Strategy and Ideology
[lo_drop_caps style=”square-light” tag=””]With entry as participant observer to deeply focus on the nature and make-up of markets in different parts of China I am somehow able to streamline the strategy and ideology of this nation has religiously followed and adopted in accomplishing an incredible feat in transforming itself from one of the world’s poorest countries to reaching second largest economy in just 30 years. Although the ingredients of its successful development are far from established or deeply understood.[/lo_drop_caps] With current heated debate all-round the cause and path of China’s slowdown is worth focusing. It is of significance to study the evidences that reveals Chinese economy growth in the past and what are the factors that it will keep it going in future as well.
The International Monetary Fund (IMF), the most prestigious international financial institution in the world, has rated China’s ranking to number one economic superpower in the world — surpassing those of the United States based upon the purchasing power parity of GDP indicator (gross domestic product). IMF has asserted that China produced 17% of the world gross domestic product (GDP) in 2014 exceeding U.SA’s GDP of world’s 16%.
The genesis of China’s remarkable upswing in a relatively short span of time goes back more than five decades to 1948 when China emerged an independent state after World War II upon the defeat of Japan by the United States. China’s leadership was divided between Chairman Mao Zedong’s communist party and Chiang Kai-shek’s Kuomintang regime raising concern of a pending civil war.
To China’s good luck, the two leaders’ views merged and a coalition government was formed. The absence of a civil war and the peaceful political transition of leadership largely explain the remarkable rise of China’s political and economic fortunes. China’s political system is not colossal, or massive, it has worked under a seven-member Politburo Standing Committee of party congress. Political leadership is elected every five years.
The second major influence that explains China’s good luck is its decision to open up to the free world and get out of the Soviet sphere of influence. It was prompted in the 1960s when President Richard M. Nixon sought reproachment with China and sent his Secretary of State Henry Kissinger to China who arranged a personal visit by President Nixon with China’s leadership. The approach turned out to be very successful. It got China out of the sphere of Soviet Union’s influence, paved the way for China to open up to the Western world, and the rest of the world, and eventually modify its system of political economy to a very unique system of private enterprise market economy and a one-party political system.
Following is a synopsis of China’s economic, political and social framework to predict well for its continued development and leadership, and provide a blueprint for other nations to emulate especially Pakistan.
The transition of leadership in China has been remarkably peaceful and smooth. As can be seen Deng Xiao Ping adopted market economy in December 1978. Deng Xiaoping (1978-1987) was instrumental and responsible for modernization and reform. Premier Zhu Rong Ji (1988-2003) paved the way for China’s entry into World Trade Organization (WTO). President Jiang Zemin (1993-2003), theory of promoting business and entrepreneurial class into the country’s one-party system, helped China’s economic expansion. Current president Xi Jinping launched the economic development of the silk route countries, clamped down on corruption by rooting out high party members and military brass, has launched a rural development program to close distributional and development gaps, and promote social equity. The economic innovation in China started in the early eighties beginning with Deng Xiaoping through Hujintao implementing innovative economic policies which lifted China’s sluggish economy by introducing private ownership, market economy, and less governmental control contributing to robust economic performance.
Beginning in early 1980s, China shifted its economic strategy from self-sufficiency to export orientation. The shift was pivotal to the growth rate of China’s GNP. Concurrently, China is building its domestic consumer sector so that in the future it will have a strong and well-developed domestic market. The multi-billion dollar natural gas contract with Russia in May of 2014 will be a major plus for China’s energy demand. China’s drive for the development of non-fossil fuel under its twelfth five-year plan could make it a world leader in energy exports and offer unmatchable prices on alternative energy in the world market contributing to convergence of per capita income of the silk rout countries.
China’s one-child policy and its recent modification have been optimal given the absolute number and the possibility of population trap. Successful control of fertility rate (number of children per women) is the hallmark of optimal population and determinant of China’s long-term growth potential and carrying capacity. Since 1978, China has uplifted millions of peasants out of poverty and it has been the most successful country in the world in poverty reduction. China will deserve very high marks for its social indictor and distributional objectives.
Furthermore, altruism, social cognition, equity, equality, egalitarian motives, public service and economic growth are the hallmark of China’s leadership pronouncements. The duel system of one political party and free competitive market economy characterize China’s unique socio-economic-political system.
The foregoing is indicative that China is embarking in a distinctly alternative approach of inter-governmental collaboration and connectivity to promote economic catch-up of low and middle income countries that are located in the path of Silk Road.
Pakistan possesses a golden opportunity for doing industrialization in the context of CPEC but the country will have to align its policies to attract light machine industry for relocation purposes from China as incentives on papers will not work. The government of Pakistan will have to ensure comparative advantages and taking care of reducing the transaction cost for reaping benefits of industrial cooperation under the CPEC initiatives.
Pakistan would have to move from agro based economy to industrialization for accelerating economic activities. However, this structural transformation would not happen extemporaneously, so the government would have to ensure industrial up gradation for maximising benefits.
Moreover, a new industrial policy is required to transform the economy in order to ensure infrastructure of hard-core and soft-core development. Most developing countries, failed to achieve the desired results despite unveiling industrial policy because they remained unable to ensure comparative advantages which lead to misallocation of resources and end up with corruption and rent seeking behaviour.
According to my study and analysis I propose six major steps as pre-requisites to ensure industrialisation in the country. The first step would be achieving higher growth path by transforming the structure of the economy and the second step would be placing upgrading the infrastructure. Third required step would be inviting foreign direct investment where there is comparative advantage and fourth step will be scaling up private innovations. Under fifth step, the industry could be used to overcome barrier to entry, attracting FDI and establishing industrial clusters. The sixth required step will be providing tax incentives, direct credits for investment and access to foreign exchange.
In my view, if we patterned Chinese economy through above six ingredients formulation in Pakistan economy it will help it to grow and prosperous by 2030.