How China makes things work

THROUGH the good offices of the Inclusive Society Institute, I recently had embarked on a short study tour in China. Everyone paid their own expenses but the society arranged the (very efficient) programme and interesting engagements.

Obviously, China is a massive country and one study tour does not even scratch the surface. Nevertheless, I would like to share some observations.

Social organisation

The first is that Chinese social organisation is superb. From the time you arrive at the airport, train trips, meetings… everything runs like clockwork. I arrived at about 11pm. All the way to the hotel, cleaning teams were busy on the streets. Over the following days, it was hard to spot any litter. Thousands of people move around but it's all orderly and clean. Women walk safely in the streets at night.

The flip side is strict security. You have to show your passport, or your ID card if you are a Chinese citizen, every time you enter a train station and again at the platform. Cameras are everywhere.

Infrastructure

The physical infrastructure is impressive, from highways to towering residential blocks and power lines. The same goes for the digital infrastructure. In Beijing, cash is hardly used. Instead, people pay using apps on their phones. WeChat is more functional than WhatsApp. It is uncomfortable, though, to be cut off from Google and most of the news services we use so freely in South Africa.

The high-speed train from Beijing to Xi’an in Shaanxi province, the home of the terracotta soldiers, covers the distance from Johannesburg to Cape Town in just over four hours, travelling at an average of 350km/h. On our journeys, every seat was taken. Six years ago, this line did not exist.

45 years of growth

It is hard for an outsider to appreciate the enormous change that has occurred in China in the last four decades. Deng Xiaoping launched his reforms in 1978. In 45 years, one working lifetime, the Chinese went from a very poor society to one that is solidly middle-class. Two anecdotes illustrate this.

One is about a 48-year-old entrepreneur who owns several private schools. Fifteen years ago, he was a reporter for a Xi’an newspaper. Then he started his business. His annual turnover is about R1.5 billion. He says that 40 years ago, when he was in school, neither he nor his classmates  had shoes. Now he runs 10 kindergartens which charge 10,000 renminbi (RMB) a month (about R26,000). The schools are full. Parents can afford to pay for this. By the way, his schools are called “Curro”.

The other is about a 45-year-old businessman whose mother used to send him on a bicycle to the next village to buy paraffin, used for lighting and cooking. There was rationing and they had to use coupons. For him, it is incredible that they now have an abundance of consumer goods, available everywhere, and no ration cards. No shortages of electricity, gas, food, clothes or anything else.

Pragmatism – what works

All of this could happen because of economic growth. The past 45 years have seen a single-minded focus on growth. The interesting thing, however, is that the Chinese did not pursue a prescriptive model. Instead, the central government gave free rein to local governments, who started competing with one another to attract businesses and entrepreneurs, generating growth. The political system provides considerable incentives and rewards for city leaders who produce growth. Efficient local government and embracing of private-sector entrepreneurs did the trick. (That does not mean entrepreneurs are at the apex of power — ask Jack Ma.)

The Shaanxi government, for example, sees its role as promoting development through cooperation with others. It is proud to have business relationships with more than 100 countries.

The local government in the city of Baoji has started a special economic zone built around titanium. It imports titanium from countries such as Mozambique, Australia and the US, then smelts and refines it. This has become the centre of the titanium industry in China, home to a company which is the number two in the world even though it is in an inland province with no big harbour nearby. The company is now pursuing high-technology applications of titanium in advanced manufacturing, automobiles and spare parts, particularly for electric vehicles. Baoji has 13 factories manufacturing complete vehicles and 300 making vehicle parts. It all started with titanium smelters.

The other big player in the growth story is the private sector, what the Chinese like to call the “entrepreneurs". Coming from a background of communist principles ruthlessly enforced under Mao Zedong with purges and re-education camps, Beijing changed direction drastically to accept entrepreneurs as partners in the drive for growth. Deng famously said, “What does it matter whether the cat is black or white, as long as it catches the mice?"

At the Belt and Road Initiative (BRI) Conference that we attended, entrepreneurs were officially labelled the “envoys of cooperation". Businesses are encouraged to establish commercial ties with people in other countries. The businesspeople we met are hungry for business.  By the way, the 600 delegates to the BRI conference were seated 10  minutes before starting time — that social organisation again.

(I don’t want to discuss the pros and cons of the BRI here — you may want to read an article in the Financial Times of October 23,  one of many covering the first decade of the project. It is bringing dividends to China and the countries where projects are being run. There's a perception that it's all a debt trap, that China is leading countries in Africa up the garden path and so on. I believe there is ample evidence to the contrary, as the FT article, among others, shows.)

Changing growth model

The growth model in China is changing quite profoundly. It started as export-led, manufacturing products as cheaply as possible and getting them out to world markets. That model is coming to an end. China is moving up the value chain.

It is focusing on three things: the digital economy, health services and products, and the green economy. It will still entail manufacturing — China is the world’s biggest manufacturer of solar panels, for example — but it is pushing the envelope in these three areas through science and innovation.

Special economic zones once focused on exports. Now they are focusing on innovation in these three areas. Companies are backed to innovate and they get support from one of the levels of government, local, provincial or national.

The car manufacturing company Geely Auto started manufacturing spare parts in Baoji in 2016. At that point, a mere seven years ago, it had 1,000 workers. Now it has 350. It systematically and deliberately introduced robots, developing some itself and some with the help of other companies.

The average price of a robot on the floor is about RMB100,000, or R2.6 million. The bigger ones cost more than RMB1 million. The 350 workers now produce more than 1,000 workers did before. There are a number of women on the floor.

The South China Morning Post reports that by July, China had established nearly 8,000 digital factories and smart manufacturing plants. Last year, 290,000 robots were installed countrywide, more than half the global total. The trend is clearly towards automation. With a shrinking population, that may be a wise choice.

Government respected and meritocratic

I was struck by the local and provincial government buildings we visited. The staff lunch in the Shaanxi provincial office makes a five-star hotel buffet look ordinary. The buildings are imposing, smart and luxurious. In South Africa, government offices are often stark and dilapidated. In China, they are models of modernity and luxury and the people who work there are expected to do their jobs to the same standard. If they don’t, there will be a social media outcry — everyone is on a smartphone, typing and chatting all the time. An official who does not deliver will be named and shamed.

Going back to ancient times, prospective civil servants had to write an entrance examination before they could work in the imperial service. In the week after our return, the South China Morning Post reported that 2.85 million people had applied to write the exam for a new intake of civil servants. In a recent documentary, a villager proudly showed the filmmaker two certificates of family members who had passed that exam. It is a matter of pride. They have built a capable state over a very long time.

Us and them

Historically, we have to some extent seen the Chinese in terms of them and us. “They" are very different from “us". It’s a much more difficult place for us to navigate than Europe or the US.  If you don’t speak Mandarin, you cannot really communicate. China has also come from nowhere to become the world's second largest economy, technologically probably already the West’s equal, so feeling intimidated is understandable. But it is neither healthy nor feasible to hold on to the idea that anyone from the outside can block its progress.

One note of caution: the Chinese may interrupt their own upward trajectory — they have done so before. Their civilisation is almost 5,000 years old but it has not seen a continuous progression. There have been cycles, ups and downs. At the moment, it is going up. It may go down again. However, it will not be because outsiders have tripped it up.

So what?

• The Chinese model of political control (centralisation) and economic pragmatism (decentralisation) is unique and can probably not be copied. It is deeply embedded in Confucian principles and has evolved over thousands of years.

• Building a capable state requires a meritocratic civil service — again, something that developed over millennia. But a strict entrance exam may be a good start.

• The hallmark of the Chinese growth story is pragmatism, pursuing what works.

• China will determine its own destiny. Outsiders will not have a say.

♦ VWB ♦

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