China has over the last several decades emerged as the worlds single most dynamic economy but this progress has been more marked ever since it began its transition to a more market based economy. The question though is what in effect drove them to make these changes. Technological advancement in economies began from the industrial revolution that accelerated the pace of development mostly through the mechanization of work and processes, breakthroughs that were led by scientists and engineers in their laboratories.
The Chinese juggernaut picked up pace after Mao Zedong and other Chinese leadership began to reverse the backwardness of the region by adopting a policy which facilitated the construction of advanced capital intensive industries. Such a strategy eventually enabled China to test the nuclear bomb in 1960 and soon after launch satellites in space in the 70’s. However the economy was still fairly poor and agrarian in nature, with little comparative advantage against other such capital intensive economies. The firms required government protection and policies of import substitution, subsidies and administrative directives. While these policies were in some measure successful, they could not jump start economic growth with the performance being relatively poor.
What stood out when finally the transition of the Chinese Goliath to a market based economy started in 1979 was that the leadership under Deng Xiaoping did not resort to a policy of privatisation or trade liberalisation. Instead it continued to strengthen the domestic industry through government patronage and simultaneously allowed private enterprises to invest in the labour intensive sectors that were comparatively repressed but consistent with Chinese comparative advantage.
Such an approach paid great dividends as it enabled the country to not only achieve stability but also paved way for economic growth. What exactly are the dividends? Well, they have witnessed 9.9 per cent of average annual GDP growth and 16.3 per cent of annual trade growth over the past 32 years – growth that holds lessons for other developing nations. The result of integration into a more market based economy has been that the country is now the worlds largest exporter and second largest economy. A gargantuan 600 million people were pulled out of poverty owing to such developments.
The moral of the story is that progress and economic growth are not lofty ideals but quite achievable if a dedicated team of policy makers and visionaries are bent upon producing results. The global economic recession has hit the developed world hard, however it has simultaneously presented the emerging economies with the opportunity to tap into the developed markets, to fill in the void since these economies remain relatively unaffected. It comes as no wonder that one third of the worlds savings originate from Asia. Therefore the way forward is for Asian countries to invest in infrastructure, human resource and capital intensive industry. More importantly after the Asian economies were shaken by the financial crisis back in the 2000’s they made a concerted effort to move towards financial self reliance. The transition of Asian economies to self reliance was in stark contrast to the massive debt creation, unprecedented leverage and credit creation frenzy of the developed economies.
What eventually ensued were large imbalances that shook the economic landscape across the globe. In the wake of such imbalances the strength of the Asian economies have increasingly been highlighted and they can continue on their path towards dynamic growth. While some may be quick to argue that the performance of a country of over 1 billion people cannot be replicated however, what policy makers need to understand is that all developing countries can enjoy similar successes to sustain economic growth and reduce poverty exponentially by merely exploiting the benefits of their backwardness, exporting technology from the developed world and upgrading industries. The recession for Asia is an opportunity to bottom fish yet again.
The writer is a professional
banker and financial commentator
