Recently, our External Affairs Minister, Dr. S. Jaishankar, visited Kenya and discussed the bilateral relations between the two nations. Such sort of engagement may sound quite unusual to many because of Kenya’s demographics but keeping in mind the agricultural potential sub-Saharan Africa has, this move was seen as a step towards manipulating African land to satisfy the food demand of our population. But for India to strengthen its relations with African countries, it has to compete with one of the largest trading partners of the continent, China. We all know that China was devastated after the second World War but the picture has turned upside down in contemporary times. Being the second largest economy of the world today, China, as you can see in graph 1, has grabbed a substantial portion of International trade. Let’s try to analyze this 'journey' of Dragon from being an extreme poverty-struck country to a Global Giant.
Medieval to Modern
If we begin our inquiry from the medieval period of around the 11th century, we can observe that China didn't have any tendency of significant economic mobility. Even during the fourteenth and seventeenth century the Chinese population dropped by 30 million because of epidemics and change in regimes. Medieval China was home to instability with a similarly categorized per capita income. But towards the end of the seventeenth century and continuing till the commencement of the nineteenth century, China, under the Ch'ing dynasty, performed quite well. It showed a tremendous increase in population from 138 million to 381 million without a fall in living standards of people. Chinese GDP grew faster than that of Europe in the eighteenth century even though European per capita income rose by a quarter. In contrast to the same, China became home to rebellions and internal unrest in the nineteenth century, the biggest of them being the Taiping rebellion which lasted for 14 years and damaged China's central province. The next century incurred the most harm to the Dragon. Between World War I and 1937, various parts of China were afflicted by war, natural disasters, and the economic shocks by the international economic crisis of the 1930s and the final blow in the series was the Japanese invasion in 1937 which gave a great setback to its economy.
Marx and Smith
The Chinese Civil War, which started as early as in 1927 finally came to an end after the second World War in 1949, and thereafter established the People's Republic of China. Mao Zedong, with communist ideals of Karl Marx in his arsenal was set to lead the country for over two and a half decades. Mao followed the policy of centralization of the economic system and focused mainly on agriculture, since he believed that the agrarian sector would be pivotal in strengthening the economy. His Great Leap Forward brought about major reforms in the agricultural sector but were not able provide a strong push to the country's finances. Mao ended the "Chinese humiliation" but his Cultural Revolution (1966-1976) adversely affected the Chinese economy. When power came in the hands of Deng Xiaoping, who was influenced by the idea of Free Market Economy by Adam Smith, China witnessed a paradigm shift in its economic structure. One of the most critical moves by him was to set up special economic zones i.e., Shenzhen, Zhuhai, Xiamen and Shantou in 1979 on an experimental basis to check the feasibility of a capitalistic structured economy. The policies of Deng entirely shifted the system. With the opening up of the economy (Open Door Policy) and rising foreign investment, in 1997, the total tax revenue reached approximately 8.2 billion Yuan. The expansion of the economy is evident from the simple fact that the tax revenue in 1997 was 16 times greater than that of what it was in 1979. Astonished by the same, the International Monetary Fund (IMF) sent a research term in later-90s to examine the reasons behind such explosive growth of the Chinese economy and it was found out that one of the major factors for it was the increase in the productivity gains of China. The country, prior to 1978 had nearly four out of five Chinese in agriculture but post-reforms, by 1994, only one out of two did. Thus, this combination of Communist regime and its shift towards capitalism played a vital role in industrializing China.
The 2008 Crisis
In 2008, the world was hit by a financial crisis due to a crash in the housing market and many banks such as Northern Rock and Lehman Brothers went bankrupt. Various western models, like those of the United States of America and United Kingdom and Japan in the east were wrecked after the crisis as shown in the Graph 2. However, an interesting development took place during this crisis that was the shift of international focus from west to Asia. Investment manager Hugh Young said that, "It would be the start... of Asia looking away from the West, and it probably also accelerated the rise of China - which was going to happen anyhow - but now we see China playing on the global stage as big a role - arguably a bigger role - than even the US.” China wasn't completely aloof from the setbacks by the crisis but as professor Yu suggested, the Chinese government took swift actions and introduced a grand stimulus package which helped stabilize and revive the economy.
Xi Jinping and Free Flow of Capital
With the revival of the economy, China witnessed a major switch in its leadership, Xi Jinping. As Elizabeth C. Economy points out in her book titled The Third Revolution: Xi Jinping and the new Chinese state, that "one of the great paradoxes of China today, is Xi Jinping’s effort to position himself as a champion of globalization, while at the same time restricting the free flow of capital, information, and goods between China and the rest of the world.” Xi has reversed the policies of earlier governments, especially those initiated by Deng Xiaoping. Elizabeth argues that Xi has initiated his own "Third Revolution" in which the focus was on the dramatic centralization of authority and has built up a virtual wall of restriction and regulations which keeps the foreign companies out of the competition in China's market. Contrary to it, the country has focused on its manufacturing enterprises and have spontaneously become one of the world's biggest exporters. Because of the same, China has also been accused of violating the trade agreements of World Trade Organization and carrying out market-distorting practices. This ended up in extending the margins of China's economy but has adversely impacted the growth of other nations. The same is the cause behind China having 'Business Fakes' which are 'Made in China' versions of various Multinational Companies.
China Dream and BRI
The onset of Xi's rule was marked by a very common phrase, "China Dream" which was believed by many political analysts to be a vague term. The main idea behind using it was to gather more and more support from the people of China. Yet Liu Mingfu, a retired Chinese colonel, published a book called The China Dream: Great Power Thinking and Strategic Posture in the Post-American Era in 2010 in which he proposed that Xi's China Dream was to make China world's dominant power. Looking at this now, we can say that his statement would be the least contested one in the contemporary time. Alongside this wave of dream, Xi launched a very strategic policy called the Belt and Road Initiative which helped consolidate the grapple of dragons on the International Trade. It is a long-term policy and an investment whose main aim is infrastructural development and boosting of economy on the marks of the historic Silk Route which connected Europe and Africa to the easternmost regions of Asia. Experts see this as not only a step to dominate the Asian continent but also to develop new investment opportunities, cultivate export markets, and boost Chinese incomes and domestic consumption. This can clarify the implicit motives and future-sightedness of China's move towards Africa as well as the reason why it wants to control the south China sea.
COVID Pandemic and Predictions
The recent chapter that has been added in the series is of COVID-19 pandemic where China saw a major shrink in its economy. However, due to above mentioned reasons and centralized control, it was able to get its economy back on track but became a cause of uncertainty for many other world economies. The pandemic also had political implications for the Chinese government where it was able to showcase itself better than the west by showing how poorly developed countries have fared in containing the virus. Christopher A. McNally in his article on how COVID-19 can accelerate the Chinese economy argues that China may become a continent-sized consumer market. How China would perform post-COVID is a highly contested issue and has divided economists and political analysts. Yet it could be observed that the "Made in China 2025" initiative is materializing itself and paving the path for a more promising and stable economic growth of the country. Setting up ports in Sri Lanka, creating new special economic zones, connecting neighboring countries by roads and tunnels, growing pace of industrialization and strategically implementing its policies hints toward China's march toward realizing its dream to be a "World Manufacturing Power" by 2049. China is surely going to face certain impediments from "Build Back Better" of the US but quite certainly would continue to give fairly good combat to such policies and beef up its stake in the world.
By Nishant Kumar
1nishantkr@gmail.com
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