New Delhi, India -- (SBWire) --11/16/2011 --When I went to China a decade back, what I saw hit me very hard. I felt that if all of us in Delhi were to work 24x7 for 25 years, it would still be tough to convert Delhi into Beijing. That's the China I was expecting to see when I went there again last month. What I saw instead was an extra 25 years of growth in the last 10 years!!! If ten years back, there were gigantic roads but less cars, this time the roads were filled with American cars; brands which American companies haven't even cared to launch in India! If the last time I saw high-rise buildings, then this time I saw ten times more of them! If the last time I was amazed with Beijing, then this time I realized that we couldn't even become Guangzhou if we worked 24x7 for the next 50 years. I believe that every Indian politician must have a visit to China as a mandatory part of his induction process into the Parliament (especially the Communists of India who have also so shamefully cheated their respective states year after year), so that they are firstly aware of how they and their predecessors have cheated this country and secondly to know where a country can reach in no time! They say now that the Chinese economy has caught up with the American economy. In our book The Great Indian Dream, we had written ten years back about the same concept; and today I write that the Chinese economy has left the American economy far behind. Their products are so undervalued that no kind of calculation can show the real value of their humongous economy! And come to think of it, even a few decades back, China was seen with lot of scepticism owing to their political structure and a gargantuan population which was increasing by the day! But when we look at the nation today we realize that it took China just a few years' time to give this huge population a purchasing power and lifestyle that even many in the West are deprived of and to create an unfathomable miracle! What China did and is doing now is beyond the imagination of many nations; they created this gigantic economy by systematically planning at every micro level – and most importantly, taking its citizen along this growth path! Today, an average Chinese living in Beijing, or Shanghai is almost as well off as an average American living in New York or an average British living in London! So what exactly did China do?
Amongst a host of other things, China’s opening up of its Iron Curtain and freeing its economy from the shackles of central control in the late 1970s while still retaining its commitment to the poor literally brought about the miracle. Unlike in India, their very carefully planned liberalization allowed the nation to experience rapid strides in growth and above all lifted more than 500 million people out of poverty! Millions of peasants were granted freedom from the massive poverty by being allowed to follow their dreams. This freedom and shackle-free life led to rapid development in the manufacturing and service sectors in the last 20 years! All this came as a celebration of new hope for Chinese masses and a new beginning of entrepreneurial freedom! The new spirit and the new mission were well supported by increasing investments in infrastructure, education and various other social sectors that symbolized the Chinese rise in world forums and made China one of the most sought-after investment destinations. The freedom from poverty in turn also helped develop the agricultural sector – as the policy of ‘farmers can make their own economic decision’ led to millions of farmers' poverty cycle being alleviated! The rural household income doubled from 343.4 RMB ($55) in 1978 to 735.7 RMB in 2003. Between 1990 and 2005 the average per capita growth of Chinese economy was a staggering 8.7 per cent (highest among major economies)! The World Bank’s stipulated poverty line of $1 a day in Purchasing Power Parity corresponds to around 2,836 RMB per year (as per 2007 estimate)! As per this definition, China’s proportion of population below poverty line was 64 per cent in 1981; this dropped to an unbelievable 10 per cent by 2004 (India still has more than 40% of its population languishing below the poverty line as per purchasing power parity)! That’s Chinese poverty eradication – an exemplary and remarkable performance which is often quoted as a miracle – and an inspiration and case study for all developing countries across the globe.
The poverty alleviation programs undertaken by the authorities in the last three decades have contoured the modern China that is sparkling with confidence. Today, every Chinese is free to travel to any city to try and make a living there (Of course, cities do have resident permits; holders of such permits get subsidies in health facilities etc). Yet, one cannot find a single, real, poor person in the cities. No beggars, no slums and nobody sleeping on the streets! When poor can migrate freely, cities are bound to have slums if real poverty exists. In China, people come to cities for a better life and not because they were dying in the villages. The programs for poverty alleviation in China are carried out in 592 key counties over and above 74 counties in Tibet. In the distribution of prosperity, the Central and Western counties were the weakest links always. To address the economic gap, the central authorities from 1986 issued subsidized loans to the poor people – that was augmented from 1.05 billion RMB in 1986 to 5.5 billion RMB in 1996! Similarly, the “Food for Work” scheme was another flagship program in China where government spent 33.6 billion RMB between 1986 and 1997. Unlike other parts of the world where most of such programs are littered with corruption, the Chinese were successful in creating productive assets like roads, bridges, dams and other infrastructures across the nation. In the agricultural sector, reforms in agricultural taxes and other fees were implemented to relieve the farmers. In 2000, all the fees were abolished and replaced with a single slab agricultural tax – and later on in March 2004, amidst fear of WTO repercussions, the central government decided to eliminate the agricultural tax completely within the next 5 years. In the same year, more agricultural subsidies were introduced, which was followed by increased spending on rural infrastructure amounting to $25 billion! Finally, priority was given to improving transport infrastructure like building the expressways – these were increased from 147 km in 1988 to 25,130 km in 2002. In fact, it was not as simple as it sounds. Initially, the poverty reduction was uneven and was signified by widespread disparities between urban and rural population and also among different regions!
The coastal cities dotted with foreign funds and SEZs were responsible for the urban-rural divide that led to the cash-strapped hinterlands languishing behind. The problem was further compounded by the low skill level of masses, lower advancement of infrastructure, and dearth of proper transport! Even rural areas did not have a homogeneous income and lifestyle distribution. The rural industries, which began after liberalization, were mostly concentrated in the eastern region – thus generating income gaps among regions. Realizing the plight of rural China, the government introduced the “three-farm policy” to augment the agricultural produce and to make the farmers richer. The strategy was implemented with increased investment in rural areas, introduction of modern technology of farming, providing clean and corruption free administration, and financial help to the farmers. There is every reason to believe that the Communist Party of China took it vert seriously. The Chinese Premier of 2001, Zhu Rongji mentioned agricultural reform as the first task in the work report at the National People’s Congress. This policy of agricultural reforms was reinvigorated in 2004 with the introduction of newly set policy reforms for the sector. As I mentioned earlier, in 2005, finally all taxes from the agricultural sector were abolished! This move was complemented by a massive drive to improve rural infrastructure, provide safe potable water, clean energy, and construction of roads to improve transportation and communication. With all these steps in place, there was an unbelievable rise of income among rural folks; and with the rise of purchasing power, improvement in social sector like education, health, and sanitation, curbing of rural migration, and transforming of the socio-economic environment became inevitable.
Most importantly, China had designed their poverty eradication flagship program in such a way that once people got out of the poverty bracket, they couldn't fall back to the same state again in the future, which is unfortunately the case in many countries like India. With the amount of FDI flowing into China, the ever increasing employment opportunities and a booming manufacturing sector ensure that people become self-sufficient to maintain their levels of purchasing power parity. Thus, China has been able to not only alleviate poverty but also has made sure that its citizens make continuous improvements at the same moment.
China’s rapid progress that beats any other country in the world in poverty eradication, has been riding the wave of incredible growth not just in agriculture but also in manufacturing and services, where similar miracles have been witnessed! Between 1980 and 2002, the manufacturing sector registered the highest sector growth, with a compound annual boost of 11.3 per cent closely followed by the service sector with 10.4 per cent, while the agriculture sector between 2003 and 2008 experienced a massive growth rate of 18.4 per cent. The sector wise share of the total GDP on an average boils down to “industry” with 46.8 per cent, “services” with 43.8 per cent and “agriculture” with 9.6 per cent.
In the manufacturing sector, China hasn't look back from the liberalization that commenced in 1978. By 1994, FDI flow in China eclipsed 6 per cent of GDP. Foreign firms entering the country brought with them new technologies, technical knowledge and modern management practices. During this time, Chinese exports of finished merchandise skyrocketed; and by 2004, the manufactured merchandise share exceeded 90 per cent of the exports. This happened because of the brisk pace of industrialization – and as it is imperative in such a situation, the industrialization was also accompanied by financial market liberalization. High domestic savings led to enormous public spending on infrastructure and a huge pool of labour could be harnessed optimally by prudent labour reforms! From 1980s through 1990s, reforms to strengthen the pricing system and market institutions were implemented along with slacking of the State’s control on resource allocation. This was followed by banking sector reforms and reforms on public sector enterprises, leading to much of the State-owned factories being closed down. The government’s increasing decontrol over the economy led to rising private capital flow and comparative decline of public sector units. The share of State-owned units in gross industrial output value was only 28.2 per cent, a fall of 49.4 per cent over the previous two decades. During the two decades ending in 1999, private funds in gross industrial output value rose from a moderate figure to 56.3 per cent! Cumulative FDI those two decades was a staggering $400 billion! Thus, the high manufacturing sector growth was directly responsibly for steeply reducing poverty by directly creating employment for millions – this had a cascading effect on the higher purchasing power among China's populace that fueled further growth!
The manufacturing sector growth was initiated by opening up foreign direct investments in specific ‘Special Economic Zones’ (SEZs) – and as a windfall, foreign funds started to flow. China opened up its economy using SEZs to every nook and corner of the country. All these together enhanced the investors' confidence in China that turned the country into a manufacturing behemoth. Today, major brands across the world are now outsourcing their production through China! The coastal towns have been the jewel in the crown attracting an array of mammoth investments in manufacturing. For records, 90 per cent the said investments are private sector contributions, unlike popular belief.
The tertiary sector in China – often overshadowed by its much famed manufacturing sector – also developed rapidly in the liberalization phase, constituting 40 per cent of GDP, a figure that had grown from a mere 20 per cent at the beginning of the liberalization period! It is astonishing but true that from the mid 1990s onwards, the tertiary sector in China employed more people than either manufacturing or agricultural sector; employing 250 million people by the end of 2007. The number denotes 32.4 per cent of the entire employment roster and an augment of 20 percentage point from 1978. The two biggest components of the service sector are wholesale and retail (accounting for 7.4 per cent of GDP) and transport, storage and postal (accounting for 5.9 per cent of GDP). These sectors have a direct link with the manufacturing industries and form the front-runners in the Chinese export spree. After joining WTO in 2001, China claimed that it had liberalized in 9 service sectors and 84 sub-sectors that included construction, education and environment beside many other sectors in the same lines! As per data released by WTO, China’s exports of services touched $91.5 billion in 2006 with a rise of 23.7 per cent over the previous year making them the eighth largest exporter in the world! We all know China’s dominance in exports, but what is more surprising is that China’s imports of services has surpassed its exports as of 2006! The exact import figure reached $100.3 billion with a 20.6 per cent increase over its immediate previous year, ranking China 7th in the world! Total number of projects in 2006 was a humungous 15,024, an increase of 7.04 per cent over the year before, involving a capital utilization of $19.5 billion. In 2007, the total value of outsourced services was $465 billion – that subsumes IT applications with $90 billion, business processing with $170 billion, IT infrastructure with $85 billion and design and research with $120 billion, creating unprecedented employment opportunities for the Chines!
In fact, the Chinese plan has been so systematic, scientific and meticulous that one should not even think of comparing China with any other nation. And in the same lines, it is foolish to even compare India with China. Except for comparable population, there is nothing worth comparing. In China, the investment rate vacillated between 35-45 per cent in the last two-and-a-half decades in comparison to India’s 20-26 per cent. And mind you, Chinese investment means real investments, unlike ours wherein a majority of it is sucked up by unbridled corruption and inefficiencies! Even though the Incremental-Capital-Output-Ratio has been similar in both nations, China's investment on infrastructure is phenomenally larger than ours – India’s average of 2 per cent of GDP is paltry compared to 19 percent of China! No wonder, China is flooded with FDIs (being the second largest recipient of FDI in the world) which in turn provides enough revenue to further boost infrastructure investment and create mass scale employment opportunities.
Thus, they have created a cycle of fortune which India could not imitate. China’s growth pattern has also been different from that of India’s! China started with the development of its primary sector; and in the last 25 years, moved to the secondary sector, a move that made the country literally “the workshop of the world”! The enormous success of its manufacturing sector has ensured the doubling of employment and tripling of output in the last two decades. Comparatively, India jumped from the primary sector straight to the tertiary sector with little growth in manufacturing! In spite of the primary sector’s share in national income plummeting from 60 per cent in 1950s to 25 per cent in 2003, the sector still employs 60 per cent of the Indian workforce – this is causing low productivity employment for a majority of Indian labourers. The trade policy and trade pattern differs too. The relocative capital that entered China and thereby took exports to an enormous level, has been possible because of cheap labour, world class infrastructure, excellent transport facilities, and cheap housing, that substantially brought down labour cost. India’s public provisions on the other hand have been rather ordinary, which have not been able to buttress export oriented industries, resulting in lower level exports, investment and growth. Consequently, India’s poverty reduction has been much less successful than China’s – as poverty is rampant and extensive with 41.6 per cent of the population lying beneath the international poverty line of $1.25 a day. India’s own version of poverty line, as recommended by the Planning Commission – of Rs.26 a day for rural population and Rs.32 a day for urban population – is all of a laughing stock. As compared to this, as I mentioned earlier, China’s proportion of population below the international poverty line is a mere 10 per cent!
India was almost better off than China even till the 1960s! But after fifty years, China is now a massive, real superpower which has the strength to even look down upon the Americans, while we are in a make-believe world and don't even know what's the true meaning of a superpower. We don't even know where China has reached. If we want to change India, we need to take every Indian politician to China – from Sonia Gandhi to Rahul Gandhi to Lal Krishna Advani to Prakash Karat to Mamata Bannerjee... Because when they talk of poverty eradication, I find it a joke, for they do not even remotely know the meaning of poverty eradication or how soon it can be done – or how much of their type have betrayed this nation. They need to be taken to a city like Guangzhou and be taken on a crisscross ride on the city's roads so that they can see how they could be traveling on those roads for three hours, and yet not come across any road twice – with only world beating infrastructure peppered throughout. Comparatively, they should feel dwarfed with their deeds (Bangalore, our pride, might finish only in the very outskirts of Guangzhou). Our politicians should be taken to Guangzhou's annual Canton fair (where I too went) so that they realize how to attract foreign buyers. Delhi's so called trade fair complex “Pragati Maidan” looks like a prehistoric, dirty relic in front of the facilities at the Canton fair. Our politicians should be made to stand in front of the Bund Street in Shanghai and shown how one side of the street can be made into replica of Geneva which is ten times better, and the other side (with a river) can be made to look far better than New York's skyline in only a matter of twenty years. And that's why there are no revolts in China, which the capitalists keep dreaming of – while people in the West are today demanding to occupy the Wall Street. Because the lack of freedom of expression in China is similar to say in Dubai – where you can't speak negatively about religious issues – in China, you cannot speak negatively about the premier (actually you can do that too, but it's just that you cannot attempt a movement against the high command), but you can write about corruption in the government in the papers; you can criticize their policies; you can migrate from villages to cities; you can go abroad; you can even buy Gucci and drive a Mercedes! There are no revolts because every citizen of China sees a committed political party; they are seeing their brothers and sisters becoming better off by the day. And when they come to cities, they see how these are being transformed into leaner, more modern and bigger than the New Yorks and Londons of the Western world. It's a shame that in India, we can't boast of the same. What a gigantic betrayal of a nation.
IIPM Prof. Arindam Chaudhuri on if We Want a Poverty-free India, Every Indian Politician Must Begin Their Career With a Trip to China!