Dragon heart

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Landmark & pragmatic reforms by Deng rescued China in the late 1970s. Around 30 years since, the stupendous Chinese growth story has inspired the entire developing world

He had taken China almost to the brink of disaster. Mao Zedong, the perpetrator of the Great Leap Forward (or backward, depends on whose side you are on) and the Cultural Revolution, had caused tremendous damage to human life as well as to the economy with his policies. Under Mao, (Deng was his close associate till he was disgraced and made to flee Beijing during the Cultural Revolution), China’s economy was completely State-controlled. The word “incentive” was banned in the poet revolutionary’s famed Red Book; and you had only to utter it to be dubbed a reactionary and to join the ranks of those such as Deng.

Disillusionment with Mao’s governance enabled Deng Xiaoping to return to prominence on the political scene in 1974, but actual revival commenced when he began unshackling the Chinese market in 1978. That was when the Chinese could actually see a boom other than that of babies! Once Deng got into the act, the initial reluctance to his policies gave way to emulation. None regretted the reversal any further – not even the dyed-in-wool Maoists, who found, to their enormous relief, that Deng’s ingenious brand of “capitalist socialism” was no threat to the power the party men wielded. Only the staunchest of Mao’s followers remain in opposition.

“Reforms are the only solution,” Deng advocated, explaining to comrades the danger of “tiptoeing along as slowly as women with bound feet.” And who can forget his most famous quote, “It doesn’t matter whether the cat is black or white, as long as it catches mice.” Deng’s Open Door Policy – thus named because it emphasises equal trading rights among participating countries – was announced in 1978. Under it four southern cities – Shenzhen, Zhuhai, Shantou and Xiamen – were designated as SEZs. Their geographic proximity to overseas Chinese communities like Hong Kong, Taiwan and Macau, and their vast overseas links, made their choice inevitable.

– were designated as SEZs. Their geographic proximity to overseas Chinese communities like Hong Kong, Taiwan and Macau, and their vast overseas links, made their choice inevitable. And ever since, China’s growth rate has been among the world’s highest – and between 1979 and 2000, at 9.5%, it was the highest. Its world trade ranking too has greatly improved – from number 27 in 1979 to number 3 in 2004. By then, it had approved well over half-a-million foreign fund firms and inward FDI had exceeded $1 trillion. In 2007, China’s national economy continued to exhibit features of rapid economic growth leading to increased efficiency and improved lifestyles. Preliminary estimates show that GDP for the year was 24.66 trillion yuan – up by 11.4%, or 0.3% higher than the previous year. It represented the fifth successive year of over 10% growth.

Is it any wonder then that, right since 1993, of all countries in the developing world, China continued to be the favourite investment destination while major global economies were heading towards recession? Dr. Song, senior research fellow, Chinese Academy of Social Sciences, Institute of World Economics and Politics feels that the very Chinese talent for attracting investors, with self-devised infrastructural & other inducements gives China its edge. Argues Dr Song: “The past 20 years have seen China’s economy grow at an amazing pace. Significantly, this growth, far from being a threat to other economies, is actually an opportunity to grow together with it. What we are seeing, is controllable sharing of the fruits of growth and development.”

As financial journalist R. Gopalakrishnan points out: “China’s basic strengths have lain in the low cost of raw materials and infrastructure. Export subsidies in China are believed to be in the region of 7% to 10%.” Even allowing for the occasional hype, there is no doubt that the volumes China regularly rakes in are altogether too large for objective observers to miss. The country’s economy is set to eventually surpass Germany’s, and is well on way to becoming the world’s second biggest power after the US.

Now China is increasingly investing in overseas markets and taking new risks. For instance, an overseas entrepreneur, Jacob Wood (born Hu Jieguo in Shanghai) has been building and consolidating his African business empire, the Golden Gate Group, for almost 30 years. The group includes hotels, restaurants, construction and real estate firms employing some 20,000 people, mostly Nigerians. China’s investments worldwide – especially in US – are colossal. US trade deficit with China has been rising at the rate of $1 billion a day. In a recent issue of Atlantic Monthly correspondent James Fallows rightly called it ‘The $1.4 Trillion Question’.

That question wouldn’t even have arisen had there been no Deng – the diminutive visionary who transformed China, turning it into the world’s Manufacturer-in-Chief and ultimately the global investor’s most favoured destination. Certainly there’s no question about that!

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Source : IIPM Editorial, 2008

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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