China’s Global Tectonic Shifts: The Dawn of a New Era

By Jean-Pierre Lehmann

China has new political leadership. The newness of the new era, however, is by no means limited to the new leadership. The new era reflects a number of fundamental shifts taking place and arising challenges in China’s economic, social, ecological, demographic, political and geopolitical landscape. All of these will obviously have a profound impact on the rest of the world. In describing the transformative forces of these shifts and their consequences, the article first takes a historical perspective in identifying China’s position in and view of the outside world. Whereas the first and second tectonic shifts of isolation and subsequently exploitation spanned several centuries, the last two have been occurring with great speed. From having rejected globalisation in the past, China has come to embrace it, with monumental consequences for China’s 1.4 billion people and for the remaining 5.6 billion citizens of this planet.

Tectonic Shift I – Splendid Isolation

Two things happened in the 15th century. China turned inwards and Western Europe, with the Portuguese seaborne empire in the vanguard, looked across the seas. The consequences have endured for centuries and only in the last few years has there been a perceptible shift away from a Western dominated world.

This outcome would have been extremely surprising to an acute observer of “global affairs” in the early 15th century, say 1420. At that time Western Europe was a somewhat backward region on the western periphery of the Eurasian continent. The great maritime power was China. Under the brilliant command of Admiral Zheng He, Chinese fleets undertook seven major voyages in the years 1405 to 1433. Thus the acute observer of global affairs would have concluded that the country most likely to dominate the planet would have been the China. The Europeans were not even in the same league at the time; only several decades later did Christopher Columbus cross the Atlantic with his small fleet of three ships and thereby expanded the “age of discovery” to include the Americas from which the Western colonisers were to reap tremendous wealth. But in one of the most amazing turn-rounds in history, after the Zheng He’s last voyage the Ming court decided that the voyages would cease, the fleet was destroyed, foreign maritime travel was banned, and populations living on the coastlines were instructed to move inland. China opted for splendid isolation.

For some four centuries this isolation was on balance splendid. Having turned its back (literally!) on the sea, there was immense room for development and consolidation of the Chinese continental empire. Indeed the Ming dynasty (1368-1644) and the early period of the subsequent Qing dynasty (1644-1912) were periods of great material and cultural wealth. In 1500 China’s share of global GDP was estimated at 25%, by 1700 it had increased to 29% and in 1820, just prior to the First Opium War, it stood at 33%1 . Indeed the splendour of China was legendary. Jesuit missionaries were struck not only by the material splendour, but also by the great reservoirs of wisdom contained in Chinese philosophy, Confucianism in particular. Their laudatory accounts of China in the 17th century inspired European enlightenment philosophers of the 18th century.

While one great mystery of Chinese history is that it did not build on and expand its initial maritime achievements, but chose instead to retrench and close itself off from the world, another great mystery is that China failed to launch the industrial revolution. Until the 18th century China was well in advance of the West in science, technology and engineering2 . Yet, just as China ceded its place to Portugal (and the subsequent European seaborne empires) in maritime discovery, so it ceded its place – ultimately with devastating effect – to Britain in the industrial revolution.

 

Tectonic Shift II – Slicing the Melon

The legendary wealth of China caused the new entrepreneurs and traders of the West to drool at the possibilities, encapsulated in the slogan among English merchants in the 1800s that “if every Chinaman could add an inch of material to his shirt tail, the mills of Lancashire could be kept busy for generations”. What ensued brought about a tectonic shift for China and for the world. In essence: the British (and other Westerners) wanted to trade, the Chinese did not, the British discovered a huge Chinese parallel market of opium, Britain grew the best opium in its colony in Bengal, hence British ships transported Bengali opium to China; when the Chinese authorities sought to prevent the trade, Britain went to war and China lost – really big time!3

No country has experienced as precipitate and total decline as China did in the 110 years from the first Opium War in 1839 to Liberation in 1949. China’s share of global GDP plummeted in those years from 33% to less than 4%. China’s decline was much more than “just” economic. It was humiliated as a people and a civilisation through the imperialist activities of the West and subsequently Japan. Though it was never colonised outright as India, the Chinese revolutionary leader Sun Yat-sen described China as a “poly-colony” in that it was exploited by a collection of states and not just one state as in India. When China was at its weakest following the war it lost against Japan in 1894/95 the dismantling of the country into multiple “spheres of influence” was referred to by the imperialist powers as “slicing the melon”.

 

Tectonic Shift III – Maoist Isolation

The Liberation in 1949, following war with Japan (1937-45) and civil war (1956-49), was meant to represent the overthrow of the oppressive Chinese feudal classes (mainly landlords) and the imperialists. In his first speech in Tiananmen Square in October of that year, Mao proclaimed: “the Chinese people have stood up! Never will China be humiliated again”. Mao by and large held true to his word. Sovereignty was regained and China became a respected, even occasionally feared, member of the international community. It was Richard Nixon who had to travel to Beijing to kowtow to Mao Zedong in order to renew US-China relations and not the opposite.

While Mao succeeded in restoring China to a dignified place in the world, the record on the economic front was an unmitigated disaster. For one thing Mao restored the policy of isolation. Throughout his reign foreign economic ties were kept to an absolute minimum, while autarky was stressed. Mao also carried out catastrophic policies with the Great Leap Forward (1958-1961) and the Great Proletarian Cultural Revolution (1966-1976). By the time Mao died in 1976 China’s share of global GDP continued to stand where it was when he took power: at less than 4%. China’s population on the other hand stood at 23% of world population. China was poor, poor, poor.

 

Tectonic Shift IV – Embracing Globalisation

The leading Chinese intellectual and reformer Zheng Bijian has written: “The most important strategic choice the Chinese made [in 1979] was to embrace economic globalization rather than detach themselves from it”4. In his latest book5 , British author Jonathan Fenby has brilliantly encapsulated the momentousness of the event: “In 1949 Mao changed China, in 1979 Deng changed the world”.

In fact this tectonic shift to embracing globalisation can be divided into two phases: a first experimental phase (1979 to roughly 1992) and a second exuberant phase (1993-2010). Both phases can be encapsulated in quotations from Deng Xiaoping. In the experimental phase Deng urged that “we should cross the river by feeling the stones”. In other words, if something worked fine, if it did not, then take a step back. The second phase can be dated from Deng Xiaoping’s famous “southern tour” in 1992 during which he is alleged to have said: “to be rich is glorious”. Whether he actually said it or not for our purposes does not matter too much as in fact this is what proceeded to take place. The hesitations and restraints of the first phase were removed, as the Chinese economy headed not only for sustained double-digit growth, but also to amazing expansion in terms of wealth and global clout.

In the first phase the experiment included the opening of special economic zones (SEZs) in which global activities (trade and foreign direct investment) were to be concentrated. Initial investors were primarily from Hong Kong and Taiwan. As the experimental period continued, Western, Japanese and Korean multinationals also began to flood in. China’s opening up occurred also at a time of great transformations in information, communication and production technologies, with notably the development of global supply chains. Thus, while the East Asian growth model had been based on export-oriented policies, China consisted of inward investments, assembling and export. In 1986 China formally applied for accession to the GATT (later to become the WTO); it would take fifteen years before it was able to become a member (in Doha in December 2001).

The opening-up of the economy presented the Chinese government with certain problems. For one thing throughout much of the experimental period China experienced rampant inflation, something not seen since the 1930s and 1940s, reaching over 18% in 1989, the year of the Tiananmen massacre. More reactionary members of the Party also expressed concern that the economic opening up was resulting in what they referred to as “foreign spiritual pollution”, namely poisonously dangerous ideas emanating from outside. As the country experimented with economics, so emboldened youth experimented with foreign cultural and political imports.

With the events in Tiananmen in June 1989 it seemed that China might end the experimental phase and retreat back into isolation. There was a period of uncertainty. This in turn was ended with the legendary southern tour of Deng Xiaoping in 1992 which powerfully rebooted the momentum of economic reform. In the course of the 1990s and early 2000s it was clear that the experimental phase was over and that China had now entered a phase of full engagement with globalisation. What subsequently occurred was quite literally amazing and certainly unforeseen.

Between 1978 and 1990 the Chinese economy expanded 26 times, albeit from a very low base. In 1990 it stood as the 10th biggest world economy; by 2001 it was in 6th place and in 2010 it overtook Japan to become the world’s second biggest economy. While economic forecasts are notoriously risky, it seems reasonably safe to foresee that the Chinese economy will overtake the US in aggregate GDP before the end of this decade. Furthermore, from having been a negligible dot on the global trade horizon, it is now a colossus. In 1990 China’s share of global trade stood at 4%; by 2010 it had risen to 20%, while global trade itself had expanded from $3.5 trillion to $15.5 trillion, hence China’s total trade (exports + imports) from $138 billion to $3,122 billion. As recently as 2000, China was the first-or-second-largest trading partner of only 13 countries, accounting for 15% of global GDP, whereas by 2010 it was the first-or second-largest trading partner of 78 countries, accounting for 55% of global GDP.7

In 2011 China corresponded to 14% of total African trade, making China Africa’s biggest trading partner. Since 2009 China has also disbursed more loans to Africa than the World Bank and has been hyper-active in investments especially in infrastructure, mining and land.

In embracing globalisation in 1979, three decades later it was clear that China had really gone global. China was present literally everywhere. In 2000 China corresponded to 2% of total African trade; by 2011 it was 14%, making China Africa’s biggest trading partner. Since 2009 China has also disbursed more loans to Africa than the World Bank and has been hyper-active in investments especially in infrastructure, mining and land. The same narrative applies to Latin America. In 2000 China was Brazil’s 12th trading partner; by 2008 it became 1st. These phenomena are by no means limited to developing countries. For example, whereas in 2000 Germany exported about thirty times more to the US than to China, by 2012 the two destinations stood neck to neck. As to the US, not only is China prominent as a trading partner, it is also, in Hilary Clinton’s words, “the US’s banker”, with China having purchased over $1 trillion in US treasury bonds.

China’s third tectonic shift must stand out as one of history’s most extraordinary narratives, not just in terms of the depth of the trough to the height of the peak, but especially in the amazingly compressed time in which it took place.

 

Tectonic Shift V – Engine of Globalisation


A caveat by way of preface to this section. By no means is the title meant to imply that China is about to rule the world, that it will succeed the US as the global economic hegemon, or that other economies pale into insignificance compared to China. This is clearly not the case nor the scenario. Having said that, it is equally clear that we will be living in a far more Sino-centric world. Ten years ago (in 2002) Supachai Panitchpakdi8, at the time Director General of the WTO, succinctly set out what China represents to the world. Ten years later his words resonate even more and will continue to do so over the coming decade:

Whether it’s looking out over the next few years or the next quarter-century, how the world’s most populous country handles the many developmental challenges it faces, will go a long way toward determining what kind of world we inhabit.Pick an issue – the environment, the military, international affairs, or the global economy – China’s choices will have a major impact on Asia and the world.If China makes the wrong decisions, the result will be chilling, not only for the country’s 1.3 billion citizens but for many people beyond its borders as well.Conversely, a China that successfully makes the transformation to a relatively affluent, open society will be both an inspiration to other countries and a locomotive that will help to power the world’s economies.

China’s remarkable trajectory during the third tectonic shift notwithstanding, in the course of the last few years it was becoming increasingly clear for a wide variety of reasons that there was a need to shift course. This shift and the new goals are effectively laid out in China’s 12th 5 year plan9 . In essence the plan seeks to tackle what outgoing Premier Wen Jiabao has categorised as China’s economy’s “Four Un’s”: unstable – due to rapidly rising inequality and social tensions; unbalanced – between the coastal regions and inland and between urban and rural areas; uncoordinated – because of far excessive capital investment and export at the expense of consumption, welfare and services; unsustainable – because of the detrimental environmental effects of China’s high speed industrialisation and weak enforcement of the rule of law.

Permeating throughout the 5 year plan and many Chinese official pronouncements is the emphasis on the key Confucianist concept of “harmony”. Confucius lived (551-479 BCE) at a time when China was in a state of great turmoil; restoring harmony was the principal objective of his political and social teaching. Throughout much of history, as indeed is the case at the moment, harmony has been elusive in China with periods of disharmony at times leading to chaos. As the new Chinese leadership takes over, with Xi Jinping replacing Hu Jintao and Li Keqiang succeeding Wen Jiabao, the restoration of harmony on all domestic and foreign fronts will need to be a key priority. This is crunch-time for China and for the world.

Permeating throughout the 5 year plan and many Chinese official pronouncements is the emphasis on the key Confucianist concept of “harmony”.

It is generally seen that the serial suicides at Foxconn factories in 2010 – with labour disputes breaking out in many other sites – symbolise the transition from one era to another and the challenges China faces. There are five highly inter-related challenges that China faces and that it must successfully address in order to transit successfully to the next stage of its development and thereby avoid falling into the middle income trap, massive social unrest (à la Tahrir Square), acute environmental degradation, political instability and foreign conflict.

These are: demographic – in the previous tectonic shift the Chinese industry was able to benefit from an abundant supply of young, cheap, mobile and passive labour, which no longer applies as the population ages rapidly and the share of the working age (15-64) population diminishes dramatically; social – the lifting of hundreds of millions from poverty and the emergence of a huge urban “middle class” has generated rising social expectations that are thwarted by poor governance, corruption, cronyism and rampant inequality all putting increased pressures on the leadership for greater accountability; environmental – not only is China emitting more CO2 gases than the US in absolute terms, but it is also reaching US levels in per capita terms, making China’s ecological situation an immense threat and potential disaster; economic – the erstwhile successful model has become clearly unworkable and unsustainable for the demographic, social and environmental reasons given, thus requiring China to develop a new model based more on consumption, on social wellbeing (e.g. in the provision of public goods), services, higher value added production and innovation, especially in developing green technologies; political – the four factors cited above underline the fact that the Chinese political system cannot function effectively in view of the much more complex and sophisticated challenges it is facing on all fronts, which many, including members of the Chinese Communist Party, recognise as being an imperative for political reform, with the jury still being out on whether the new leadership will be able to rise to the challenge; geopolitical – China’s peaceful rise scenario appears increasingly doubtful as the country has become embroiled in a number of quite serious spats with a number of its neighbours and also strained relations with the US. While China is not yet a military super-power, its defence expenditure continues to rise as do its extensive global economic commitments, bearing recognition to the fact that there has never been a global economic power that has not also had global military might.

China’s rise has continued – even if the rate of economic growth appears to be slowing – in part driven by its internal dynamics, but also in relation to the erstwhile established economic powers and locomotives. Thus, China’s rise stands in contrast to the decline of the EU, Japan and the US. This is true not only in respect to global trade and investment, but also increasingly to global finance. According to Petersen Institute of International Economics economists Arvind Subramanian and Martin Kessler10 , more and more countries in East Asia track the renminbi more closely than the dollar – South Korea, Taiwan, Indonesia, Malaysia, Singapore and Thailand – as well as further afield, for example India, Israel, Chile, Turkey, and South Africa. The authors affirm that “if China were to liberalise its financial and currency markets, the lure of the renminbi would broaden and quicken” and they see this development as one more important marker in the shift of economic dominance away from the US and towards China”.

This is, as the sub-title of the article inferred, the “dawn” of the new era, of the latest tectonic shift. What the ensuing years will be like of course no one knows. Needless to say China and the world in 2020 are as likely to be as different from what they were in 2010 as they were in 2000. In seeking to assess where China is going to, it is vital to understand where it has come from. As Winston Churchill famously said, “The farther backward you can look, the farther forward you are likely to see”. This is especially applicable to China which not only has a very long history, but where there is a high degree of historical awareness.

While China’s globalisation has been presented here in terms of five tectonic shifts, in fact it can be said that in 1979 Deng Xiaoping re-opened a volume that the Ming Xuande Emperor (the one who ordered the end of the maritime voyages) had closed in 1433. The often cited “quotation” from Napoleon in which he is alleged to have said “China is a sleeping giant, when it wakes it will shake the world” is almost certainly pure fabrication as there seems no evidence that he ever said any such thing. He must however be kicking himself in his tomb for not having said it as it is in fact brilliantly apposite!

About the Author

Jean-Pierre Lehmann is Emeritus Professor of International Political Economy at IMD, Lausanne, Switzerland. He was the founder in 1995 of The Evian Group, a coalition of global corporate, government and opinion leaders, committed to an open, inclusive and sustainable global market economy. He is also visiting professor at the Hong Kong University Faculty of Business and Economics. He is an active participant in numerous international forums. His latest book, co-edited with his son Fabrice, is Peace and Prosperity through World Trade, Cambridge University Press, 2010. He obtained a Bachelor in Science in Foreign Service (BSFS) from Georgetown University (1966) and his D.Phil (doctorate) at Oxford University (1976).

References

1. Angus Maddison, The World Economy : A Millennial Perspective (OECD, 2001)


2. See the multi-volume work of Joseph Needham, Science and Civilisation in China (1954-2004)


3. The background and story of the Opium Wars are brilliantly captured in the Ibis Trilogy by Bengali novelist Amitav Ghosh, two volumes of which have been published: Sea of Poppies (2008) and River of Smoke (2011)


4. Zheng Bijian, “China’s Peaceful Rise to Great Power Status”, Foreign Affairs, September/October 2005


5. Jonathan Fenby, Tiger Head Snake Tails : China Today, How It Got There and Where It Is Heading (2012)


6. Financial Times, “China Beyond the Conveyor Belt”, 14 October 2012


7. Supachai Panitchpakdi, with Mark Clifford, China and the WTO: Changing China, Changing World Trade (2002)


8. For a full English translation of China’s 12th 5 year plan, see : http://cbi.typepad.com/china_direct/2011/05/chinas-twelfth-five-new-plan-the-full-english-version.html


9. Arvind Subramanian and Martin Kessler, “China’s currency rises in the US’ backyard”, Financial Times, 22 October 2012.