 biggest public companies are Chinese. Their ranking with market capitalisation:
1 ICBC $311 billion
2 China Construction Bank $261 billion
5 Agricultural Bank of China $184 billion
9 Bank of China $159 billion
10 Ping An Insurance (Group) Company of China $181 billion
Tech firms like Alibaba and TenCent are also among the largest conglomerates in the world.
Similarly, in 2016, four of the world’s 10 largest employers were Chinese organisations. Their ranking and number of employees:
2 PLA 2.3 million
6 China National Petroleum Corporation 1.6 million
7 State Grid Corporation of China 1.5 million
10 Foxconn 1.2 million
Another measure: Half of world’s top 20 container ports in 2018 were in China, according to Chinese Academy of Sciences (CAS) projections. Shanghai is world’s biggest container port, with 38.5 million TEUs.
Chinese tourists are already the world’s largest group of out-bound tourists. In 2016, they spent over $261 billion, 21 percent of the world market, according to United Nations World Tourism Organization.
How economic rise results in global influence
China’s economic rise has brought laurels to Chinese political leadership and President Xi Jinping is in the global spotlight. It also brought yuan into SDR basket of IMF currencies as the fifth global currency.
In 2018 annual ranking of The World’s Most Powerful People by American magazine, Forbes, President Xi Jinping seized the top spot.
This is for the first time ever that Xi clinched this spot, as Chinese CPC Congress removed term limits broadening his influence. Xi enjoys a cult of personality not seen since Chairman Mao, says Forbes.
Xi’s elevation to the world’s most powerful person unseated Russian President Vladimir Putin (#2), who held the top spot for an unprecedented four consecutive years. Putin has ruled Russia since May of 2000.
With the unprecedented economic development China could challenge the global financial system led by World Bank and IMF with influence from the USA. China-led AIIB and BRICS Development Bank are examples of initiatives that signaled to the world that China was not willing to stay as a bystander and it needed its centre-stage presence, not accorded to China thus far.
The 2013 Belt and Road Initiative connecting 68 countries in Asia, Africa and Europe and with connectivity and infrastructure projects worth over $1 trillion is a landmark initiative, many comparing it with Marshall Plan, the postwar reconstruction plan by US.
What other countries can learn from China?
The other countries in the world can learn a great deal from the China miracle. Countries like India and Pakistan, with very large populations below poverty line, can learn lessons from China’s anti-poverty mechanism and feed its people.
By using China speed of rapid growth, they can learn how to increase productivity and efficiency and create job opportunities for their massive semi-skilled and semi-literate workforce.
They can learn from China’s commitment to improve the business climate for small and medium enterprises, which could be backbone of economic growth.
Creating an export-led economy through special economic zones on the lines of Shenzhen and with initiates like ‘Made in China 2025’, they can pay off their global debt, create foreign exchange reserves and improve trade balance with other countries.
By creating sustainable GDP growth, these countries can become a market of choice for foreign direct investment (FDI) inflows. Since its opening up in 1978, China received $2 trillion worth of FDI amounts.
China’s strides in agriculture are worthy of replication in regional countries in Africa and Asia. The agricultural yield can increase and loss and waste can be reduced. China has shown the world that self-sufficient rural agriculture can be done and is sustainable.
Above all, these countries can learn that economic development is not a sprint, it’s a marathon. Only long-term sustainable economic policies with midcourse correction can yield results what China is reaping these years.
China’s future economic status
In November 2018, China is holding its first international import fair in Shanghai. With a new spotlight on imports, it is an indicator to the rest of the world that they can make goods and services for China’s rising middle class and the rich, who will have plenty of money to spend. In next five years, China is aiming to import $10 trillion worth of products and services.
With nearly $60 trillion in size, China will continue to be the world’s largest economy by GDP PPP in 2050, according to PwC, the world’s largest accounting firm.
With current GDP Nominal at $12 trillion in 2018, China is set to become the world’s largest economy by GDP within next decade.
According to a study by Citigroup Inc, ranking 32 in Fortune 500, China’s nominal GDP will reach $28 trillion by 2025 compared with $26 trillion for the US. This is based on anticipated growth rates and a gradual appreciation of the yuan to 5 per dollar from 6.8 now, says Citi.
According to Goldman Sachs, the world’s largest investment bank, China’s GDP will be at $53 trillion in 2050, nearly double the size of the US.
In years to come, 2018 could be viewed as a tipping point for global asset allocation, says a Bloomberg report. It says investors could send $3.36 trillion of new capital into China from abroad by 2025.
With China’s manifest desire to work with the other countries as partners and stakeholders, every country is going to benefit from China’s economic rise. This win-win is what the world needs.
Wali Zahid is a longtime China watcher and a Pakistan futurist. An award-winning journalist and formerly Editor of The News, Lahore, Pakistan’s largest-selling daily, he writes on issues of significance to Pakistan, CPEC & BRI and occasionally contributes to People’s Daily China, China Pictorial, Global Times. As President of Institute of Media and Communications (IMC), Wali was a high-level delegate at Belt & Road Forum in Beijing in May 2017. Twitter: @walizahid
Wali Zahid is a longtime China watcher and a Pakistan futurist. An award-winning journalist, he writes on issues of significance to Pakistan and CPEC & BRI.