Forty years of reforms have opened up China

About five decades ago, when I was in Grade 10, a friend of mine showed me some booklets that triggered in me a curiosity about China. Since then this curiosity has led to a fascination with and an admiration for Chinese society and culture. In 2005 when I, along with my family, visited Beijing and Shanghai, my fascination developed into an academic interest. The Chinese economy is now one of my major fields of research and teaching.  As a member of the Chinese Economists Society, I have had the opportunity to participate at annual conferences held in Beijing, Guangzhou, Chongqing, and Shenzhen.

There is a quote that is often attributed to Napoleon: "Let China Sleep! For when the Dragon awakes, she will shake the world."

Since the Napoleonic era, China has experienced several bouts of social and political awakenings, such as in 1911 and 1949 when the nationalist and communist revolutions engulfed China.  However, it is the economic awakening in the form of reforms and opening up that began in 1978 that has proven to be one of the longest and most unique in human history.

Today, China is the largest economy in the world, based on purchasing power parity, the largest exporter of goods, and the largest exporter of high-tech goods.  In 1848, Karl Marx praised the western bourgeoisie for its revolutionary role in creating a world market for its cheap products which, like heavy artillery, battered down all "Chinese walls". Today, Chinese products are battering down all foreign walls throughout the world.  China's share of World GDP at purchasing power parity jumped from 2.3 percent in 1980 to 18.7 percent in 2018; in contrast the share of the US declined from 21.7 percent to 15.1 percent during the same period.  In 1980, China was a poorer country compared to Bangladesh and India measured by per capita GDP. China's per capita GDP at purchasing power parity leapt from $722 in 1980 to $16,096 in 2018; during the same period, the per capita GDP of Bangladesh increased from $1,160 to $4,084 while per capita GDP of India increased from $1,297 to $6,925.  During the last four decades, China has managed to lift over 800 million people out of poverty. This massive decline in poverty lends credence to the optimistic tone of the recent book 'Enlightenment Now' by the writer Steven Pinker.

China belongs to the high human development group with a Human Development rank of 91, compared to Bangladesh and India which belong to the medium human development group with ranks 131 and 140, respectively. China is one of the few developing countries which have met Millennium Development Goals 4 (reduction of child mortality) and 5 (improvement of maternal health).  According to the data of the Institute for Health Metrics and Evaluation, the health-related Sustainable Development Goal Index for China rose from 33.9 in 1990 to 61.9 in 2017. For Bangladesh the relevant figures are 11 and 33.6 while for India the figures are 16.2 and 34.9.

What are the major ingredients of the Chinese recipe for economic success? First, a positive legacy of the Mao period was that with well-endowed healthy and literate human resources, China was well positioned to take advantage of opportunities unleashed by market-friendly reforms. China has invested heavily in its education system which is highly competitive and meritocratic. Today, China produces more scientists and engineers than any other country in the world. The meritocratic nature of its education is reflected in its famous university entrance examination – known as 'Gaokao'. More than 10 million high school students participate in this examination, which decides who will get an opportunity to attend China's top universities. Education provides a path to upward social mobility in China. According to the recent World Bank data, relative social mobility in education and income is higher in China compared to South Asian countries including Bangladesh and India. Today, Chinese high school students outperform their counterparts in many western countries in international competitive examinations. In June 2014, while attending a conference in Guangzhou, I visited an elementary school. The English teacher gave a vivid account of the curriculum and showed me around the classrooms, playgrounds, and rooms for artistic subjects such as drawing, painting, music, and drama. I found the artistic dimension of the education quite impressive.

Second, unlike the East European countries and Russia, China followed a gradualist approach to the transition from a planned economy to a market economy, defying the advice of many western economists. Production, allocation of inputs, and the price system were gradually deregulated to expand the market arena without dismantling state enterprises. For example, the Household Contract Responsibility System shifted the responsibility of production and management, but not ownership, from the commune system to households, dramatically increased agricultural production. Similarly, gradual reforms of the 'Hukuo' system (Household registration system) improved efficiency of labour markets and minimised urban crowdedness and squalor.

Third, multilateral trade liberalisation and outward-looking trade policies, and membership of the WTO enabled China to follow export-oriented development based on its low-cost, high quality human resources. Not surprisingly, China's share in exports of labour-intensive products soared. China's share of world exports in clothing, for example jumped from only 3.9 percent in 1980 to 33.6 percent in 2017.

Fourth, China's economic miracle is reflected in its ability to export not only labour-intensive  products but also high-tech products. China's well-developed infrastructure and human capital attracted foreign investment, especially in Special Economic Zones which enabled China to become the factory of the world in high-tech products. In 2016, China was the second largest recipient of foreign direct investment (followed by the US) amounting to $136 billion.

A stellar example of China's metamorphosis from an isolated poor country to an economic powerhouse is the city of Shenzhen. Once a fishing village in 1980, it has emerged as a vibrant, modern, high-tech city with over 12 million people. During my second visit to Shenzhen in 2016, at the end of a conference, organisers of the conference took us to visit the research Headquarter of Huawei. The company founded in 1987, with less than five thousand dollars, by Ren Zhengfei, a low-ranking military officer, is now a leading provider of information technology products and smart devices in the world. Huawei, an employee-owned company, now employs more than 180,000 with revenue of more than $87 billion in 2017.

Finally, the quality of leadership with a long-term vision has played a crucial role in transforming China into a developmental state and in guiding the economy through a process of trials and errors, learning, and experimentation. Local leaders, central leaders, civil servants, party leaders are recruited and promoted through a rigorous meritocratic system.

Three relevant questions deserve to be addressed. First: how long can China maintain its high growth rate? Second: is the China model politically sustainable? And third: what will be the impact of China's emergence as a superpower on the current superpower- the US – and on the current world order? As China becomes a matured industrial country it is likely that China's growth will slow down. Still, many Chinese economists and policy makers including Justin Yifu Lin (a leading Chinese economist whom I briefly met twice) think that in the foreseeable future, China can maintain an annual growth rate of about 6-7 percent given China's high rate of investment (44 percent of GDP), China's resource endowments, and the diverse nature of China's economy, which still has underdeveloped regions.

Many western experts and observers lament the lack of political progress in China and argue that the prevalence free markets and the authoritarian regime is not sustainable. China's political system however is far from a rigid, unresponsive authoritarian system. The China model has evolved over the last four decades with unique features: a meritocratic political party (the Communist Party of China), an institutionalised process of intense consultations with stakeholders involving major economic, social, and political decisions, a decentralised system of governance, and collective leadership. The World Bank data on governance indicators show that in 2017, China outperformed many developing countries including Bangladesh and Pakistan. Accordingly, political scientist Daniel Bell calls the China model a vertical system of government with democracy at the local level, experimentations in the middle between central and local governments, and meritocracy at the top.

How will a resurgent China interact with the US and the rest of the world? Will, as Henry Kissinger asks, China and the US develop strategic trust, or, will history repeat itself and strategic conflicts between the two remain inevitable? President Xi Jinping proclaims that China's pursuit of peaceful development will bring world peace and opportunities, not turmoil and threats. Thus far China's interactions with most countries including developing countries, have been largely peaceful and developmental. The recent trade wars against China initiated by the Trump administration indicate that conflicts between a resurgent superpower and a declining superpower are inevitable. As Jeffrey Sachs, a well-known American economist, says, the US, not China, is today's greatest threat to the international rule of law.

China has its fair share of social, economic, and political problems: income and regional inequality, ethnic and religious conflicts, pollution, urban congestion and corruption. China has been creating its own path toward finding solutions to these problems without imitating the western economic, legal, and political systems. On Aug 17, 2005, at the Badaling section of the Great Wall, I was captivated by the vastness and natural beauty of China. Since then, through my conversations with Chinese students, teachers, professionals, and ordinary people, through my visits to schools, universities, hospitals, restaurants, ordinary markets, shopping malls, museums, and historical places, I have found China to be historically, culturally, and economically a fascinating country. China, the longest living civilisation, has managed to take a giant leap in human development during the last four decades. By doing so, China has changed not only itself but the world.