DRIVING FACTORS

An insight into how China has achieved its current phenomenal success

CThe author is a former senior partner at Mckinsey & Company and a trustee of the New York-based China Institute hina’s economic growth since reform and opening up began in 1978 is nothing short of miraculous. The “cultural revolution” (1966-76) left China with a struggling economy, a disorganized government structure, a broken educational system and a starving population. The country used new technologies to completely overhaul its agricultural model and manufacturing capabilities.

How did China do it? It relied on five key components.

A disciplined, top-down corporate governance model

What late Chinese leader Deng Xiaoping needed was an overhaul of the agriculture sector to dramatically increase productivity and output, and to build a competitive manufacturing sector by leveraging new technologies and low-cost labor. In order to do this, Deng introduced a governance model mirroring that used by major global corporations to drive performance.

This corporate governance model has a few main elements. The first is a strong leader and the second is a small team of highly talented and experienced senior officials to oversee efforts and advise the leader. For China, this is the Standing Committee of the Political Bureau of the Communist Party of China Central Committee. The third is a consensus-driven leadership willing to compromise among leaders who collectively work with one vision. This decision-making model is in sharp contrast to the adversarial multi-party system used in most Western countries.

The fourth major piece is a talent pool of the best and brightest. Under Confucian values, which are deeply embedded in China’s history and culture, many of the country’s most gifted aspire to government work.

China’s top talent pool is managed through a performance-driven meritocracy with ongoing performance reviews, with advancement also tied to peer respect. This keeps everyone focused on meeting the objectives of the plan and taking corrective actions when needed.

China’s governance model uses a fiveyear planning process built on extensive input from expert leaders, within and outside the government, and refined through debate and discussion. The high-level plan is then tailored to specific situations in each ministry, province, major city and industry sector, complete with aggressive economic objectives, backed by precise operating plans. Finally, performance is driven by clear accountabilities, performance metrics and variance analyses, and is reinforced by incentives.

This remarkably simple and well-tested model helps large corporations succeed globally. It has also allowed China’s economy to grow and develop in the past 40 years on a scale never seen before in a country its size.

Integrative problem resolution across all important economic levers

While major corporations can apply this model to what they control, many important performance levers are controlled by governments. These include laws, taxes, trade agreements, fiscal policy, infrastructure, immigration, education and healthcare. China’s model applies the five-year planning process across the entire economy, allowing for close coordination and a cohesive plan of action. While the government can’t directly control private enterprises, it can significantly influence their actions indirectly through these levers.

China’s governance model uses a five-year planning process built on extensive input from expert leaders, within and outside the government, and refined through debate and discussion. The high-level plan is then tailored to specific situations in each ministry, province, major city and industry sector, complete with aggressive economic objectives, backed by precise operating plans