Author: wchao37

1976-2006 -- watershed years to initial prosperity [Copy link] 中文

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Post time 2006-1-23 11:42:35 |Display all floors

We have probably overtaken France in GDP

It's a steady-state economic miracle.

CD just had a post talking about China having overtaken France in GDP growth in 2005.

I want to upload this as a landmark endpoint of reference in the discussion on everything that happened in the thirty years from 1976 to 2006.


China's economy may have overtaken France
Updated: 2006-01-23 10:43

China probably overtook France as the world's fifth-largest economy in 2005 as a record trade surplus and surging investment drove the fourth straight year of more than 9 percent growth.

Gross domestic product increased 9.8 percent, according to the median estimate of 23 economists surveyed by Bloomberg News. The economy grew 10.1 percent to $2 trillion in 2004. The statistics bureau will report GDP and other economic data for 2005 on Jan. 25 at 10 a.m. in Beijing.

The government is stepping up efforts to increase consumer spending in a nation where per capita incomes are still a 16th of France's, supporting the economy as it curbs runaway investment in steel plants and real estate. That may bolster demand for Ford Motor Co. cars and Nokia Oyj cell phones.

``China's economy will have very strong growth but the model will be different,'' said Jason Jiang, chief executive of Focus Media, China's biggest outdoor advertising company, which counts Nokia and Ford among its clients. ``Chinese people now have greater purchasing power and they are willing to spend because they are more optimistic about the future.''

A nationwide census completed last year revealed millions of previously unaccounted-for companies in service industries such as retailing, real estate and the Internet. The survey led officials to conclude that the economy was $284 billion, or 17 percent, larger than previously thought in 2004.

Driving Force

After the revision, China moved up to sixth place in the economy rankings. The U.S.'s $12 trillion economy stands at No. 1, and Japan's is the second-largest, at $4.7 trillion. Germany and the U.K. are also still ahead of China.

On Jan. 9, the statistics bureau raised its estimate for 2004 GDP growth to 10.1 percent from 9.5 percent to reflect the census findings. The National Development and Reform Commission, the nation's top economic planning agency, on Jan. 5 said the economy likely expanded 9.8 percent in 2005.

China's economy probably expanded 9.5 percent in the fourth quarter, according to the median forecast of 21 economists surveyed by Bloomberg News. The statistics bureau hasn't issued revisions to historical quarterly growth figures.

Growth may cool to as little as 8.5 percent this year as China keeps lending curbs on investment and last year's record $102 billion trade surplus narrows, the agency's research unit said in a report in the official China Securities Journal. Economists surveyed by Bloomberg News forecast 9 percent expansion. Japan's government expects GDP growth of 1.9 percent this year.

``China will still be a very important driver'' of global growth, said Stephen King, head of global economic research at HSBC Holdings Plc. ``We've already seen from last year's upward surprises that it has a big impact on energy prices globally, on commodity prices globally. I can't see that changing very much this year.''

Annual growth averaging 9.6 percent over the past 25 years made houses, cars and mobile phones affordable to millions of consumers. China is now the world's largest mobile-phone market, with more than 380 million subscribers, and the fastest-growing major car market for Ford and General Motors Corp. Ford's car sales in China jumped 46 percent last year, it said Jan. 16.

There's still room for growth. Only eight in 1000 Chinese owns a car, according McKinsey & Co. Mobile-phone penetration stood at 29 percent in November. In  Hong Kong, China's special administrative region, there are more cell phone accounts than people.

China's retail sales probably gained 13 percent in 2005 and may maintain that pace this year, the National Development and Reform Commission said Dec. 27. For December alone, retail sales probably rose 12.7 percent, according to a Bloomberg survey.

``You have within China a core of people in the urban areas with significant incomes and you are beginning to see some pick-up in their consumption,'' Steven Dunaway, deputy director of the International Monetary Fund's Asia and Pacific region, said in a telephone interview from Washington.

Still, China had more than 100 million people living in poverty at the end of 2004, more than the population of Germany, and average per capita income ranked 129th in the world at about $1500, behind Egypt and Iran, statistics bureau commissioner Li Deshui said on Dec. 20.

The government abolished agriculture taxes from Jan. 1 this year and is raising thresholds on income tax, increasing minimum wages and civil servants' salaries. Even so, measures adopted so far will likely only provide a temporary boost to consumer spending, said Dunaway of the IMF.

``If the government wants a long-term solution, it has to have a properly functioning financial system to give people access to credit, and increase spending on health, education and pensions,'' he said. ``That could substantially diminish the strong savings motive among households and give them the confidence to increase spending.''

[ Last edited by wchao37 at 2006-7-1 01:03 AM ]

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Post time 2006-2-6 19:27:03 |Display all floors

Resulting from the latest account

..China had bypassed Britain in GDP growth in the year 2005.

The next post will be on how her trade growth surpassed that of Japan's.

[ Last edited by wchao37 at 2006-2-6 07:32 PM ]

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Post time 2006-2-6 19:31:04 |Display all floors

Reply #51 wchao37's post

Relating to the name "world's factory" --

China has come to be called "the world's factory," but its competitiveness is limited to labor-intensive production processes such as assembly. When we speak in terms of the "smiling curve," which shows the value added to a product at each part of the manufacturing process from research and development until it reaches the consumer, China's strength lies in the "chin" of the curve. In contrast to the high-value added upstream (R&D and manufacture of main parts) and downstream (sales and after-sales services) of the supply chain, the assembly process that makes up the midstream portion is not only the process that adds the least value to a product, it is also becoming increasingly unprofitable due to intensifying competition. Reflecting this, the slopes of the smiling curve have become increasingly steep with time (see diagram).

In 2003, China's exports exceeded $400 billion, of which 55% was classified as processing trade. As the saying "both heads outward" goes, processing trade is greatly dependent upon foreign countries to handle the upstream and downstream parts of the chain. In fact, when we look at the value added by each part in a personal computer which bears the label "Made in China," we see that the CPU is made by Intel in the United States, the motherboard and display unit are produced in Taiwan and the hard disk in the U.S. - not a single component is manufactured in China (see table). Meanwhile, many of the final products are exported to industrialized countries and sold under foreign brand names. Even in such low-tech sectors as clothing, China is excluded from processes which have the greatest value added such as design and sales. Of the fleece clothing sold at Uniqlo stores for ¥1,000, only about ¥100 is value added in China.

In addition, technological innovation called modularization and changes in the global political and economic climate have intensified competition in the chin portion of the smiling curve, and the curve's slopes have become steeper. In the 1960s and 1970s, when Japan was still a newly industrializing economy, the supply chains of most products were located in industrialized countries. As a result of this, relatively high wages had to be paid even for labor-intensive manufacturing processes. However, since then, progress in modularization, which allows the division of a supply chain into more or less independent processes, has made it possible to commission processes with low value added to developing countries, thus reducing the profitability of midstream processes. Also, the end to the East-West conflict and economic globalization have increased the number of countries shouldering labor-intensive manufacturing processes, not only to China but also to the former socialist countries of eastern Europe as well as the ASEAN nations and developing countries such as those in Central and South America, thereby lowering the value added during midstream manufacturing processes.

Industrialized nations like Japan have come to specialize in the upstream and downstream manufacturing processes - the two edges of the smiling curve that add the most value to a product - while at the same time keeping total manufacturing costs low by outsourcing to developing countries. As the slopes of the smiling curve have become steeper, the terms of trade for industrialized nations, which is the relative price at which their technology is exchanged for developing country labor, have also become increasingly advantageous. From the viewpoint of developing countries such as China, this means that the terms of trade have deteriorated, thereby reducing real income.

In agriculture, there is a phenomenon where farmers' income falls in times of a good harvest because prices fall. A similar phenomenon can be said to be seen in China's manufacturing sector, as the more products it exports, the cheaper the prices of the products become. The fact that the average monthly wage of a worker is still some $100, despite China having enjoyed growth of about 9% for the past 25 years, is an indication that the fruits of this economic development have not been fully enjoyed by Chinese workers. In order to escape from this trap of immiserizing growth, China must try to reduce excess labor in rural areas, which is pushing down wage levels, and advance its industry in a way that strengthens manufacturing processes on the two edges of the smiling curve.

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Post time 2006-2-6 19:35:39 |Display all floors

On how China's GDP overtook that of Britain's in 2005

Look carefully to see why the Brits think of China's rise as a "threat."

The British government is unlikely to underestimate economic growth any time soon, but thanks to difficulties in collecting data, that's exactly what China has been doing. In 2004, it overlooked $285 billion in output. As the Times of London explains: "its economy overtook Italy's two years ago, has cruised past France and, with the new figures, has also surpassed Britain. That puts China in fourth place, behind the US, Japan and Germany." Goldman Sachs estimates that China will leapfrog the US to become the world's biggest economy by 2035.

Pessimists view the rise of China as deeply worrying. They complain that everything now seems to be made in China. In the United States, Wal-Mart is getting attacked for the crime of selling too many Chinese goods. Such pessimists frown at the knowledge that, symbolically, IBM's personal computer business is now owned by the Chinese firm Lenovo. The worrying is needless: IBM is being profit-maximising: it realised that its capital would be more profitably invested in other business areas, rather than cut-throat PC manufacturing. This is good for America. The truth is that there is no conflict between American prosperity and Chinese prosperity: increases the GDP in one country will tend to lead to GDP increases in the other.

Some people are worried that the rise of China will lead to war. But surely people can't really think that putting China in an economic cage, leaving 160 million people living on less than one dollar a day, is a good way of promoting peace? As both Richard Cobden and Thomas Friedman have argued, economic linkage tends to bind countries together in bonds of peace. The economic linkage of America and Europe with China should thus be seen as a vital foreign policy objective.

[ Last edited by wchao37 at 2006-2-7 10:14 AM ]

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Post time 2006-2-6 19:41:12 |Display all floors

Mao's Ten Great Relationships

The following is a recap of what Mao Zedong said in 1956 regarding the Ten Great Relationship in China's development.  He also called for surpassing Britain and chasing America in 1958.

The Ten Great Relationship was a landmark document of its time, directly leading to our surpassing Britain in 2005, although in the process we took a circuitous route that could have been shortened.

Because of its length I will upload it in several segments.


25 April 1956

During the past two months the Politburo has individually heard and
accepted the work reports of thirty-four economic and financial
departments of the Centre [1]. It has exchanged views with these
departments on a number of issues, and after further discussions has
made a synthesis containing ten problems, ten contradictions.

Raising these problems has but one aim: to mobilize all positive elements
and all available forces in order to build socialism more, faster, better
and more economically.

It has always been our policy to mobilize all positive elements and all
available forces. In the past we followed this policy in order to win
victory in the People's Democratic Revolution, and to put an end to the
rule of feudalism and bureaucratic capitalism. Now we follow it in a new
revolution, the socialist revolution, and in the building of the
socialist state. No matter whether it is for revolution or construction,
this policy should always be followed. Everybody is clear about this.

But there are some problems which are still worth discussion, among them
some points which are new. Our work still has its defects and short-
comings. If we discuss these problems and consider them and handle these
contradictions correctly, then we can avoid some deviations.

Let me read out the ten problems:

1.- The relationship between industry and agriculture, and between heavy
    industry and light industry.
2.- The relationship between industry in the coastal regions and industry
    in the interior.
3.- The relationship between economic construction and defence
4.- The relationship between the state, the units of production and the
    individual producers.
5.- The relationship between the Centre and the regions.
6.- The relationship between the Han nationality and the national
7.- The relationship between Party and non-Party.
8.- The relationship between revolutionary and counter-revolutionary.
9.- The relationship between right and wrong.
10.- The relationship between China and other countries.

These relationships are all contradictions. Contradictions are everywhere
in the world. Without contradictions there would be no world.

[ Last edited by wchao37 at 2006-2-7 10:16 AM ]

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Post time 2006-2-6 19:42:15 |Display all floors

Part II of the Ten Great Relationships

I will now discuss the above ten contradictions.

              1.- The relationship between industry and agriculture,
                  heavy industry and light industry.

Everyone is agreed that heavy industry is the key sector which must be
given priority. In dealing with the relationship between heavy industry
and light industry and between industry and agriculture, we have not
committed mistakes of principle.

We have not committed the mistakes of some socialist countries which put
undue emphasis on heavy industry and neglected light industry and
agriculture. As a result they have not enough goods on the market, daily
necessities are in short supply, and their currency is unstable.

We put comparatively more emphasis on light industry and agriculture. Our
market is comparatively well supplied with goods. This differs from the
state of the market in some countries after their revolutions. While it
would not be true to say that we have a superabundance, we have fairly
good supplies of articles in daily use by the people. All our prices are
stable and the people's currency is stable.

That is not to say that there are no problems. There are still problems.
We must make appropriate adjustments to the proportion of investment
between heavy industry and light industry, and between light industry and
agriculture. We must make appropriate increases in the proportion of
investment in light industry and agriculture which is contained in the
total industrial and agricultural investment.

Does this mean that heavy industry is no longer the leading sector?
No, it is still the leading sector.
Are we no longer to emphasize heavy industry?
If the question is posed in this way, the reply is that the emphasis in
investment is still to be on heavy industry.

In future we must put more investment into light industry and agriculture
so that the proportion of investment they receive is increased. When we
increase this proportion, does this mean that we have changed the key
sector? No, the key sector has not been changed. It is still heavy
industry, but more emphasis will now be put on light industry and

What will be the outcome of this increase in emphasis? The outcome will
be to bring greater and faster development to heavy industry, greater and
faster development to the production of the means of production.

The development of heavy industry demands capital accumulation. Where
will this accumulation come from? It can come from heavy industry itself.
It can also come from light industry and agriculture. But light industry
and agriculture can provide the greater and faster accumulation.

Here a question arises. It is really your desire to develop heavy
industry? Either you have a fierce desire to do so, or you are not so
very keen.

If you don't desire to do so at all, then you will attack light industry
and attack agriculture. If you are not very keen, then you will not put
so much investment into light industry and agriculture. But if you have
a strong desire to develop heavy industry, then you will pay attention
to the development of light industry and agriculture. This will result in
more daily necessities, which in turn will mean more accumulation, and
after a few years still more funds will be invested in heavy industry.

So this is a question of whether your desire to develop heavy industry is
genuine or only a pretence.

Of course this question of whether one's desire to develop heavy industry
is genuine or not does not apply to us. Who does not genuinely desire to?
With us, it's merely a question of whether our desire is strong or weak.
If your desire is really strong then you should put more investment into
light industry. Otherwise your desire is not one hundred per cent
genuine, only ninety per cent genuine. It is not strong. That is to say,
you do not wholeheartedly stress heavy industry. If you wholeheartedly
stressed it, then you would pay attention to the development of light
industry, because in the first place it can satisfy the needs of the
people, and secondly it can provide greater and faster accumulation.

On the question of agriculture the experience of some socialist countries
proves that even where agriculture is collectivized, where
collectivization is mismanaged it is still not possible to increase

The root cause of the failure to increase agricultural production in some
countries is that the state's policy towards the peasants is questionable.
The peasants' burden of taxation is too heavy while the price of
agricultural products is very low, and that of industrial goods very

While developing industry, especially heavy industry, we must at the same
time give agriculture a certain status by adopting correct policies for
agricultural taxation, and for pricing industrial and agricultural

The importance of agriculture for the national economy as a whole is very
clear from our own experience. The practice of the years since liberation
proves that whenever there is a good harvest, life is better all around
during the corresponding year. This is a general law.

Our conclusion is as follows: one way of developing heavy industry is to
develop light industry and agriculture somewhat less. There is another
way, which consists in developing light industry and agriculture somewhat

The result of the first method, i.e. of one-sidedly developing heavy
industry without paying attention to the people's livelihood, will be to
make the people dissatisfied, so that even heavy industry cannot really
run well. In a long-term perspective, this method will lead to somewhat
slower and inferior development of heavy industry. When the overall
account is added up a few decades hence, it won't be favourable.

The second method, i.e. developing heavy industry on a foundation of
satisfying the needs of the people's livelihood, will provide a more
solid foundation for the development of heavy industry, and the result
will be to develop it more and better.

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Post time 2006-2-6 19:43:24 |Display all floors

Part III

2.- The relationship between coastal industry
                  and industry in the interior.

It is correct to develop industry in the interior. This is of primary
importance. But it is necessary to look after the coastal regions.

On this question we have no made big or fundamental mistakes, yet
we have a few weaknesses. In the past few years we have not laid enough
stress on industry in the coastal regions. I think we should make some

How much of the industry, heavy and light, which we had at the outset,
was in the coastal regions, these being taken to include Liaoning,
Jobei, Beijing, Eastern Henan, Shandong, Anhui, Jiangsu, Shanghai,
Zhejiang, Fujian, Guangdong, Guangxi? Seventy per cent of all our
industry is in these coastal regions, and seventy per cent of our heavy
industry. Only thirty per cent is in the interior. It would be quite
wrong not to take account of this fact, not to give proper weight to
coastal industry, and not to utilize its productive power to the full.

We must do our utmost and use all our available time to enable the
industry of the coastal regions to develop.

I am not saying that all our new factories should be built in the
coastal regions. More than ninety per cent of them should be built in
the interior. But some can be built in the coastal regions. For example,
the Anshan steel mills and the Fushun coal mines are in the coastal
regions; Dairen has its shipbuilding, T'angshan has its iron and steel
and building-material industries. T'angku has its chemical industry.
Tientsin its iron and steel and machine industries. Shanghai has its
machine and shipbuilding industries. Nanjing has its chemical industry,
and there is industry in many other places. Now we are planning to
produce synthetic petroleum at Maoming in Guangdong province, where
there is oil-shale. This is also heavy industry.

In future the greater part of heavy industry -ninety per cent or perhaps
still more- should be set up in the interior so that industry may become
more evenly distributed and rationally sited over the whole country.
There is no doubt at all about that. But a proportion of heavy industry
must still be constructed or expanded in the coastal regions.

Our old industrial base is mainly in the coastal regions. If we do not
pay attention to industry in the coastal regions this will be to our

On the other hand, if we make full use of the capacity both in plant and
technology of coastal industry and develop it properly, then we shall
have all the more strength to develop and maintain industry in the
interior. It is wrong to adopt a negative attitude towards coastal
industry. This will not only hinder the full utilization of coastal
industry, it will also hinder the rapid development of industry in the

We all desire to develop industry in the interior. The question is only
whether your desire is genuine or not. If your desire is genuine and you
are not just pretending, then you must make more use of the industry of
the coastal regions, and build more )industry in the coastal regions,
especially light industry.

In the light of available information, industrial plan can be constructed
very quickly in some light industries. After going into production and
developing their productive capacity they can recoup their capital
outlay within one year. Hence within five years they can build three or
four new factories in addition to the original one. In some cases they
will be able to build two or three new factories, in other cases one new
factory. At the very least they can build half a new factory. This
provides further demonstration of the importance of utilizing coastal

In our long-term plans we have a shortage of 400,000 technical cadres.
These can be provided by training workers and technicians from the
coastal industries. Technical cadres do not need to come from literary
families. Gorki only had two years of elementary schooling. Lu Hsun was
not a university graduate. In the old society he could only be a
lecturer, not a professor. Comrade Hsiao Ch'u-nu never went to school at
all[2]. You must realize that skilled workers have learned through
practical experience and can make very good technical cadres.

The technical level of coastal industry is high, the quality of its
products good, its costs low, and it produces many new products. Its
development has a stimulating effect on the technical level and quality
of national industry as a whole. We must be fully aware of the
importance of this question.

In short if we do not develop light industry we cannot develop heavy
industry. If we do not utilize the industry of the coastal regions we
cannot establish industry in the interior. We must not simply maintain
coastal industry. We must also develop it where appropriate.

               3.- The relationship between economic construction
                   and defence construction.

We cannot do without defence. Would it be a good idea to demobilize all
our troops? No, it would not, because we still have enemies. These
enemies are 'containing' us. Haven't they got us encircled?

We already have quite considerable defence forces. After the war to
resist America and support Korea, our armies grew even stronger. Our
defence industry is in process of being built up.

Since P'an Ku separated heaven and earth[3], we have never been able to
manufacture automobiles or aeroplanes. Now we are beginning to be able
to do both. Our motor industry started with the manufacture of lorries,
not cars. So each day we have to come to our meetings in foreign cars.
We want to be patriotic, but we have to be patient. Roll on the day when
we can come to meetings in our own cars!

We still do not have atomic bombs, but in the past we didn't have
aeroplanes or big guns either. We defeated the Japanese invaders and
Chiang Kai-shek with millet and rifles. We are already pretty strong and
will be stronger in future.

A reliable way of ensuring this is to lay down appropriate ratios for
military expenditure, so that it is reduced step by step to about twenty
per cent of the state budget, while expenditure on economic construction
is increased so that it can develop more and faster. On such a basis
defence construction can make still greater progress, and in the
not-too-distant future we shall have not only many aeroplanes and guns,
but also our own atomic bombs.

Do you genuinely want atomic bombs? If you do, you must decrease the
proportion of military expenditure and increase economic construction.
Or do you only pretend to want them? In that case you will not decrease
the proportion of military expenditure, but decrease economic
construction. Which is the better plan? Will everybody please study this
question: it is a question of strategic policy.

In 1950 at the Third Plenum of the Seventh Central Committee, the
question of streamlining the state organs and decreasing military
expenditure was raised. Moreover it was considered as one of the three
preconditions for achieving a fundamental turn for the better in our
financial and economic situation.

But during the period of the first five-year plan, military expenditure
made up thirty-two per cent of the state's expenditure. That is to say,
one third of the expenditure was for non-productive purposes. This
proportion is too high. In the second five-year plan, we must find a
means of reducing this proportion in order to make more funds available
for economic and cultural[educational][R.R.] construction.

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