Is China losing its edge?

The Soviet-Afghan War was followed by the demise of the mighty USSR, unification of a divided Germany and the end of the Cold War. All were visibly momentous events of West-centric “world order” in developed Europe. Yet, there was also unfolding an invisible — yet equally momentous — story in “developing” Asia. 

Mainland China was changing — fast and furious. Followed suddenly by the post-1991 India. China owes its growth to “my way or highway” posturing based on “national interest” by the single-party command regime with an alibi of communism and an enormous appetite for capitalism. Command, rather than consensus, transformed and reshaped China’s countryside fast.

Determinedly, China made things happen with a sense of urgency to catch up with lost opportunities of the past. How did India change? For some, that still remains a mystery. All the more, since India was forced to sell its gold reserves to alien land, in 1991, to avoid failing its international debt payment obligation. 

Thus, between the end of the Soviet-Afghan War in 1989 and 2013, both China and India, which never figured in the list of toppers except while counting of heads, burst into the league of top 10 economies of the world with China’s performance being simply spectacular and India’s, though far from spectacular, yet, unexpectedly, exceptional. According to the 2013 figures, US’ $16.768 trillion economy was followed by China’s $9.24 trillion. And the biggest surprise in the list was the 10th placed India with a $1.875 trillion economy. No doubt, the 2013 India was still way behind the world giants (like Japan $4.92 trillion, Germany $3.73 trillion, France $2.806 trillion, UK $2.678 trillion, Brazil $2.246 trillion, Italy $2.149 trillion, Russia $2.097 trillion), but it was way ahead of its imminent bankruptcy in 1991. 

To understand the reality further, one has to take a look at the comparative figures of the 10 biggest cities of the world between 1988 and 2015. From zero in 1988, Shanghai and Beijing took third and seventh positions, respectively in 2015 with Delhi and Mumbai filling second and fifth slots, respectively among the top 10.

As mentioned above, the GDP growth apart, what made the scenario dramatic is the purchasing power parity (PPP) economics of China and India vis à vis the West. From being “nowhere” in the last quarter of the 20th century, by 2013 China with $16,162 billion and India with $6,784 billion took second and third positions, respectively in GDP PPP. To make matters further uncomfortable for the developed West, the list showed the “most advanced” falling behind the US, China, India. Thus, from the fourth-positioned Japan, the names in descending order were that of Russia, Germany, Brazil, France, UK, Indonesia, Italy, Mexico, South Korea, Saudi Arabia, Spain, Canada and Turkey. In one stroke, it transpired that both China and India constituted market par excellence — market of cash-flushed consumers. 

Nevertheless, a stark and robust Chinese modus operandi too came to the fore. Adopting and adapting the conventional and classical economics of theory, China succeeded in translating the economic theory into applied economics, as Beijing became the hub of production, distribution and consumption. Luring the Western manufacturers with a “congenial environment” for industrial development, and “conducive to growth” of land, labour, capital, organisation, the four primary factors of production, China succeeded in developing its vast swathe of diverse landscape into an engine of growth and opportunity for multinational corporations, thereby virtually ensuring an unprecedented sort of flight of capital, labour and technology from the developed Occident to the developing Orient. 

Understandably, a strong motive of everything cost-effective, from land, labour, logistics, connectivity, tax policy to tariff rate and infrastructure facilities to marketing “Made in China” FMCG and growth of engineering and technology centres in no time, made hordes of Western corporations to shift production base. 

Not surprisingly, therefore, China’s GDP of $9.24 trillion, second only to US’ $16.768 trillion, took the world by storm. With prosperity, however, there also emerged potential flashpoints. Compared to India’s 52.5 arable land as percentage of total land of 32,87,263 square km, China has to make do with 11.3 arable land as percentage of total land of 95,60,900 square km. Continued, and continuity in, self-sufficiency in food production, therefore is likely to be China’s major challenge; all the more owing to the colossus loss of fertile and arable land, as rapid industrialisation changed Chinese landscape as well as labour market. China today is 45.6 per cent rural and 54.4 per cent urban, a change from 53.4 per cent rural and 46.6 per cent urban populace in 1989. In comparison, India today is 69.8 per cent rural and 30.2 per cent urban. 

In GDP and structure of employment too, the contemporary scenario has changed beyond recognition. China’s structure of employment of 34.8 per cent agriculture, 29.5 per cent industry and 35.7 per cent services stands favourably with that of Europe’s economic powerhouse, Germany’s 28.2 per cent employment in the industry sector. However, China’s four per cent plus unemployed labour force with that of India’s five per cent and Germany’s 5.5 per cent plus, constitute a formidable challenge to both the East and West.

That said, there is no doubt that China today stands at a crucial juncture. Its leadership faces an unprecedented situation as Beijing’s four-decade-old growth model has run its course. Today, Beijing is a virtual victim of the sharp, cyclical downturn and structural flaws laid bare by the 2008 global financial crisis. And China’s overdependence on exports exposed it to direct global economic fluctuations, thereby leading its line of production to overcapacity and the haunting possibility of a growth without employment (rather rising unemployment). 

Understandably, therefore, fewer things seem to be going right for Beijing. As China’s economy goes jumbo and unmanageable, owing to weak growth, slack in demand in critical markets of the US, Europe, Japan, rising production cost and wages along with strong Chinese currency of yuan vis-à-vis dollar, is China losing its market competitiveness? Since for China, economics is foremost and fundamental, and Beijing, in the heart of hearts, prefers finance to firepower pertaining to mega consumer nations, the situation is indeed challenging. Finance being prosperity and firepower, destruction thereof, the external posturing of the Dragon is more than understandable and expected. Compulsion of domestic dictates and justifies the distant thunder like Doklam.