MindBullets 20 Years

Middle Kingdom reigns supreme

China beats the odds and the analysts and doubles its economy in a decade

China has proven all its detractors wrong – again. Despite predictions of economic collapse by global doomsayers, China has doubled its GDP in ten years, rising from the second most important economy to top spot, eclipsing even the United States, although not by much. How did the ‘Middle Kingdom’ do it?

China faced down its biggest demographic crisis, with the population segment that provides the workforce declining by 70 million people since 2010. Many feared this would precipitate a collapse, as the relaxation of the one-child policy was too late to boost fertility rates. Urban Chinese families choose not have more children, even if they are allowed to.

But China astounded the economists; there’s another side to China’s population imbalance. Men of the marrying age outnumber women by more than 12%, which means that young men are supremely motivated to be rich and successful, to attract a wife. This social drive has ensured China’s entrepreneurs opted for deferred gratification and continued to perform way above global averages, in innovative ways.

Alongside this gender-fueled ambition, operates a further cultural driver, the highest rate of saving and investment in the world; it’s a China tradition to put more into savings, both households and companies, than any other nation. It’s relatively easy to shift the economy more towards consumption, and boost growth. The reserves are there.

So how did China follow the model of Korea rather than Argentina of the ’90s, and avoid the middle class trap? A high level of savings and a powerful desire to outperform merely needed wise policies, and leaders, to ensure continued stellar growth. China had one other advantage; coming late to the game, its leaders could observe – and learn from – the mistakes of its predecessors.

Now China can reclaim its title of ‘Middle Kingdom’, the center of the world, and central to global growth. The question should not be how China got there, but rather: “Where to from here?” Is this the plateau for modern China’s supremacy? Or are there more wonders to come?

ANALYSIS >> SYNTHESIS: How this scenario came to be

The Middle Kingdom
Zhongguo is the most common name for China. The name is often translated as “Middle Kingdom.” The general concept of the term ‘zhongguo’ originated from the belief that the Zhou Dynasty was the ‘center of civilization’ or ‘center of the world.’ It would be normal for the Emperor of the time to consider his seat of power as the center of global affairs.
In modern times we refer to China as the East, and as China was relatively weak and poor it was relegated to third-world status. But now China reigns as the Supreme State, and may lay claim again to its title of Middle Kingdom.

2014: China Power
China has enjoyed more than a decade of phenomenal growth. China is now the second largest economy, arguably the only global superpower after the United States, and the leading country in manufacturing and trade. Since Xi Jinping became President there has been a new move towards the market, and in November 2013 the Central Committee made a key point to allow the market to play a more ‘decisive’ role in allocating resources and setting prices, rather than the previous stance that markets should only have a ‘basic’ role.

China has pulled hundreds of millions of people out of rural poverty and built some of the greatest cities in the world. Over half of China’s population live in cities, compared to 36% at the turn of the century, and the norm for urban Chinese is decidedly middle class. But 100 million migrant workers still call rural villages home. They’d rather be permanent residents of the cities where they work, despite the pollution and social ills.

2015: China Crisis
China is facing a demographic crisis. Even as they move to abandon the one-child policy, China is faced with a rapidly aging society. The youth cohort, so essential to the labour force driving the economy, is under-sized, and badly skewed towards the male gender. One in nine Chinese men cannot find a wife – competition for brides is fierce.
For a fast growing economy the lack of young workers is seen as a crisis, compounded by the fact that the older cohort is rapidly growing, leading to increasing healthcare and social burdens on the country. China is facing a crisis of its own making.

2017: Innovation Nation
China’s policies since Xi Jinping took over the reins are bearing fruit. There’s support for a freer approach to innovation and risk-taking, an entrepreneurial attitude that’s allowing many young adults to aspire to mega-wealth. Young men competing for a bride pursue the status, wealth and power of business success. They are driven by a primal instinct – survival of the species – to outperform. Innovation and entrepreneurship are the name of the game in China.

2020: Boomtime Bonanza
China’s growth benefits from a global fillip, as the world economy is once again on an upward trajectory. It looks like many countries have avoided the middle class trap, and gone for growth. China itself, such an integral part of the global economy, can make or break the boom, and unleashing China’s massive savings reserves towards increased consumption helps to offset flagging regions like Europe and Japan.

Migration to the cities, actively supported by the state, continues, with 61% of the population now permanent urban residents. A million rural villages have died, but hundreds of small and medium cities have been established. China’s big drive to fight pollution and protect the environment has also paid off.

2025: China Reigns Supreme
It seems slightly incredible, but Xi Jinping’s ambition has been realized. China has doubled its economy in a decade, and is now number one in the world. The combination of fierce competition for brides, political and economic reforms, and an enlightened policy of encouraging global cooperation and exchange of ideas, has countered the demographic penalty of an aging population. China has survived the China Crisis.
Now China is 70% urbanized, with world class pollution control and eco-policy. Labour constraints have been mitigated with technology innovation – robots and automation – and the economy balanced with domestic consumption. Agriculture has been transformed, and modern farming methods have replaced the subsistence plots of the previous century.
The Middle Kingdom is back. Where will it go from here?

Warning: Hazardous thinking at work

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