Key Messages
How China’S Meteoric Economic Rise Changed The World
The US has watched in shock as China has become an economic powerhouse in only a few short decades.
How did this happen, and what does it mean for the US? In this section, you’ll discover the secrets behind China’s meteoric rise to economic prominence.
You’ll learn about the steps taken to transform a centralized, communist economy into one that isn’t reliant on foreign investment; and how the US has shifted its communication strategy toward China.
You’ll also explore why it is impossible to ignore the internal political issues within China, as well as some of the speedbumps encountered by their extraordinary rise.
We’ll delve into the reasons why Chinese universities were ineffective at producing good business managers; how California’s coastline depends on Chinese markets; and what made Chinese banks and oil companies competitive in international markets.
By understanding these factors, we can better comprehend the magnitude of China’s economic success – and what these changes will mean for US interests around the world.
China’S Unprecedented Economic Growth Is Powered By Western Ideas And Entrepreneurship
China’s unprecedented economic growth is the result of some major reforms that were implemented in the late 1970s.
These reforms were initiated by Deng Xiaoping who was the leader after the death of Chairman Mao Zedong in 1976.
His mission was to open China up to the global economy.
This allowed Chinese citizens access to more economic opportunities, and countless people began to rise out of poverty within a few short years.
The GDP also saw tremendous growth, increasing by 10% per year, on average.
One of the key policies that contributed to this growth was granting state-owned enterprises more autonomy regarding goods and services being sold on the open market with flexible pricing.
This offered people business opportunities previously unavailable and led to them forming new companies for themselves.
Additionally, special economic zones fueled innovation and allowed foreign and domestic businesses to access lower taxes, eased imports/exports regulations and made foreign investments simpler, thus contributing significantly to China’s unrivalled growth.
The Privatization Of China’S Telecom Sector Transformed The Industry For The Better
The restructuring of the telecom industry was an integral part of China’s economic modernization efforts.
It all began with the privatization initiatives encouraged by influential global events, like Margaret Thatcher’s deregulation and privatization in the United Kingdom between 1985 and 1990.
This set in motion a godsend for many state-owned companies that were run inefficiently with too much debt burden by the mid-1990s.
By selling their shares to public and international companies, capital was raised which improved SOEs as they now had to adhere to global accounting standards.
The initial sector to go through this restructuring process was the telecom industry and led by SOE China Telecom which spent more than $35 billion between 1992 and 1996 on infrastructure – which increased fixed telephone lines from 11.5 to 55 million users throughout the country.
However, this proved to be practically draining as infrastructure needs far outweighed revenue generated from national telecom companies themselves.
To tackle this issue, the 1996 Deutsche Telekom $14 billion revenue raising act acted as a blueprint for China Telecom’s IPO that sought to raise $2 billion in October 1997 – but ended up tripling their targets by generating a projected $4.2 billion instead!
This allowed free competition across many now privately-run telecommunication entities where only once used to be one corporation monopolizing the industry; a key step forward in modernizing China’s economy at large.
The Privatization Of China Telecom Was Successful, But Its Effects On The Labor Market Were Damaging
The restructuring of China’s oil sector reflects the complex, costly and far from smooth economic ascent of the country.
After the successful privatization of China Telecom, reforming the oil sector was next in line.
At the time, it suffered from high inefficiency and an outdated workforce model – with 1.5 million active workers when BP had only 80,000!
Despite all efforts to reform CNPC, macroeconomic challenges posed a great difficulty: The Asian financial crisis blowed up demand while global oil prices sunk to their lowest levels since 1973.
The organization was eventually re-branded into PetroChina, while two thirds of its employees were laid off in a bid to reduce cost and make it competitive on the international market.
Not surprisingly, this left many of them jobless with severance pay too little to live on, leading to widespread protests in China as well as abroad.
That said, based on this case we can conclude that China’s economic modernisation is not always an effortless one and does come with major costs for workers who are displaced by corporate restructuring – very often without any choice or adequate compensation.
China Transforms Its Banking And Education Sectors To Adapt To The Global Marketplace
In order to become compatible with the global marketplace, China needed to reform both its banking sector and its educational system.
To make Chinese universities better suited to educating capable managers, Premier Zhu Rongji asked the author to evaluate Tsinghua University – the ‘MIT of China’.
The new executive program proposed focused on shifting towards case study-based education and thinking for yourself, rather than relying on theory.
As a result, over 50,000 people have gone through Tsinghua’s executive training programs since 2001.
The banking sector was in need of restructuring as well.
The government set up four state-owned banks that were meant to offer competition and therefore create efficiency.
But these banks gave out loans that were often unsound, leading to a massive increase in bad debt which threatened the entire economy.
How China Can Avoid An Economic Meltdown And Tackle Environmental Degradation
China needs more than just economic reform in order to build a sustainable economy.
There are several areas where the nation must take action to ensure that it is prepared for the future.
One of these is political reform.
The current system of government in China is centered on a political body, the Communist Party, which controls hiring and firing executives at State-owned Enterprises (SOEs).
This makes it difficult for SOEs to compete effectively in the market and manage debt in their region.
Therefore, it’s imperative that greater autonomy be granted to these institutions so they can operate on commercial principles and manage their debt responsibly.
In addition, environmental regulations need to be implemented by the Chinese government if they want to move towards sustainability.
Pollution levels in certain areas of China have reached hazardous levels; water sources have become undrinkable due to pollution and groundwater reserves are nearly depleted.
In order for China to protect its environment and preserve its resources, energy efficient technology must be adopted – this requires financial assistance from external organizations such as The Paulson Institute which focuses on promoting urban sustainability and mapping biodiversity in wetland areas across China.
Broad political reform will give China a better chance of achieving economic stability while simultaneously protecting its environment from degradation.
It’s up to global powers lend their expertise and resources so that this goal may be achieved.
How The Strategic Economic Dialogue Improved Us-China Relations
In order to foster better relations between the US and China, communication needed to be improved.
To that end, the Strategic Economic Dialogue (SED) was created in 2006 by President George W.
Bush and Chinese President Hu Jintao as a series of meetings designed to strengthen dialogue between the two countries.
Before this, high-level Chinese officials met with different US cabinet members to discuss various issues; however, these talks had been quite unstable due to inconsistent messages from each cabinet member.
To ensure more effective communication, a single representative was appointed to coordinate the conversations between the two countries – Bush nominated author Kenneth Lieberthal as the first person for this role.
The SED helped facilitate solutions and compromises on trade relations which had been a difficult topic for years prior.
This included allowing US stock markets access to China and negotiating for increased US carrier flights within China.
It also managed to create financing options that would support US exports in China which was an important step towards progress between these two nations.
The Benefits Of Having A Strategic Relationship With China
When it comes to today’s global issues, the US and China must work together in order to make any real progress.
Despite their differences in terms of scale and culture, both nations have a common interest in creating a better future for everyone involved.
For example, a recent National Academy of Sciences study showed that around 25% of the sulfate pollution on the US West Coast could be linked to Chinese manufacturers, thus raising questions about why Americans should support such strong competitors.
The simple answer is that Chinese issues are also global issues and therefore require cooperation between the two powers.
Despite this fact, cooperation between these two countries goes beyond just helping each other out, but extends into investment as well.
In 2013 alone, Chinese investment in the United States almost doubled from its 2012 figures to reach $14 billion across several sectors such as agribusiness, real estate etc., which has offered great growth opportunities for both economies.
This relationship received further evidence when Wanxiang Group (China’s largest auto parts manufacturer) invested heavily during the financial crisis and managed to save over 3,500 jobs across 14 states despite their massive revenues of $23.5 billion and 6,000 employees!
Wrap Up
The final message of the book Dealing with China is simple but significant: cooperation is key.
By embracing and adopting western economic principles and by engaging in open dialogue with the global market, China has achieved incredible growth and become a powerhouse on the world stage.
However, to ensure its ongoing success, China must tackle rising debt and environmental issues head-on.
The US can – and should – play a role in this process, working with China to address these global matters.
