Why China succeeded while other BRICS failed?
A lot of people ask me why I have always been much more optimistic about China’s future than other emerging economies. Here is my take.
Chinese people are hungry to be #1
You need to live in China to feel the level of ambition and determination of the people in building a prosperous country. Chinese citizens want to change their lives and are using the window of opportunity open by the government in the late 1970's to ascend socially. We’ve seen this level of commitment in the America post-war, in the Japan of the 1960’s, the Singapore, Korea and Taiwan of the 1980’s and the Chile and the baltic countries of the 1990’s. The difference is that China is so big and diverse that its inevitable fate is to become a superpower.
In China, you don’t see anyone complaining about life or hanging around in the streets. The Chinese are always busy, doing something productive and thinking about their future. I’ve never witnessed such hardworking, determined and smart people. This collective mindset, driven by a powerful central authority, is one of the main reasons for the rise of China. The Chinese are tired of invasions, occupations, civil wars and “cultural revolutions”. They are ambitious, impatient and are already changing their fate.
I don'’t see the same sense of urgency in people from Brazil, Russia, India or South Africa.
Deng Xiaoping was a simple man of peasant origin born in Sichuan province, who studied and worked in France before the second world war. Deng was not the natural successor of Mao Zedong and his ideas shocked frontally with the ones of the great leader, so he was persecuted during the years of the cultural revolution.
Somehow, after Mao’s death, he outmaneuvered his protégé Hua Guofeng and became the general secretary of the communist party of China. Deng is the de-facto architect of change of modern China and, in my opinion, the most brilliant statesman of the 20th century. He implemented the socialism with chinese characteristics and created a very original development model for China.
Deng knew exactly what China was in 1979: an extremely poor, divided, devastated (both ideologically and structurally) pre-industrial country with a huge population in the age of maximum productivity. So he smartly decided to build an export-driven economy starting with the Shenzhen Special Economic Zone (SEZ). Although great sacrifices have been made by the workers to achieve the current status of “Factory of the World”, the model proved to be the right one for the country and its people.
Deng is often criticized to have ordered the Tian’anmen massacre and the murder of thousands of innocent chinese. However, in the subsequent years, his leadership and economic vision for the country lifted hundreds of millions of people from absolute poverty. If he hadn't ordered the repression of 1989, there wouldn’t be the modern China of today.
Some believe his autocratic and ruthless time in power can be now seen as the lesser of two evils.
Infrastructure X Long Term Planning
As cliché as it sounds, China is building the country thinking about the next fifty years and not the next 5 years. From power generation, real state to airports, roads and railroads to tech innovation, it does look like the country of the future to me. And it is happening everywhere, not only in Shanghai, Shenzhen or Beijing. You just need to travel throughout China to observe the astonishing changes in the landscape and people's behavior embracing change. Even a year makes a difference.
The infrastructure buildup is only possible due to the long term planning of the central authorities. Most cities have a fifty year plan laid out. And every five years, China comes up with new development guidelines according to the reality of the world and the momentum of its economy. For instance, from 2011–2015, the focus was to transform China into a market-driven economy. From 2016–2020, the country wants to accelerate urbanization and eradicate poverty.
Non-sayers will argue this is only possible because of the autocratic regime of the communist party and they’re probably right. Below, you can observe an amazing comparison of Lujiazui area in Shanghai. The first pic was taken in 1990 where you can see farmland and very archaic factories. The pic at the bottom was taken in 2016 by me and shows a “Blade Runneresque” business district.
Meanwhile, the majority of emerging countries, in the last decades, have been blessed with corrupt, autocratic or populist leaders who focus on the short term and personal gains for themselves and their friends.
The JV Model
You often see multinationals complaining about the compulsory joint-venture method to conduct business in China. I can tell you they’re right, it is a pain in the ass and rarely friendly to investors. However, what is perceived as bad for foreign companies is actually very good for China. Someone said once that to become a superpower, you need to defend your national interests in the first place. And this is what China is doing with the JV model.
Think about it. China is absorbing managerial experience and technology from the top companies in the world. The game is simple: China gives access to its market of 1.4 billion people and, in exchange, learns, copies and later creates its own innovations. This is often underestimated by historians and commentators, but the model is proving crucial to develop the country past its manufacturing capabilities.
The China of today is already a technology powerhouse. It has its own internally developed technology for nuclear energy, civil and military planes, spaceships, cars, bullet trains, supercomputers, Internet companies, microchips, 4G and 5G wireless standards, construction methods and even business models. China is now the largest depositary of patents in the world (although most of them don’t resist some scrutiny). Now think about China's BRIC competitors.
Brazil, for instance, had a very early industrialization in the 1960s and 1970s and created super competitive companies which were leaders in their fields such as Embrapa (Agriculture), Petrobras (Oil) and Embraer (planes). In the last decades, due to corruption, political interference, mismanagement and lack of a clear vision for the future, these jewels of the crown were outpaced by foreign competitors or crumbled. Brazil still has no semiconductor factory, technological capacity and continues to be a commodity exporter.
Russia also suffers from the same fate as Brazil but its case is even more tragic. The country with such an awesome educational system and some of the most brilliant minds in the world became an oil and commodities' kleptocracy. It does not make any product that customers around the world want to buy, with the exception of weapons and hackers.
India is progressing slowly and the best minds are still outside the country. Its poor infrastructure, small internal market, bureaucracy and complex social fabric don't help and render the country uncompetitive relative to China.
For me, it is very clear the unfair JV model worked pretty well for China; not necessarily for the rest of the world.
China can be considered a quasi-dictatorship but there are many nuances. First of all, dictators are not always competent and the chinese government is extremely competent and efficient. Secondly, they learn very fast and react to changes in the mood of the their population and the world. I.e.: very tough anti-graft laws. Thirdly, they think strategically not only militarily but economically, socially and politically. Last for not least, they don’t oppress their people as hard as most dictatorships do.
In China, if you’re evicted from your home, you get paid reasonably well. You can complain about public works (such as the installation of a new maglev train line) and still win the cause in the justice. But you cannot exercise rights that are taken for granted in democratic countries such as freedom of speech or freedom of assembly; and the legal system privileges connections over justice. Nonetheless, most people are ok with the tradeoffs because they have a much better life than their parents ever dreamed of.
Actually, I believe the Chinese government can get away with the censorship and other characteristics of an authocratic state because a majority of their population (mainly the ones living in the countryside) is still not ready for western style democracy for a myriad of factors, including the cultural roots of a confucianian society and the lack of references perpetrated by communism during 40 years.
However, I also believe that dramatic changes in the Chinese political system will occur in the next twenty years. In the same way China kicked-off economic reforms in the 1980’s, I am confident the government will start political reforms soon because the population will demand it. China cannot become a creative and innovative economy without the constituents of modern democracies.
The Chinese government will need to accomodate the natural urge of freedom from their middle class citizens and elites at some point in time. I bet China is more likely to become akin to Singapore or Hong Kong.
The population of 1.4 billion people allow China to pursue the current development model for two more decades before totally pivoting to a more modern service based economy. They still have time to figure how protectionism, automation and artificial intelligence will impact their future.