Saturday, May 21, 2016

These 4 Things Explain China’s Rise (And What Happens Next)

By Scott Vollero

If you’ve been paying attention to world news at all this year, you’ve likely heard a great deal — much of it unflattering — about China. For better or worse, the U.S. presidential campaign has further heightened the rhetoric and sharpened the American public’s focus on the Middle Kingdom.

On the one hand, longtime China scholars and international businesspeople appreciate the increase in attention. There’s a lot to unpack about (and learn from) the U.S.-China relationship, and the process works better when the public is fully informed and engaged.

On the other hand, an increase in attention means a potential increase in misinformation. No matter their relationship to the Middle Kingdom, it’s important for members of the general American public to have a clear, fact-based understanding of Chinese culture, politics and business.

On that note, let’s take a closer look at what happened before China broke into the mainstream American discourse. These four things help explain China’s rise over the past several decades — and might offer some hints as to what’s next for the Middle Kingdom.

1. China’s Opening to the West

Ever heard the phrase, “Nixon goes to China”? Those four little words more or less kicked off the modern U.S.-China relationship.

For those of us too young to remember the early 1970s, it’s near-impossible to understand just how bold this move really was. Prior to Nixon’s first visit to China, in 1972, the U.S. and Chinese governments basically weren’t on speaking terms. In fact, communist China was a sworn enemy of the United States — firmly in the Soviet Union’s orbit, not ours.

Nixon’s visit didn’t change the state of play overnight, but it certainly laid the groundwork for a renewed trade relationship between the two countries. And it was one of the first true cracks in the so-called Iron Curtain of communism, even if China wasn’t officially part of the Soviet bloc.

2. The One-Child Policy

In 2015, China officially discontinued its one-child policy, ending a 35-year social experiment changed the country’s human fabric in profound ways. Instituted in the late 1970s, the one-child policy had an understandable, if controversial goal: to slow China’s then-explosive population growth, which was already straining the country’s meager resources.

The strictly enforced rule applied only to urban households, but its effects were pronounced and widespread: the Chinese fertility rate dropped from north of 6 per woman in the early 1970s to less than 2 by 1980, and remained nearly steady thereafter.

So far, so good, right? Not exactly. Rural fertility remained elevated, creating increasingly overcrowded conditions in the underdeveloped Chinese hinterland and laying the groundwork for the largest, fastest human migration in history.

What’s more, traditional Chinese families — even urban families bound by the one-child policy — retained a strong cultural preference for boys. That led to the abandonment of tens of millions of female children, creating a massive gender imbalance — more than 30 million more men than women, according to reliable estimates. These men found gainful employment (and willing employers) in China’s booming coastal manufacturing cities. However, many of them are now looking for wives; some are bound to be disappointed, and it’s not quite clear what that means for China’s social stability going forward. In the years to come, millions of Chinese men will likely look for new opportunities outside China’s borders.

3. The Great Migration

When China opened to the West, it gained access to millions of well-off consumers with near-insatiable appetites for cheap consumer goods — and its state-driven economy was all too happy to oblige.

As factories sprung up in the port cities and railroad towns of China’s densely populated eastern third, impoverished rural men and women flocked to their shadows, eager to earn living wages for the first time in their lives. This massive population shift — involving hundreds of millions of people in all — is often referred to as the Great Migration. It’s the single biggest reason China became known as the “workshop of the world” during the 1990s and 2000s, and the country’s coming turn toward consumer-driven economics wouldn’t be possible without it.

4. Rising Wages

In the West, China’s rapidly rising wage floor hasn’t gotten much press. Rising wages are undoubtedly a good thing for struggling Chinese families, but they also make it more difficult for international entrepreneurs to find value in the Middle Kingdom. They’re one of the many reasons low-cost production is shifting to cheaper Southeast Asian nations, such as Vietnam — a worrying trend for Chinese policymakers worried that the shift to a consumer economy won’t happen quickly enough to forestall political blowback among rank-and-file Chinese.

What’s Next for China?

Anyone who tells you they have an easy answer to this question is stringing you along. China is a huge, complicated country. It’s tough to figure out what’s happening on the ground in China in the best of times, even if you’re based there and travel extensively throughout the country.

One thing that’s abundantly clear, though, is that China is in the midst of a potentially momentous turn. In the space of a single generation, it’s poised to transform from a predominantly agricultural and industrial economy into one driven by a mix of consumption and services. In short, it’s about to become a lot more like the developed nations its leaders have long viewed with a mixture of skepticism and envy.

This is a tough transition to make. Other countries, including the United States and most E.U. nations, have navigated it more or less successfully in the past. However, as the old caveat goes, the past is not necessarily prologue. A lot could go wrong, at least in the short term.

Does that mean we need to worry about China’s place on the world stage? Hardly. The Middle Kingdom has been around for thousands of years, and it’s sure to stay relevant for a few more.