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Why China Will Dominate Asia… And The World Omkar Goswami
Between 25 September and 11 October, two international magazines carried over a dozen major articles on China. The cover story of The Economist for its 25 September – 1 October issue involved the change of guard from Jiang Zemin to Hu Jintao. The special issue of Fortune for the fortnight ending 11 October was entirely devoted to “Inside the New China”, and consisted of 11 articles covering topics as varied as the Shanghai Auto Works, the rapid development of Chongqing, and the 100 million kids in China — the country’s Generation Next, who are called the “Little Emperors”. Then, the very next issue of The Economist carried a special survey on China, written by its economics editor Pam Woodall, and all of 19-pages long. It prompted a perceptive but utterly irreverent friend of mine to say, “It needs the someone like Narendra Modi for India to get that amount of coverage in less than three weeks.” At a recent conference in Vera Cruz, Ronnie Chan, a well known and much travelled entrepreneur from Hong Kong said that China has graduated to a new game. According to him, after a decade and a half of scorching growth, China is now solidly set to attract all the foreign investments it needs and more; accelerate the process of building world class infrastructure in the western provinces; further strengthen its awesome manufacturing prowess, especially in the interior; leverage its huge and rapidly growing domestic market; showcase Beijing Olympics 2008 to highlight the economic might of the country; further expand its trade with the ASEAN and APEC, especially Latin America; develop both in-bound and out-bound tourism; and rapidly create the platform for providing world class services, including IT and business process outsourcing. Chen concluded by saying two things. First, the best is yet to come, and one can’t even imagine the scale and speed at which it will come. And second, that soon China will be a major force in global geopolitics. Facts speak for themselves. According to the IMF, China’s GDP, measured in terms of purchasing power parity (PPP) was $6.5 trillion in 2003 — second only to that of the US at $11 trillion. As far as PPP goes, India doesn’t do too badly with a GDP of a bit under $3 trillion, or 46 per cent of China’s. However, the great differentiator is the growth rate. In 1978, China’s GDP was 28 per cent higher than India’s. Since the beginning of Deng Xiaoping’s reforms in the late 1970s, China’s GDP has grown at an average annual rate of 9.5 per cent, versus an average Indian growth of 5.8 per cent. Consequently, China’s national income today is almost 2.2 times that of India’s. In 1990, China’s share of world GDP growth (measured in PPP terms) was under 10 per cent. In 2003, it has increased to 32 per cent. In other words, almost a third of global income growth that one witnessed in 2003 was accounted for by China. If that isn’t a serious index of economic power then nothing is. The powers that be in China from Hu downwards realise that income inequalities have widened very rapidly between the eastern and southern seaboard one the one hand and the interior. They also understand that the greatest economic, social and political challenge facing the country is to generate rapid employment growth, especially for the poorer western provinces. Unlike many of our politicians, however, the Chinese don’t believe in empty employment guarantee schemes. Instead of offering silly placebos, they realise that employment increases only with sustained economic growth — and are therefore putting all the infrastructure and incentives needed to attract the maximum possible private sector investment in the interior. Consider just Three Gorges, the world’s largest hydroelectric project on the River Yangtze. When completed in 2009 at an estimated cost of around $25 billion, it will produce 10 per cent of China’s electricity. But that’s not all. The country has embarked on a $60 billion project called “South Waters North” — which, as the name suggests, will use a system of dams, canals and pipelines to divert excess water from the flood-prone southern and south-eastern parts of China to the arid north and west. Chinese policy-makers also realised long ago that high import tariffs are inimical to the growth of manufacturing as well as infrastructure. In 1992, China’s trade-weighted average customs duty was 41 per cent. Today, it is under 6 per cent which, according to The Economist, is lowest average tariff rate among all developing countries. Most key infrastructure inputs are imported at zero duty. Unlike South Korea, Japan or India, China chose to grow manufacturing through joint ventures and foreign direct investments. Last year, the country attracted $54 billion worth of FDI — after mopping up an average of over $45 billion per year for the previous ten. At a time when the Left and Indian capitalists are arguing in favour of retaining Press Note 18, it is worth noting that joint ventures with foreign companies are producing almost 30 per cent of China’s industrial products. According to Fortune, the CEOs of more than 40 major multinationals have already visited China in 2004.
Don’t even think of the “hard landing” that is supposed to occur because of “over heating”. Here’s my take. China will grow at an average of somewhere around 8.5 per cent per year right up to 2008 — and maybe at 8 per cent thereafter until 2015. By that year it will overtake Japan, at market exchange rates and without any PPP adjustment. It will very gradually tighten interest rates, but not at the cost of real economic growth. It will not let the yuan float upwards and hamper its international competitiveness. It will continue pouring money into infrastructure. It will continue to attract over $50 billion of FDI every year in the foreseeable future. At $851 billion, its trade in goods and services is about 8 times that of India — and that will grow at double digits. And it will be the world’s number one market for mobile phones, coal, steel, metals, television, personal computers, white goods, and agricultural and food products. The list is never ending.
China is and will be Asia’s prime and, after the US, the world’s second most important powerbase. If we tried hard enough, we could be the second in Asia. But for that we need to stop debating antediluvian nonsense and start adopting the Nike slogan: “Just do it”. China has. Why can’t we?
Published: Financial Express, October 2004
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