Enter the Dragon

China’s 20th century resurgence as a world leading economic superpower marks one of the most significant upheavals in the post-World War 2 global economy. Marius Goubert investigates the country’s rapid rise after decades of social and economic turmoil, and considers how China’s growing influence is bringing about a fundamental realignment of economic, political and strategic power.

While it is often assumed that his words rang hollow for some 200 years, it was Napoleon Bonaparte who, whilst surveying a map of France’s territorial gains to the east, famously pointed to China’s vast expanse and warned: “Let that giant sleep, for when she wakes, she will shake the world.” So regularly has this legendary predication been reiterated by media commentators that it has almost become a clichéd characterisation of China’s ‘miracle awakening’ over the last 30 years, in which the country has gone from economic catastrophe to one of the world’s leading economic powerhouses: achieving a level of productivity, dynamism and prosperity that is poised to overtake the United States as early as 2020. Yet, it was the Japanese who, as they ruthlessly moved to exploit China’s internal weaknesses towards the end of the 19th century, perhaps more insightfully described their dormant, ailing northern neighbour as ‘the sick man of Asia'.

By the mid-nineteenth century China had endured almost 2,000 years of uninterrupted dynastic rule. It was a country that could lay claim to one of the world’s oldest civilisations; a rich cultural heritage that had thrived under the Song Dynasty; philosophers like Confucius and innovations that have now become cornerstones in modern society, such as paper, credit banking, paper money and gunpowder. Indeed, by 1820, China had stood at the helm of the world’s largest economy for almost two millennia: its territory and population had doubled since 1700 and, along with India, it had come to represent no less than half of the global economy. Yet, by 1840 it was a country in crisis. Corruption and China’s closed-door, isolationist foreign policy had left it dangerously exposed to overseas incursions. A plethora of European powers – sensing weakness and hungry for profit – rushed to exploit China’s vulnerability and, in the face of a sophisticated European war machine, the country was militarily humiliated and forced to concede vast swathes of territory. As the Japanese mocked China’s helplessness and the wholesale frittering of its sovereignty, the so called ‘sickness’ would continue well into the 20th century, as the ineptitude of leaders like Mao Zedong – whose legacy for bloodshed easily rivals that of Stalin – went on to engineer a famine from which an estimated 35 million Chinese would perish. Its resurgence over the last 30 years is therefore perhaps more of a recovery than an awakening; China’s return from the brink of catastrophe as it reclaims the world-leading status it had enjoyed for some two millennia. And far from upsetting the global distribution of power, its growing dominance may merely herald a return to normality.

Back from the brink

More pragmatist than ideologue, Deng Xiaoping, one of the so-called ‘Gang of Four’, moved to fill the power vacuum created by Mao’s death in 1971, and he is traditionally credited with masterminding China’s breakneck industrialisation. With the country lying in ruins after the disasters wrought by the ‘Great Leap Forward’ and subsequent ‘Cultural Revolution’, Deng implemented two bouts of reform between 1978 and 1990. As China once again teetered on the brink of famine, his first priority was to rebuild the agricultural sector, and this was achieved by a process of de-collectivisation before industrial output was opened up to private enterprise for the first time since the communists took power. The sector grew at a staggering pace, with foreign investment being permitted through a constellation of SEZs (Special Economic Zones) along China’s southern coastline, which rapidly emerged as prosperous engines of economic growth and development.

Within a decade, agricultural production had soared and, emboldened by these successes, China’s leadership began to pursue even more radical reforms, aggressively restructuring the cumbersome, over-staffed and underdeveloped state-owned industries that had dominated its economy prior to 1978. Growing liberalisation, the replacement of central planning with market forces and an emphasis upon light industry led to the rapid development of consumer and export sectors of the economy. The next 30 years would see China’s citizens growing increasingly prosperous as GDP soared from $153 to $1,284. Initial successes in clothing and footwear soon gave way to the more sophisticated production of computers, cars and pharmaceuticals, with Chinese goods rapidly infiltrating every corner of the globe. This flexible approach, or, as China’s chief economic architect termed it, “crossing the river by feeling the stones”, led to the creation of a hybrid economic system dubbed ‘socialism with Chinese characteristics’. It would underpin 30 years of almost consistent double digit growth and the fastest industrialisation achieved in human history.

Overseas expansion

Today, the sheer scale of this upheaval has enabled China to demonstrate that there is nowhere that progress cannot reach, with highways, bullet trains and futuristic airports punctuating their way through the country’s often mountainous landscape. The pace of change has been so profound it has created a stark contrast between old and new, with elevated track-ways cutting their way through fields where farmers, waist deep in wheat, continue to work the soil by hand. From this prison of the past, they are bypassed by bullet trains so new they outdate guide books written just 12 months before. Meanwhile, in neon lit cities like Shanghai, Maoist propaganda and iconography have given way to corporate adverts bombarding residents with colourful imagery and slogans from plasma screens situated in elevators, taxies and even toilets. Huge industrial chimneys pour smoke into the skies above its thriving cities, creating clouds of almost impenetrable smog which, to many visitors, seems to have reduced the sun to little more than ‘a tarnished coin in the sky’.

And while China may possess one of the world’s greatest mineral endowments, with geologists confirming the presence of 153 different minerals (coal reserves alone are estimated at 1,007.1 billion tons), its unrivalled industrial prowess has afflicted the country with an insatiable appetite for all manner of mineral commodities. To feed its exponential industrial growth, the country has begun to build trade linkages with Australia, Russia, Brazil, and a host of other resource-rich nations as it looks to secure crucial raw materials. Indeed, the West’s once secure dominance in regions like Africa and Latin America is rapidly being eclipsed as armies of Chinese workers engage in all manner of endeavours, from the construction of hydroelectric dams in Ecuador to railways in Colombia and mining facilities in the DRC. Indeed, as recently as July 2010, China signed a US$10 billion agreement with Argentina to refurbish the Belgrano Cargas freight rail line and also gained an additional US$2 billion agreement to upgrade the Ferrocarril Belgrano Norte y Sur.

Meanwhile, the Chinese private sector has also moved to make its own overseas conquests. Chinese conglomerates, well-capitalised and eager to exploit a ten-fold increase in the disposable incomes of domestic consumers, are enthusiastically buying up Western brands which they aim to then re-engineer with a China-facing focus. The most obvious example of this was the 2010 acquisition of Volvo by Chinese car manufacturer ‘Geely’ in a US$1.8 billion deal that has seen the Swedish car maker retaining its headquarters and manufacturing facilities in Sweden and Belgium. Further acquisitions within the textile and fashion industry have seen China-based Li & Fung acquiring Western brands like Cerruti. In particular, China is showing a keen interest in the acquisition of well-established and reputed Western cosmetic brands as it looks to capture the burgeoning spending power of a growing middle class. This realignment is also proving beneficial for companies keen to desert ailing Western economies and capture new opportunities in the developing East.

Return of the old world order

Of course, an inevitable by-product of China’s industrialisation and staggering hyperactivity is pollution on an unprecedented scale. In 2006, the country surpassed the US as the world’s largest polluter (emitting 6,200 tons of carbon monoxide), while a report by the EIA pointed to the fact that the country has 28,000 coal mines and is commissioning no less than one new 500-megawatt coal fired power plant every four days. Paradoxically, the country is also the largest utiliser of green energy solutions: since the first wind project came online in 1990, it has become the country with the biggest installed wind capacity (ten times that of Denmark) and produces 45 per cent of all wind turbines today. China is also responsible for nearly 55 per cent of the global output for solar PV panels, and is a world leader in hydropower development in terms of both project size and generating capacity, with the world’s largest hydropower station along the Yangtze River. Indeed, the Chinese government has provided loans worth some US$32 billion to the country’s top 10 manufacturers: a policy that is well in line with its ambition to source 15 per cent of national energy needs from non-carbon sources by 2020.

It is clear that for China to maintain this pace of development, investment in cleaner technologies will become crucial, and as such, it is not surprising that renewable energy represents such a key component in the Chinese government’s future strategy. Yet, the country’s export orientated economy also means that it has also become highly reliant on external markets, particularly in the Eurozone, and therefore stands exposed should the EU descend back into recession. Creating greater domestic demand may become crucial if the country is to maintain its economic rise. Yet another headache for the Chinese government is represented by the indisputable fact that since market reforms were introduced in the 1970s, the country has experienced a growing disparity between rich and poor – its Gini index, a common measure of social inequality, hit 41.5 per cent in 2005, which is nearing the level of many Latin American countries. This widening gulf and clear potential for instability are factors that may also impact future prosperity.

What is clear however, is that the world in undergoing a dramatic shift in terms of the geographic centre of the global economy. China is well on its way to reclaiming its position as a formidable, if not, dominant global power. Its economy has quadrupled since the launch of market reforms in the late 1970s and, with a large technological gulf still existing between China and industrialised countries, it is well on course to double again over the next decade. As its global prominence grows, alliances and incentives are set to transform the world over, with China’s ascendence disrupting the established post-World War II international order, creating new opportunities for engagement and rivalry, and initiating a new, Asian-centred, global economy.