Asia Pacific

China is Becoming a Middle-Class Country


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October 21, 2014 12:49 EDT

In the wake of the 2008 economic crisis, the developing world has been drawing conclusions about systems of government in the West.

I was recently in Hangzhou attending a Global Investment Conference organized by Euromoney. At one point in time, Hangzhou was the capital of China and the biggest city in the world. It is about 200km from Shanghai, or an hour’s journey on the high-speed train — a trip I was told costs only €10.

Hangzhou was a center of the silk business and was visited by Marco Polo. Silk from Hangzhou went along the ancient Silk Road all the way to Europe, thereby making the city one of the world’s first globalized economies.

I spoke in Hangzhou just as the Asia Europe Economic Meeting (ASEM) of heads of government was taking place in Milan. As the president of the European Council, I attended the first-ever ASEM meeting in Bangkok in 1996. I met the mayor of Hangzhou and key commercial and political figures.

A Middle-Class Country

Since 2010, there has been a huge surge in outward investment from China in the rest of the world, jumping from €6.1 billion to €27 billion in just three years. This investment is going into buying high-tech companies — those with globally-known brands — and tourist resorts. Just as China’s export drive enabled it to not only gain income but also to increase market knowledge, this wave of investment is also designed to strengthen Beijing’s global competitiveness and sophistication.

Children in Shanghai are getting the highest test results in Math, Science and Reading comprehension in the global Programme for International Student Assessment (PISA) tests, which show they will provide strong competition for European children in the global economy. Irish universities are accepting Chinese students and also investing in developing university facilities in China. This will help China to become a high income economy, with its people enjoying lifestyles that will make similarly exorbitant demands on global resources, like the ones already being made by European and American consumers.

Wage levels are rising fast in China, as demand for workers is beginning to exceed supply — partly thanks to the one child policy. China is losing low cost jobs to Vietnam and Mexico, so it has no choice but move higher up the value chain.

… people in the developing world are watching European and North American democracies, as we squabble about how to restore dynamism and optimism in the wake of the 2008 economic crisis. 

There is a shift in the allocation of credit away from big, relatively inefficient, state-owned heavy industries, and instead toward privately-owned businesses in the consumer goods sector. While the raw gross domestic product (GDP) growth rates in China may decline as a result, the lifestyle enhancing quality of future GDP will improve.

China is becoming a middle-class country, with middle-class tastes and material aspirations. With wealth comes anxiety, as many Chinese want to invest some of their savings overseas. This provides opportunities for the Irish international financial services industry.

While I was in Hangzhou, the protests in Hong Kong were still under way. Protesters wanted anybody to be eligible for election, not just candidates approved by a single nomination committee. I read an article on this controversy in the China Daily by Indian Professor M.D. Nalapat, entitled  “Hong Kong Must Avoid the Democracy Trap,” which challenged the notion that, at every level of economic development, democracy is a guarantor of economic success. He said:

“Political chaos can act as a speed breaker for rising Asian economies, dampening the challenge they pose to western counties. Iraq, Egypt, Libya and Ukraine are examples of countries where hundreds of thousands of youths believed that replacing of existing structures through street protest would result in a better life. Instead what they have got are deteriorating living standards and  increasing insecurity.”

This is unfortunately a fair comment, and demonstrates the danger of making exaggerated claims of automatic economic advantages from any change of governmental system. Democracy requires patience and self restraint, sometimes absent in recently liberated societies.

Nalapat went on: “Hong Kong is still moving upward, when the present generation in the US and the EU are worse off than the generations preceding it.”

This  is a  superficial comment. Mature economies will never have — or need to — the same rates of economic growth as economies like China, which are in the “catch up” phase. Indeed, there is a case to be made that, beyond a certain level of economic development, diminishing returns in human wellbeing and environmental quality set in. Five percent annual growth rates cannot continue to infinity — anywhere in the world.

It is unsurprising that an article like Nalapat’s should appear in the China Daily, but it is troubling that it should be written by an Indian — an inhabitant of the world’s largest democracy; a country in which there are 3 million freely-elected legislators at differing levels of government; and with real competition between parties, unlike the tightly-controlled system in China.

But Professor Nalapat shows that people in the developing world are watching European and North American democracies, as we squabble about how to restore dynamism and optimism in the wake of the 2008 economic crisis. People in the developing world are drawing conclusions about our systems of government, and the capacity of those systems to enable us to get our economic act together and democratically reconcile citizen expectations with economic realities.

The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy.

Chungking /


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