BUD BREWER
One Man's Opinion
China a Charging Economic Power
It surprises me that membersof the media provide so little coverage of the changes happening in China, India and other parts of Southeast Asia. I guess they are so busy chasing the President around the World or trying to make Sarah Palin look foolish they just can’t get around to sending reporters or feature writers to become informed about how China is changing the economic balance of power in the world. Most Americans still seem to think of China as a backward country where the government controlled companies manufacture consumer products using cheap material and exploiting an under paid labor force to export to the United States or the rest of the world. Whenever the word “outsourcing” is used by politicians or labor unions, it typically refers to companies moving manufacturing facilities to foreign countries like China to exploit this “slave labor”. The image of China imbedded in the minds of too many Americans is that of an agrarian country with a powerful army that prohibits any semblance of what we would call liberty or the rights of free speech and free will. It will come as a surprise to these people that China has adopted a semi free market capitalistic business system to augment their State controlled and operated industries. By setting up several industrial zones in the 1980s in which the investment of private capital was encouraged to produce among other items, innovations of hi technology to be used domestically or exported to the rest of the world, the country has developed a platform for employing better educated members of its post Vietnam generation. From an egalitarian base as recently as 1964, when Mao Tse Tung was pictured praising a villager for operating a portable steel foundry in his back yard to the high tech accomplishments of China’s highly educated engineers and scientists today has been an extraordinary leap in progress. The man who changed all this was named Deng Xiaoping. When my wife and I traveled to China in 1980 soon after the country opened up its boarders to alien visitors, we engaged a guide who explained the pronunciation of the new leader’s name as being like “Done Shopping”. We had no trouble remembering that. Deng changed China by adjusting the way the collective farms and peasant farmers living and working there were compensated for their production. There were over a billion people living in abject poverty depending upon the few pennies they earned a month working with cattle, chickens or hogs and in orchards, vegetable gardens, or rice paddies producing food which was then delivered to the managers of the communes for distribution and processing. In some areas, a few farmers took a risk and kept a portion of their production to trade with neighbors for livestock or food products they were raising and selling to the government. While this was strictly against the laws of the Communist government, Deng Xiaoping saw that in those cases where the peasant farmers were engaging in this illegal activity, their productivity was sharply higher than in those villages that were abiding by the law. Deng made the decision to change the process. Each peasant or villager growing grains or vegetables or raising animals for slaughter was allowed to keep 20% of his output and trade it among others in an open market for personal benefit. Production began to skyrocket as each member of the collectives would work harder and longer and more effectively to create more and enjoy the benefits gained from being able to trade the higher amount represented by his 20% of the total. This sounds sort of like the Reagan Revolution Tax Reduction period of the 1980s doesn’t it? Let people keep more of what they produce and their output explodes.
In the following 30 years, that crack in the communist egalitarian manifesto has broadened like an avalanche to bring China to a point where 20-25% of their 1.3 billion population, equal in number to that of the entire United States or 300 million, now are better educated. More than a few have undergraduate degrees, have gone to law school, have become doctors, scientists, etc. and are living a standard of living that on a purchasing power parity basis, makes them close to our middle class consumers. They work in industries using modern technology generating high productivity thus allowing them to live much like many of our citizens do with one major difference. For most middle class Americans, their balance sheet is dominated by their personal housing, its furnishings and its accessories along with one or in most cases two automobiles. In China, most of this middle class live in small apartments or family homes with two or three generations living together. They save as much as 25-30% of what they earn and live a conservative life style. They congregate in clubs, travel the world, enjoy modern methods of communication, use public transportation, enjoy electronic devices and are almost all in possession of one kind of computer or another. As this segment of China’s population become more consumer like and begin to spend more of their savings, the Chinese economy will begin to grow even faster than it has to date.
In 2008, the GDP of China reached $4.5 Trillion dollars, larger than every other country in the world except for the United States and Japan. If its growth rate continues at the recent rate (8-10%) per annum, China will pass the United States in Gross Domestic Production by the year 2030 or perhaps sooner if our President continues to pour sand into our great economic engine converting America to a more socialistic society and constraining ingenuity while China continues to move in exactly the opposite direction. It is ironic that this massively populated developing country is reaching out to adopt more free market capitalistic concepts while our President is trying to push us in exactly the opposite direction. The difference in growth rates of our economies is telling.