Pk_Thunder
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Lessons from China
Tuesday, 13 Jan, 2009 | 09:59 AM PST |
By Shahid Javed Burki
PAKISTAN is one of the three countries the other two being Bhutan and Nepal that border on the worlds two largest countries in terms of population size. And yet its economic relations with China and India remain weak.
I wrote about Pakistans economic relations with India last week, suggesting that it would be to the countrys advantage if economic contacts were to be established between the two neighbours. China will be the subject of todays article and those to follow over the next few weeks.
The space devoted to China can be justified on several grounds. There are lessons that Pakistan can learn from the way the Chinese were able to transform their economy. The remarkable change in the size and structure of the economy has affected its neighbours, including Pakistan. The countries in East Asia have benefited enormously. India is also pulling itself closer to the Chinese economy. Pakistan, unfortunately, has not benefited as much.Its economic leaders have not fully understood how the growth of the Chinese economy could be to their countrys advantage. Today I will describe how China turned its economy from the one managed entirely by the state to the one in which the private sector has begun to play an important role. There are lessons for Pakistan in the Chinese experience.
Chinas opening and reform programme was launched in 1987 by Deng Xiaoping when he established his leadership at the Third Plenum of the Communist Party. This was a remarkable comeback for an individual who had been banished to political wildernesses by Mao Zedong, the father of modern China. Mao died in 1976 and after two years of political uncertainty the Chinese turned to Deng to put the country back on track.
The new leader launched another revolution for China, abandoning traditional communism in the field of economics in favour of communism with Chinese characteristics. He told the Communist Party and through the party the people of China that it was glorious to be rich. That slogan must have made the embalmed body of Mao turn in his mausoleum. While entrepreneurship and individualism were to be encouraged in economics, in politics the Communist Party was to retain the monopoly of power it had enjoyed since it assumed control of the country in October 1949.
In economics, Deng launched an experiment that was unusual for a country of Chinas size. The country was to aim for high rates of economic growth by increasing its share in international markets. The export-led growth strategy had been followed successfully by the smaller miracle economies of East Asia. Korea, Taiwan, Hong Kong and Singapore had grown at double digit rates of GDP increase by selecting industries and lines of products that had expanding demand in the world particularly in the West.
For China to adopt the same strategy was particularly audacious since it meant claiming a very large share of global markets. Deng believed that it was possible for China to succeed by doing two things: by inviting foreign capital and technical know-how to the country and by locating export industries close to the ports.
Two years after launching his reform programme, Deng paid a visit to Shenzhen, near
Hong Kong. It was then a sleeping village with a population of a few thousand. He chose the village as Chinas first Special Economic Zone, the SEZ, and provided generous tax benefits to those wishing to invest. The government also provided the zone with world class physical infrastructure and built a motorway to connect it to Hong Kong across the border. Proximity to Hong Kong proved to be extraordinarily attractive. What was then a British colony it was to revert later to China was running out of space to expand its rapidly growing industrial base. It was also experiencing labour shortages. Shenzhen offered exactly what Hong Kong lacked: space and cheap labour. Soon the SEZ was a bustling industrial city. It now has thousands of factories and 10 million people.
Three types of investors flocked to Shenzhen. First to come were the overseas Chinese, initially from Hong Kong but subsequently from Singapore, Taiwan and Malaysia as well. They knew the language and also knew how to do business in what was once their homeland.
Once the overseas Chinese had established themselves in Shenzhen, western companies followed attracted by cheap labour, fiscal incentives and proximity to the port of Hong Kong. The Chinese private sector was the last to arrive in Shenzhen. It had been constrained by government regulations. Once freed of government control, the Chinese private sector quickly expanded in Shenzhen.
The Shenzhen model was replicated in other coastal areas of China. Several special economic zones were established along the countrys eastern shore. The sites chosen were close to the main ports and within easy distance to some of the countrys export markets.
The export-oriented growth strategy worked for the country: within a couple of decades, as a trading nation, China went from 27th in the world to the third place. By 2007, its trade surplus with the United States was larger than what Japan was able to achieve in the 1980s. Development of exports resulted in sharp increases in wages and incomes as tens of millions of Chinese left the countryside in search of better paying jobs in the industrial sector. In 1978, when China took the reform route, annual income per capita was still pitifully low at $190. Three decades of nearly 10 per cent annual growth increased it to $2500. China is now the worlds third largest economy.
Chinas phenomenal economic success, therefore, was the result of intelligent public policy. Although Mao Zedong damaged his country in several different ways by moving whimsically to keep his people on what he believed was the right track, he prepared the ground for the later rise of the country. He did this by doing away with unequal distribution of economic assets, in particular agricultural land; by bringing education and healthcare to all segments of the population; and by improving the social status of women. It was on the ground prepared by Mao that Deng was able to erect the modern Chinese economy.
What are the lessons in all of this for a country such as Pakistan? There are several. It is hard to succeed without starting with a reasonably equitable distribution of the asset base; without educating the entire population, including women; without concentrating on building a strong export sector; and without the leadership groups submerging their narrow interests in favour of the larger public good.
