China is on track to becoming an economic power, the likes of which we have not seen in a long time.
America will almost certainly come out second best if it doesn’t change tact – with Europe a long way behind.
At a press conference in Washington, DC on 29 March 2000, former US president Bill Clinton said that granting China Permanent Normal Trade Relations (PNTR), which allowed China to gain entry into the World Trade Organisation (WTO), would be a great deal for America. “We do nothing,” Clinton said.
They have to lower tariffs. They open up telecommunications for investment. They allow us to sell cars made in America in China at much lower tariffs. They allow us to put our own distributorships there. They allow us to put our own parts there. We don’t have to transfer technology or do joint manufacturing in China anymore. This a hundred-to-nothing deal for America when it comes to the economic consequences.Former US president Bill Clinton
It didn’t quite work out that way.
Former Chinese leader Deng Xiaoping, the architect of China’s economic reforms, used to say, “Black cat, white cat, what does it matter what colour the cat is, as long as it catches mice?” That is to say, it did not matter whether an economic policy was considered “capitalist” or “socialist”; what mattered was whether that policy would boost the economy and living standards. So, while some still debate whether China is communist or capitalist, or whether it will collapse, the Chinese cat continues to outpace others in pursuit of the mice (economic growth and world dominance).
If Beijing has its way (which, so far, it has), China is on track to becoming an economic power, the likes of which we have not seen in a long time. I say this due to the size of the purchasing power that its economy will command. It’s not the Japan of the 1980s, it’s much larger. After cornering the market in manufacturing over a decade ago, China moved into technology and innovation and continued to achieve significant success unbeknownst to the average Westerner who has not updated his knowledge of China.
The emergence of large companies such as Huawei, Xiaomi, Tencent, Alibaba and Baidu has paved the way for other local firms to follow. According to figures tallied by KPMG last year, China received $31 billion of venture capital investments, three-quarters of the US total. The sector has tripled in size since 2014 (US venture capital grew by only 20 per cent during that period).
According to a recent article in Wired magazine, 15 years ago, China claimed none of the top 500 supercomputers in the world. Today, it not only has more supercomputers than everyone else – including the US – but its best machine boasts speeds five times more than the best the US can muster.
Additionally, in a first, it achieved those speeds with chips made purely in China. Due to China’s massive purchasing power, world auto-makers rightly view China as the industry’s new centre of gravity.
According to a report by McKinsey, China makes and sells more light vehicles than any other nation; so many in fact, that in 2016, 40 per cent more cars were sold in China than in all of Europe.
This, when vehicle penetration in China remains low. Per 1,000 people in China, only 131 have passenger vehicles compared to 850 in the US. There are 609 billionaires in China compared with 552 in America. China is also rapidly becoming a cashless society. The volume of mobile payments shot up almost fourfold last year, to $8.6 trillion, compared with just $112 billion the US. It might take a couple of years before the wider world wakes up to Chinese innovation and advancement in technology, but the experts are already well aware of it.
Bloomberg Gadfly columnist Shira Ovide in an interesting column, ‘Who's the Tech Copycat Now?’, points out that the US and other countries have seen a flurry of apps that are inspired by Meitu, the Chinese app that pretties up selfie photos. American startups are copying China's fleets of on-demand bicycle rentals for getting around crowded cities. Apple and Facebook are trying to remould their messaging apps in the image of China’s ubiquitous WeChat. Before there was Tinder for hookups, there was a similar dating app, Momo, in China. Every company that makes drones is following the lead of China’s SZ DJI Technology. Apple would never say so, but a new ability for people to text in iMessage to send money to their friends or babysitters is borrowed from popular features in China.
China wants to be the world leader in artificial intelligence (AI) by 2030, aiming to surpass its rivals technologically and to build a domestic industry worth almost $150 billion. Anthony Mullen, a director of research at analyst firm Gartner, in an interview with The Verge, said, “Right now, AI is a two-horse race between China and the US, and China has all the ingredients it needs to move into first.” To build great AI, you need data, and none produces data quite like humans. This means China’s massive 1.4 billion population (including some 730 million internet users) might be its biggest advantage. These citizens produce heaps of useful information which can be mined by the country’s tech giants.
The adventures of Microsoft chatbots in China and the US make for a good comparison. In China, the company’s Xiaoice bot, which is downloadable as an app, has more than 40 million users, with regulars talking to it every night. By comparison, the American version of the bot, named Tay, was famously shut down in a matter of days after Twitter users thought it to be racist.
Already on a purchasing power parity (PPP) basis, China’s GDP is larger than that of the US, as announced by the International Monetary Fund in 2014. This, when the GDP per capita of China is still one-fourth that of the US. It’s no surprise then that even the US National Intelligence Council warns that the era of Pax Americana is “fast winding down”.
US President Donald Trump talks about coal and steel and tariffs while President Jinping and China concentrate on robots, solar panels, electric vehicles and the One Belt, One Road (OBOR) – a network of ports, pipelines, railways, industrial parks and ancient maritime lanes that will span 65 countries and open markets that are now beyond the economic reach of Chinese firms.
One didn’t get to the electric bulb by innovating with candles. Talking about coal and steel and tariffs now is like trying to do just that. It didn’t work for the candle makers, and it will not work for Trump. The Chinese are following their path, and for the moment it's working. The ones in the West are following theirs, and you can judge for yourself the success of that. The ramification of the Chinese growth is significant. America will almost certainly come out second best if it doesn’t change tack – with Europe a long way behind.
To the Western eye, the ascendant power of Beijing may seem like a disruption to the status quo, but to students of world history and China, it is the restoration of a millennia-long equilibrium. China was the biggest economy in the world for most of the past 2,000 years, only overtaken by Europe in the nineteenth century. When Adam Smith published The Wealth of Nations in 1776, he described China as “one of the richest, best cultivated, most industrious, and most populous countries in the world,” and “much richer than any part of Europe.”
According to a study by economist Angus Maddison, China was the world’s largest economy in 1820, accounting for an estimated 32.9 per cent of global GDP. However, foreign and civil wars, internal strife, weak and ineffective governments, natural disasters and distorting economic policies caused China’s share of global GDP to shrink to 4.9 per cent by 1978. In comparison, the US share of global GDP rose from 1.8 per cent in 1820 to 21.6 per cent by 1978.
The all-important Nineteenth National Congress of the Communist Party of China (CPC) kicked off last week with a party gathering of 2,300 strong delegates in the Great Hall of the People in Tiananmen Square in Beijing. In his bold three-hour-and-23-minute address, President Jinping outlined the party’s priorities for the next five years. He said China had stood up, grown rich and become strong and it now embraced the brilliant prospects of rejuvenation. He foresaw an era where China moved closer to the centre stage and made greater contributions to mankind, while regaining the great power status it enjoyed in the nineteenth century, with the objective of achieving this by 2049, the 100th anniversary of the founding of the People's Republic of China.
To conclude, here’s a post that has been doing the rounds on Chinese social media. It’s a fictional conversation between Chairman Mao and his people. It’s both hilarious and captures a truth.
Chairman Mao: Can the people eat their fill?
People: There’s so much to eat they’re dieting.
Chairman Mao: Do we produce more steel than England?
People: Tangshan alone produces more than America.
Chairman Mao: Did we smash imperialism?
People: We are the imperialists now.
Chairman Mao: And what about my cultural revolution?
People: It’s in America now.