Is China becoming ‘the new US’?

George Lucas
— 1 minute read

Over the past 40 years, China has experienced economic growth on an almost unprecedented scale and, as Instreet’s George Lucas writes, the United States went through a similar period before becoming the economic powerhouse it is today.

George Lucas

It’s impossible to visit China and not be staggered by what’s been achieved since 1979.

That’s the year the paramount leader, Deng Xiaoping, famous for saying “it doesn't matter whether the cat is black or white, as long as it catches mice”, opened up four special economic zones in China’s south.

China, which had endured three tumultuous decades since the Communist Party came to power in 1949, was dabbling its collective toe in capitalist waters.

Nearly four decades later, China’s economic transformation has been massive; it might be capitalism with a “communist face”, and it’s certainly capitalism with one-party rule, but it’s capitalism none the less.

Today, the southern cities of Shenzhen (one of the original special economic zones and strategically just across the border from Hong Kong) and Guangzhou boast a higher standard of living than Hong Kong.

In addition, Hong Kong, which has been part of China since 1997 when Britain’s 99-year lease expired, is seeing its importance as a port and international hub decline in face of competition from mainland Chinese cities.

Indeed, there are so many yardsticks by which to measure China’s economic growth; from 1979 to 2014 annual gross domestic product (GDP) growth averaged in double digits. Like all economies, it was hit by the global financial crisis, but a US$586 billion economic stimulus package and looser monetary policy got the Middle Kingdom through that crisis better than most.

In recent years, it’s true, growth has slowed, but it’s still more than 6 per cent (official rate) in 2016. China also needs to adjust its economic settings from a focus on exports and fixed investment to encouraging more consumer-led demand.

Throw into that economic mix issues around growing income disparities, the environment, and the need to boost productivity and innovation, and you get some idea of the magnitude of the problems China faces.

One can be confident that China will find ways to address these issues. For the naysayers, ask yourself this question: who would have predicted China’s current economic story in 1979. It’s safe to say very few.

To further illustrate this point with anecdotal evidence, I found infrastructure in the cities I visited was better than in Australia; more and more Chinese are travelling overseas; and, significantly, Chinese companies are getting permission to do more business outside of China – with obvious ramifications for Australia.

In short, China’s economic evolution is a miracle. Indeed, when you think about it, the only comparable economic transformation in such a short period of time to my mind was the US following the Civil War and up to 1890.

Given that they are now rivals in a geopolitical sense, the irony should not be lost on anyone.

The 25 years after the bitter Civil War ended in 1865 ushered in the foundations of the world’s largest economy, which still produces 22 per cent of global GDP. In that era, gigantic corporations emerged (think JP Morgan, Standard Oil and US Steel and their famous founders, JP Morgan, John D Rockefeller and Andrew Carnegie), and the massive transport and communications networks were built.

Mass production meant cheaper plant and equipment for factories, mines and farms. New inventions and patents – the telegraph, telephone and electricity to name but three – underpinned this.

Finally, this economic boom required investment capital, leading to the formation of stock markets and banking. It was an economic miracle – just like China.

However, the similarities do not end there. The era that Mark Twain dubbed the Gilded Age also had its dark side: corruption was rampant (sound familiar?).

Presidents of the calibre of Washington, Jefferson and Lincoln don’t happen along every day, but this era was marked by largely ineffectual presidents and corrupt congressmen. It was the era of the “robber barons” who lined their pockets at the expense of the public purse (tax evasion) and exploiting labour.

The US tackled these issues – the era between 1890 and 1920 is dubbed the “progressive era” as the US grappled with social and labour issues and political reform.

China will likely do the same, albeit with the obvious caveat that it will be done under a completely different political system.

Given China’s tumultuous political history, especially in the 20th century before 1979, I suspect its leaders know they have little choice.

George Lucas is the managing director of Instreet



Is China becoming ‘the new US’?
George Lucas
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