TECH TALK: An Indian in China: The China Miracle

Take a look at some of China’s economic figures. GDP rose in 2001 by 7.3% to USD 1.15 trillion. (Compare with India’s GDP in 2000 was USD 479 billion). Per capita GDP in China is USD 900, double that of India. China’s exports in 2001 rose 6.8% to USD 266 billion, running a USD 22 billion trade surplus. (India’s trade balance runs negative at USD 15 billion, with exports of USD 45 billion in 2000). China’s reserves stand at nearly USD 200 billion, four times that of India. Foreign direct investment (FDI) in China has been climbing and now exceeds USD 40 billion annually. In India, FDI is about USD 2.5 billion a year.

When growth slowed last year (falling to just under 7% in the last quarter of 2001), the government quickly announced measures to push consumer spending by cutting interest rates, increasing salaries of civil servants and pensions for retirees, and extending and adding holidays to boost tourism. This is on top of the continued spending on infrastructure.

The China miracle is now becoming a juggernaut. The powerful combination of a huge domestic market willing to spend money and FDI as foreign companies have shifted manufacturing in large numbers to China both to cater to the local market and for exports has helped China grow rapidly in the last decade. There is little that China cannot (or does not) manufacture. Low wages, abundant capital, liberal labour laws and the growing pool of qualified engineering talent have propelled the shift in manufacturing to China. Writes Bill Powell in Fortune (March 4, 2002) on the implications:

China’s emergence as a reliable, stable producer of high-value, technologically sophisticated products will rewrite the economics of a wide range of manufacturing industries, not just those that are labor intensive (such as toys and textiles)For a global company, it simply means “that you have to have a major manufacturing presence in China, because of your competition isn’t there yet, they soon will be”, says Beijing-based Gordon Orr, China country manager of McKinsey.

The ability to make nearly anything in China with high quality and a (very) reasonable cost, then sell it to customers both near and far, is having a big impact well beyond corporate boardrooms. China’s emergence as the workshop of the world is, in turn, driving a profound shift in global investment flows – one whose effect is felt most dramatically by China’s neighbours in East Asia.

This “China shock” is put in perspective by George Wherfritz and Mahlon Meyer of Newsweek (February 18, 2002):

Ever since Japan’s own “economic miracle” of the 1960s and 1970s, Asia’s emerging economies have been pictured as “geese flying in formation.” Tokyo used investment and technology transfers to coax neighboring economies to follow in its wake. So-called tiger economies like those of South Korea and Taiwan inherited Japan’s sunset industries – first light manufacturing, and later steel, petrochemicals and shipbuilding. In turn, they handed obsolete technologies and labour intensive industries down the line to Indonesia, Malaysia and the Philippines. The pattern held until China, in the mid-1990s, broke from the flock. Inundated by a flood of foreign capital, much of it non-Japanese in origin, China has since mastered a range of technologies simultaneously – creating sweatshops in Shenzhen, efficient high-tech manufacturing around Shanghai and a budding RD industry around Beijing, all coexisting at once. Countries that thought they could patiently export their way up the technology ladder will now find China waiting for them at every step of the way.

The Middle Kingdom has now taken centre stage.

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Rajesh Jain

An Entrepreneur based in Mumbai, India.