Commentary RESEARCH

Moving Beyond Manufacturing

Aria

2021-02-03 09:36

Michael Zakkour
Beijing Review

As Chinese philosopher Laozi said, "A journey of a thousand miles starts with one step." China's long journey over the last 70 years has been one of the most important and interesting stories of the post-World War II period.

After its founding, the People's Republic of China's (PRC) most important goals were ensuring the safety and well-being of its citizens; ensuring geographic, historical and future integrity; and rebuilding the economy. Progress was made on building a new economy during the early years of the PRC but the reemergence came on the foundation of the reform and opening-up drive begun in 1978.

According to official figures, China's GDP was $13.6 trillion last year, 452.6 times the figure in 1952 in U.S. dollar terms, and the per-capita gross national income of Chinese people grew several hundred times to hit $9,732 in 2018.

Industrial boom

Many books, reports, histories and media output have documented and explained how, why, when and by whom all of this happened over the last 70 years. So I will attempt to summarize only what I have seen, experienced, and in some small way played a part in.

Prior to 1978 the vast majority of Chinese people lived in rural areas and were farmers. Three changes started a 40-year process of urbanization:

Special economic zones were set up in coastal areas as laboratories for market reform.

Investment flowed into the Chinese mainland from Hong Kong, Taiwan and other parts of the world, from overseas Chinese communities, and from foreign corporations and private businesses.

The Chinese entrepreneurial spirit was uncorked.

In the 1980s and 1990s thousands of factories were built in the Pearl River Delta in Guangdong Province, south China, with the provincial capital Guangzhou acting as the hub for the evolving manufacturing economy. Soon, the world started looking to China more and more to produce everything from toys and tools to machines and medical devices.

The country rapidly developed the right infrastructure, ports, legal and regulatory frameworks, and labor force to massively scale the export economy. In 2001, China marked a major economic development when it joined the World Trade Organization. This milestone, plus rapid development, accelerated economic growth to an even higher degree with GDP growth of 10 percent (2003), 12.7 percent (2006) and even 14.2 percent (2007).

Entire cities and regions started to specialize in certain product lines (socks-manufacturing city, eyeglass city, etc.) and hundreds of millions of people left their rural hometowns or third- and fourth-tier cities and moved to the big cities on the eastern and southern coasts to work in factories, start new companies or work in industries that supported the booming production economy.

Two more major milestones came in 2008 and 2010. The 2008 Beijing Olympics led to the transformation of the capital and the country as a whole. The spectacular opening and closing ceremonies and the flawless running of the Games gave Chinese a great sense of pride and achievement and a confidence that they had arrived.

In 2010 the size of the Chinese economy surpassed Japan's to become the second largest in the world, only behind the U.S. economy.

Super consumers

In my 2015 bookChina's Super Consumers, I charted the rise of the Chinese economy from 1978 on, and the emergence of a new Chinese middle class that had unprecedented amounts of disposable income because Made in China was the common label in the world.

One of the most striking aspects of China's economic might is its consumer economy. The book charted the growth of "people with significant disposable income" from roughly 50 million in 1990 to 300 million in 2008 and 600 million in 2015. Today that number is close to 900 million.

These are important numbers because China's leaders realized in the early 2000s that as time went on the economy would need to diversify and a larger portion of it would need to be from consumption and services.

Another important year was 2003, the year when Jack Ma and the Alibaba Group launched Taobao, the first massively successful general e-commerce business in China. JD.com and Taobao laid the foundations for what is the largest e-commerce market in the world. In 2008, Alibaba also launched Tmall, the largest Chinese digital marketplace, and the first Double 11 Shopping Festival, an annual online shopping spree organized on November 11, was held in 2009.

Chinese citizens bypassed land lines and computers for smartphones, embraced digital payments and found shopping online much more convenient and enjoyable than much of the brick-and-mortar world.

This is now the era of China's super digital consumers.

Over the last five years, China has successfully shifted a notable amount of its manufacturing base from low-value, low-tech products to high-value, hi-tech products. This includes production for foreign companies and fast-emerging local companies and brands.

Beyond manufacturing, three of the most important aspects of the Chinese economy in 2019 and beyond are:

Born in China. For much of the past 40 years, China relied on the expertise, machinery, technology and ideas of the outside world to develop a modern economy. In the new book I co-authored with Ashley Dudarenok,New Retail: Born in China, Going Global: How Chinese Tech Giants Are Changing Global Commerce, we have documented how an entire new set of technologies, ideas and companies in China have reinvented retail, and the way the world makes, moves, sells and buys everything. Chinese Internet and tech companies are no longer copying foreign originals. This is the Born in China and not just Made in China era.

Global networks. China has continued to make progress in developing trade and political and cultural relations with virtually every country in the world. Having the world's second largest economy comes with both power and responsibility. China's future will, in part, rest on how it manages its trade relations and geopolitical responsibilities, making economic growth sustainable over the long term.

Consumption and services. China will continue to find ways to increase consumption and make services such as finance, insurance, real estate and healthcare a bigger part of the economic pie.

What China has achieved in making its economy as large and important as it is in only 40 years is truly remarkable. This economic strength helps implement the 1949 goals of ensuring the well-being and safety of its citizens, ensuring geographic integrity and modernizing the economy.

There are not many people inside or outside China who could have imagined this economic miracle. It will be interesting to see what comes in the next 30 years when the PRC celebrates its 100th anniversary.

The author is a U.S.-based author, consultant and op-ed contributor to Beijing Review

 


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