Growth-chasing China banishes poverty
In his medium-term budget policy statement speech, finance minister Tito Mboweni said: “The average person in China is seven times richer today than 25 years ago. The average person in India has become three and a half times richer over the same period. Meanwhile, the average South African is only 1.3 times richer.”
The government tried to put a positive spin on its dismal record in a 25-year review of its performance that was released last week. But no matter which way one slices the data, SA’s economic performance has been deeply disappointing since Nelson Mandela became president in 1994.
I thought of Mboweni’s quote this weekend when I arrived in Guangzhou, the incredible capital city of Guangdong, the richest of China’s 23 provinces, for what is becoming an annual pilgrimage.
In July 1979, China established special economic zones in Shenzhen, Zhuhai and Shantou in Guangdong. Over the past four decades Guangdong has led the transformation of China’s economy. It has grown by 12.5% a year — faster than China’s 9.5% annual GDP growth since 1979. By 2018, Guandong’s GDP, measured in dollars, had grown by more than 100 times.
If it were a country, Guangdong, with a GDP of $1.5trillion (R22.2-trillion), would be the world’s 13th-largest economy. The Chinese government has announced a “nine plus two” plan to create an economic hub — the Great Bay
Area — that will link nine cities in Guangdong with the special administrative regions of Hong Kong and Macau.
Other Asian Tiger nations have achieved rapid rates of economic growth. But none has sustained rapid growth over such a long period. No country has managed to lift so many people out of poverty. In 1978, there were 770-million poor people in rural areas and the country had a poverty headcount ratio of 97.5%. By 2018, there were 16.6-million poor people and the country had a poverty headcount ratio of 1.7%. China is on track to eliminate poverty, defined as households with a monthly income of less than 2,300 renminbi, by 2020.
Over the past four decades the country has pursued a model of “socialism with Chinese characteristics”. It experimented with numerous economic and social innovations and discarded them as soon as they had outlived their usefulness.
From the late 1970s, China introduced the household responsibility system and township and village enterprises, which unleashed the productivity of the rural population. It also experimented with local government reforms
—“eating from separate kitchens ”— a system that allowed them to retain a large portion of revenues. The policy was discarded in the 1990s as the central government experienced a fiscal crisis.
In 1994, it introduced a unified, competitive exchange rate that was pegged to the dollar until 2005 and then replaced with a managed float. This laid the foundation for an export-led strategy, large current account surpluses and the accumulation of foreign exchange reserves.
There were huge challenges in managing state-owned enterprises (SOEs). In 1995, the government adopted a policy of “grasp the large, let go of the small”, which resulted in great dislocation as thousands of SOEs were sold or closed and millions of people were retrenched. During the 2000s, a restructuring of state-owned banks required a $500bn (about R7436 trillion) bailout. An investment binge after the global financial crisis pushed total debt to above 300% of GDP and resulted in a deleveraging strategy.
China’s industrial structure has also seen huge changes — from agriculture and industry to services and high-technology development. Chinese officials say the focus has now shifted towards boosting consumption spending. “If foreign investors want cheap labour, they must go to Vietnam,” they say.