I’m off on holiday today so this will be my last post until September 8th.
The last post? Sounds like we need a bugle call on that one!
Anyways, I normally have a rant or a joke when I’m blogging, but this is a little more serious as it’s a thought piece.
The thought: whatever you think about China, our future is with the Chinese.
I was prompted to do this one because I’ve enjoyed the last two weeks magnificent, opulent, extravagant and exuberant Beijing Olympics.
We all know that China is an economic force to be reckoned with, and any nation that can spend almost $40 billion on the Olympics is demonstrating its clout.
I thought the Olympic spectacle was wonderful, the Chinese hospitality magnificent and the opening and closing ceremonies amazing. The only downside is that I’ve had many arguments with my family over the past two weeks, because we sit on two sides of the fence.
They bang on about China’s human rights record, Tibet, censorship and so on. I respond by saying “at least China is here”.
Yes, the human rights record, Tibet, the situation in Xinjiang with the Uighurs and more are major concerns. I’m not discounting them.
On the other hand, I cannot help thinking it’s just our media and our world having a go at China for opening up to the world’s scrutiny.
I try to persuade my family that the very fact that China is being called into account on these issues whilst, at the same time, hosting an Olympics and economic revival that will make them the next United States for the 21st Century, means that things are changing.
Slowly, but they are changing.
I mean c’mon, it is less than a quarter of century ago since China started to talk to the West, let alone joining us in competitive Games. A quarter of a century ago, who would have even thought of China being at the Olympics?
From 1958 to 1980, China boycotted the Games because of the representation of Taiwan. It was not until 1984 that China reappeared at the summer Olympics, thanks to the vision of Deng Xiaoping.
Deng Xiaoping’s vision was far wider than getting China back into the world stage of sports however, and it is down to his leadership period that China has enjoyed such resurgence economically, politically, socially and generally.
This vision carefully steered China away from an economy that involved central planning and was closed to international trade, into a thriving market-oriented economy that could compete on the global stage and win.
Deng Xiaoping’s Government carefully removed many of the centralised control structures that were central to Chairman Mao’s Communist ideals including collectivised agriculture; fixed prices; centralised taxation policies; the nationalisation, ownership and control of all State Owned Enterprises (SOE’s); and so on. This has led to the double digit growth phenomena China has enjoyed for the last decade culminating in these fantastic Games.
It has culminated in some other interesting phenomena too.
For example, why do the Chinese save so much?
This is a question asked regularly, and is a very pertinent question to ask again.
During the explosive growth in China from 2000 onwards, hardly any of it has been consumer or debt-driven, unlike the USA and parts of Europe. It has been far more fuelled by exports and investments by the Government.
The Government investments are clear. Just look at the $40 billion spent on the Olympic Games, or the$125 billion spent on 70 major infrastructure projects in Western China from 2000 to 2005, such as the Three Gorges Dam, and the world’s highest railroad, the Qinghai Tibet railway.
This level of investment is partly possible because the banks of China are awash with people’s savings. Chinese citizens hoard about quarter of their income as savings, allowing the Government to invest a massive amount internally, reaching up to 40% of GDP per annum. This is why the Government has never had a current account deficit.
Why do the Chinese save so much?
As mentioned, the average Chinese person saves a quarter of their income. Compare that with America where one-third of citizens live paycheck to paycheck.
Why are these nations so different?
Because America’s lived in a society of commerce and capitalism for a century and, with a booming economy, credit was easy to find. The average American carries 13 credit and debit cards for this reason.
Chinese citizens have not seen such an opening of lines of credit but, with a booming economy, this may change. But will it? We all talk about a billion new consumers of credit cards in the near future, most of them in the BRIC economies, but do the Chinese want credit cards, loans and mortgages?
It appears not.
Chinese citizens would rather hoard their money away and save it. That’s the culture.
This is because Chinese folks worry about more basic issues of health, education, unemployment and similar needs, as the State moves from managed services to privatised services. These were all historically state controlled and managed, but are moving towards self-funding.
It's also because of the Planned Birth Policy. When China was faced with a runaway population issue in the 1970's, Deng Xiaoping Government introduced the Planned Birth Policy in 1979. This policy instructed familites to only have one-child. The result is 300 million less Chinese born in the last two decades than would have been if this policy had not been introduced.
With an aging population, and only one child in each family to support them, this has resulted in a mad, keen focus upon saving. It's to make sure that they can:
* look after themselves if anything untoward happens, such as unemployment or poor health,
* have one child educated brilliantly, and
* ensure ageing and unwell parents are well-looked after.
These things stress most folks out … especially those of us in the UK and America right now.
If, as many commentators are commenting, the Chinese citizen is that worried about all these factors then you have one other stir of the waters at work out there that may just stress them out even more.
China’s GDP growth has been phenomenal.
From 1978 to 2003, China's GDP increased from US$147.3 billion to over US$1.4 trillion, with an average annual increase rate of 9.4%; its total foreign trade volume grew from US$20.6 billion to US$851.2 billion, with an average annual growth rate of 16.1%; and the poverty-stricken population in the rural area dropped from 250 million to about 29 million.
If this ceaseless, relentless, juggernaut of growth slows or comes to a stop, then we have a problem. It is for this reason that I believe I am seeing several Western pundits starting to write about China’s growth coming to a halt.
The problem is that America is in the doldrums, Europe seems to be moving that way, and everyone hopes that China and the Asian economies will pull us all out of these doldrums.
If they cannot, then what becomes of us?
So what the global credit crunch really comes down to is a focus upon this new form of Chinese Capitalism, which is carefully managing the transition from a State-run economy to a Commercial economy.
This new form of Chinese relationship, where we encourage with one hand whilst crossing our fingers with the other in the hope that they will do the right thing.
This new form of Chinese Government, who are overseeing the gradual movement of funds from the State to the People, and from Eastern China’s wealthy cities to Western China’s poorest neighbours.
This is the biggest socio-economic reconstruction project the world will ever see and, for all of our moaning about the Chinese record of abuses, we should also consider China’s re-engineering for future glories.
Their vision of a glorious future is a fragile one right now, as they privatize and transition from State to Commerce. I, for one, just watch with amazement at how rapidly it is happening.