On June 8, 2020, Frank Tank writes in South China Morning News:
- Wang Jian wrote a famous article in 1988 that laid out the blueprint for China to take advantage of globalisation to become the factory of the world
- But now, amid the fallout from the coronavirus, the veteran economist believes it is ‘increasingly urgent’ for China to rely on itself for future development
A top economist whose strategic thinking about China’s role in global value chains helped turn the country into the world’s factory says it is now time for Beijing to look inward for growth as the outside world is becoming more unpredictable.
Early in 1988, when China had little capital, Wang Jian published an article in the official Economic Daily arguing the country should take advantage of its cheap labour force to position itself as a global manufacturing hub by importing components and then exporting finished products to rich economies.Under the export-oriented strategy, a government policy literally translated from Chinese as “big in, big out”, China rose from an economic backwater to a manufacturing powerhouse.
Three decades later, Wang believes it is now time to make choices that will bring China’s economic miracle to “a new peak”.
“The impact of the coronavirus pandemic on international supply chains and external demand is hard to estimate, we need to expand domestic demand as much as possible. That is what we can control,” 65-year-old Wang, who is now head of the Beijing-based China Society of Macroeconomics, a think tank associated with the economic planning agency, told the South China Morning Post.
“Any large country should rely on its domestic market.”
According to Wang, China’s export-driven economic model – with exports accounting for 36.04 per cent of Chinese growth at its peak in 2006 – can only last for a certain period.
Wang said it was “increasingly urgent” for China to rely on itself for future development, as Washington is pushing to separate the US economy and the economies of willing allies from China, although he admits it will be difficult for the US to fully decouple its economy from China.
“The United States has a giant gap between production and consumption that is filled by China. It won’t easily cut off imports from China,” he added.
To enable itself to rely on its own domestic economy, China must roll out a new urbanisation push to turn the country’s rural and migrant worker population into urban consumers, Wang said.The shift of Wang’s focus, as well that of President Xi Jinping, from a globalisation-driven economic model to domestic-led growth comes as a new consensus is growing in Beijing on the need for self-reliance and economic security.
Wang said China’s external economic strategy should focus more on securing overseas resources rather than on increasing sales to markets abroad while “domestic demand is not unleashed”.
At the same time, it remains an open question whether China can produce the growth necessary to avoid the so-called middle-income trap, where wages rise to the point that growth potential in export-driven low-skill manufacturing is exhausted before the country is able to effectively compete with developed countries in higher value-added goods and services.
The rapid development in the last four decades has also left the country with a huge wealth gap between the nation’s well-off and most of its 1.4 billion people.
While China officially boasts a vast middle-income group of around 400 million, it also has a larger population living under relatively poor conditions.
Wang Jian published an article in the official ‘Economic Daily’ in 1988 arguing that China should take advantage of its cheap labour force to position itself as a global manufacturing hub. Photo: DPA
Premier Li Keqiang said last month that 600 million people in China now earned just 1,000 yuan (US$140) per month.
Wang said China’s nationwide per capita gross domestic product (GDP) is around US$10,000, indicating that the country is in the middle-income range. However, he said around 1 billion people live in conditions corresponding to per capita GDP of US$4,000, a level equivalent to that in Indonesia or Sri Lanka.
As such, China has to rely on urbanisation to boost growth, he said, echoing a popular view in China that the country can count on itself to drive growth.
Currently, around 60 per cent of China’s population live in urban areas, but Wang believes China needs to relocate another several hundred million people from the countryside to cities to aid growth.
Gary Reber Comments:
“Any large country should rely on its domestic market.” –– Wang Jian, Communist China’s Globalization Pioneer
Instead, in the 1990’s, our political representatives and the controlling owners of our manufactories saw an opportunity to realize far greater profits by outsourcing production to slave-wage labor countries in Asia, particularly Communist China, which they did a generation earlier when they outsourced to Japan and South Korea.
While the names of the brand products remained the same, they were increasingly Chinese made. As time progressed, the Chinese started copying everyone’s artificial intelligence computer software technologies. This all led to a furious pace of technological development and all American manufacturers realized that if they want to compete with their competitors, already manufacturing in China, and also to sell their products in China, they would have to share manufacturing technologies with the Chinese. As a result, the Chinese have been able to further develop their technological prowess to become the world’s dominate manufactory center, reducing the United States and other western countries to dependency on the Chinese.
Is there any American leadership who can stop China from dominating all key technologies and manufacturing capabilities?
Unfortunately, our political leaders over the past five decades have paved the way for the exodus of our manufacturing, led by the controlling owners of American corporations and industries, and their political allies, resulting in direct investment in the development and execution of manufacturing in slave-wage countries.
All previous presidents and their administrations have allowed, and even incentivized and overseen this transition. Donald Trump is the first president to declare “no more China,” but he has proven himself incapable of shutting off China to access to American markets and reversing the disastrous abandonment of our manufacturing capabilities.
Aided by years of massive tax cuts and incentives, the controlling owners of American industry built manufactories and offices around the world, shutting down manufactories and jobs in our homeland. This investment and exodus have enabled those countries to build their productive and technological capabilities, and in the case of Communist China become the world’s manufactory, while thousands of factories were shut down and millions of jobs were eliminated in the United States. Restoring manufacturing in the United States no doubt will prove a rough transition, as just in the past two decades since free trade was opened, China has dominated the production of goods previously manufactured in our homeland.
Without leadership we will not be able to reverse course and the economy will continue to be dominated and run by the controlling ownership class, who continue to outsource supply chain and finished goods manufacturing, and even engineering and technology expertise to countries with far lower costs of operation and production.
The offshoring of production is the reason the United States is deficient in critical medical equipment, medicines, and supplies as Americans face widespread shortages in the midst of the COVID-19 pandemic. We have put ourselves at unnecessary peril.
For the controlling owners of American corporations, it was cheaper to relocate production offshore, invest and manufacture goods offshore, and import back the products to the United States. Expanded free trade was supported with tax breaks to corporations offshoring production. Thus, production and importing back for American consumption was made even cheaper and thus more profitable still.
While intermediate supply chain and final goods exported from Communist China to the United States have been halted in some industries, we have yet to rebuild and expand our own homegrown manufacturing capabilities, and, as a result, we remain dependent on foreign supply chain and finished goods production. Not only are we still dependent on China, but even products in Japan’s and South Korea’s supply chains are essentially made in China and other parts of Asia, with materials and goods delivered to those countries, and then exported to the United States. The same situation is true for goods shipped to Mexico from Asian sources and then exported as final goods to the United States –– or from Asia to Europe, and then to the United States.
The actions that got the United States where we are today include the failure to take United Auto Workers Walter Reuther’s advice to keep wages where they are and help workers get their increases from the bottom line. Reuther warned that higher wages would destroy entire industries by lowering their competitiveness in international trade. Had we taken Reuther’s advice, businesses would not have set up shop in slave-wage countries like China.
Why is broadening ownership so important? Ownership entails reaping the fruits of all contributions that one makes proportionately to the productive process, whether via the productive capital one owns or one’s labor, or both. A person’s labor is compensated either by wages or by a share of what the enterprise produces that is attributable to their labor contribution. It is important for ALL the employees to own shares of the companies that employ them to build a productivity culture throughout the organization. Owning thereby entitles workers to the rewards of their own labor as well as that produced by their proportionate share of the physical capital.
No one knows how much disruption our interconnected and service-oriented economy can endure, especially since the past few decades have seen a debilitating decline in and rapid exodus of our manufacturing capabilities. We should have instead been in constant retooling mode with restoration of our manufacturing capabilities and constant technological improvement through research and development. As a result, we no longer manufacture the clothing, appliances, electronics, furniture, cars, infrastructure materials, lifesaving medical equipment, medicines and all manner of supply chain production, necessary to live and consume in today’s world.
Such dependency is now painfully evident, as administrations over time have allowed us to become dangerously reliant on medical equipment and supplies, and drug production from Communist China.
While our production of critical medical equipment and supplies is woefully inadequate, China produces a reported 115 million N95 and surgical face masks a day, with a surplus so great that China can supply to countries in need.
If we hadn’t outsourced nearly all of our manufacturing with job-killing free-trade agreements, we would have had the capacity to manufacture testing kits for the COVID-19 disease and not been waiting on Communist China to send them to us (the lack of test kits, rapid testing and investigative contact tracing is the reason we lost the ability to spot and contain the virus). We also would have the ability to manufacture the N95 face masks, shields, gowns, gloves, lifesaving ventilators and other equipment the medical community is in a panic to have to meet the life-threatening challenges of the crisis. While we are supposedly among the world’s leading manufacturers of specialized lifesaving ventilators, supply levels are woefully inadequate and must be urgently ramped up to meet demand and for preparedness in the future.
The net effect has been a significant drop in our homeland production and our growing dependency on foreign production. Regrettably, producer-corporations have unnecessarily extended their supply chains and finished goods manufacturing to all parts of the globe and invested in lower-cost foreign production in order to boost short-run profits and share prices for their owners. As a result, the American economy is exceedingly vulnerable to external shocks to our supply chains as the world’s supply chains are fixing to buckle and freeze-up, thereby causing production and incomes to fall abruptly. In turn, shrunken incomes and cash flows will collapse the edifice of non-productive debt and speculation that has been piled atop the American economy.
This crisis should finally make everybody realize that there needs to be self-sufficiency for EVERY individual and the country. We must decouple our manufacturing reliance on other countries, to the greatest extent possible, and fully develop our economic infrastructure to produce in our homeland.
To change this dependency will mean a complete reform of our systems with a focus on educating our people, developing advanced technologies, and engaging in new manufacturing capabilities as well as overhauling what remains today research and development.
