Shanghai has turned from a paddy field into a bustling megalopolis in just two decades, and the growth won’t stop there.
The Olympic Games have always been as much about politics as sport. Last Thursday, US president George W Bush’s predictable swipe at the Chinese for their human rights record was par for the course. Notice he said nothing about cutting trade links, or investment plans for that matter.
Talk is cheap and the Chinese know it. The US needs China and, while going to some Protestant Church this morning (which Bush will do) might be a sop to those who believe that religious freedom is crucial, it won’t interfere with the ongoing deepening of Sino-US economic relations.
This is the crucial financial battlefield over the coming years, because, like Japan before it, China is playing a ‘long-game’ with the US. It’s only a matter of time before China overtakes the US as the world’s largest economy. According to the IMF, this will probably occur by 2030.
The Beijing Olympics are simply a punctuation mark in an inevitable shift in world power. The parallels with Japan are striking. Clearly there are enormous cultural differences between both countries, but anyone who has watched both can see that China will do what Japan did after World War II – only bigger and quicker.
For example, my father has nail clippers in the shape of a fish. Or more accurately, a fish lure. It is an intricate little thing, the gills are emerald green and the eyes and mouth reasonably realistic. It is extraordinarily resilient. Someone must have spent a bit of time and effort in getting everything right in this minute piece of technology.
I can remember playing with this fish as a very young boy. Despite the fact that it looks like something he got in a lucky bag in the 1950s, it still works and it is certainly close to 40 years old, if not older. My father and mother are from the hoarding generation – unlike the current generation, their generation bought things to last, saved money and never threw anything out.
An interesting thing about the clippers is if you flip it over it has ‘Made in Japan’ written on it. This is interesting because it must have been the last low-tech item ever made in Japan. Japan is now the world’s centre of technological excellence.
When did Japan make this type of basic stuff? Or more interestingly, when did Japan stop making these bog-standard, cheap, pile-’em-high, flog-’em-cheap trinket things? When did Japan move up the value chain from toys to computers, from computers to videogames, from hardware to software, from the Mazda 323 to the Lexus and the Prius?
If you ask our parents they will tell you that, in the 1960s, the image of Japan was of a cheap manufacturer churning out bargain basement pots and pans, second rate cars, transistor radios and nail clippers. It was a byword for cheapness.
But over time, to use the vernacular of the business world, Japan moved up the value chain. The Japanese realised that they could only pay themselves well by investing in technology and increasing the productivity of every worker.
The country did this with extraordinary breakthroughs in innovation. Japan went from a defeated country of cheap labour to a resurgent country with the best paid workers in the world. It transformed from an importer of capital to the world’s largest creditor.
Yes, it got burned in its Kamikaze Capitalism phase of the late 1980s and early 1990s, as we’ve noted before, when it became infected with the ‘Irish disease’- an infatuation with property. It got over that. Today, Japan is the high end of the high end, the most sophisticated economy in the world.
It has passed the low-tech baton over to China and now China is where Japan was 40 years ago. How long will it take China to grow out of the cheap goods phase? How long will it be before China moves up the value chain?
The answer to the first question is simple: it will not take China long and, because of its scale, China will be two or three world-beating economies at the same time. It will be a low cost producer of tat and a high-tech producer of state-of-the-art exports. Things are unlikely to move at a single pace, but rather at different speeds.
However, one thing is clear, the 21st century is likely to be China’s century. The country is on course to overtake the US by 2030 as the world’s largest economy and there doesn’t appear to be anything that can stop this process. It’s an economic juggernaut similar in scale to the US in the early 20th century.
Strolling on the Bund in Shanghai gives you a glimpse of the new China. This place was at the heart of pre-communist mercantile China when Shanghai was the centre of east Asian trade.
It was here that Mao, always aware of the nationalist symbolism of the great foreign banking building that overlooked the Huangpu River, encouraged his cultural revolutionary students to beat up members of the bourgeoisie, parading them through the street like medieval criminals.
Today, a little over 40 years later, looking out over the river to the monuments of glass and light across on the other bank, you cannot but be moved by the singular ambition of these people. The Cultural Revolution and any vestiges of communism have been erased and replaced with the most vibrant strain of capitalism on this earth.
Twenty years ago, on the far side of the Huangpu River were paddy fields. Today, it is a glittering megalopolis with a skyline that dwarfs Manhattan. Until three years ago, Times Square was the most photographed streetscape in the world. Not any more – now it’s the Bund Shanghai, testament to the emerging middle class in China, as millions of Chinese tourists visit the city.
It should be no surprise to anyone that this year’s Irish Entrepreneur of the Year – Liam Casey – runs his company, PCH, from southern China, where it outsources components for household ‘American’ names such as Apple, Dell and Logitech.
Like the Japanese makers of my fathers nail clippers it’s only a matter of time before the Chinese begin creating their own Apples and Microsofts. As Casey said in a recent interview: ‘‘It’s not that China’s cheap – it’s fast.”
Bush might heed these words. In today’s globalised economy, the quickest exposes the sluggish and wins. For America, the message being sent by China is that if you have a weakness, they will exploit it. And that’s not just in the Olympics.
‘‘It’s not that China’s cheap – it’s fast.” David, your reference to Liam Casey’s PFH is the type of company we should be developing In Ireland. Within a decade, he has developed an international business of significant scale. It would be hard to find another Irish company trading internationally which has grown so fast to sales of $200 million. Liam, an entrepreneur, through identifying an opportunity and relentless hard work built a company working with the best high-tech product manufactures in China providing full supply chain and product fulfilment services to the top ‘brands’ and tech companies in Silicon Valley.… Read more »
David, this article reminds me of an article by a economist, who I think you are a fan of, Paul Krugman. Who warns that “countries don’t compete like companies do”.
I think its unwise to picture China’s rise as a threat to the rest of the world. china may threaten us in other ways, but economically I don’t think this is the case.
The key to Chinese industrial success is not only low wages but local specialization on a vast scale. (Some cities make only socks for example).
Also an efficient rail distribution system. Their modern railways were spec’ed to rush battle tanks to all parts of the country. Thus tracks are wide enough and bridges high enough to carry containers on railcars. Its ‘Back to logistics’ again.
Hi David, The staging of the Olympics in Beijing provides us all with an opportune time to look at China and its place in the world. The growth is indeed remarkable, but we need to look at its background and context. Note that China was not able to create its ‘economic miracle’ only for the fact that it was invited into the world club by the likes of the US, Europe, Japan and others. Indeed the cooling of the cold war allowed China and Russia “in”. It benefitted us in Europe and the US as well. And Japan. Its a… Read more »
The traditionally noted Chinese weakness is that they are brilliant imitators but very poor innovators- This shall be their main stumbling block in reference to this article, can they change their inherent mindset to take on Western capitalism at it’s own game? The Chinese are staggeringly lacking in the culture of consumerism, despite the ostentatious neon 7up signs sprawled across the bund (and curiously now displayed with more pride and prominence seemingly than their own ancient national monuments). “All the Tea in China” and yet they have not managed to market one single identifying brand! An amusement on imitation- I… Read more »
“Distresses may help resurrect a nation” (duo nan xing bang). This was a theme repeatedly discussed in China’s ancient political writings, the first dating back to Zuo Zhuan, a book of commentary on the events in the Spring and Autumn periods (770-476 BC). The original meaning of the saying is a definition of leadership. According to it, in times of difficulties, a successful leadership can help people get united and work harder, and in the end help a nation grow stronger. This is where we are lacking today in Ireland ,within the area of leadership. Perhaps we need Charlie McCreevy… Read more »
During the 80s, I remember the awe with which we watched Japanese companies seem to take over everything. They literally looked unstoppable, literally. We were assured that Japanese corporate’s access to capital was pretty much limitless because of the brilliant Japanese banks (4 of the top 10 global banks, in 1989, were Japanese), and the new international capital markets. Their explosive growth looked almost effortless. There was, of course, a terrible, breathtaking, flaw, in the Japanese economic model of the 80’s, which resulted in the recession of the following 15+ years. The question is, is there one in the Chinese?… Read more »
I meant to add that the iconic image I have of the Olympics in Beijing so far is in fact the olympic flame, burning at night-time over Sue Barker’s shoulder on the BBC transmission, and it adding to a very smoggy city! This a truer representative image of what China is today, ie: poor standards and poor conditions for 100’s of millions of people. One aspect of the Japanese story that we shouldnt forget is that in the early days, Japanese (and Hong Kong and then Taiwan) products did not have a good name due to poor quality. “Made in… Read more »
I wonder could we get the Chinese in here to build a smelter for zero cost so we can export more finished products from what must be one of the bigger Zinc/Aluminium mines in EurAsia?
My Ipod, iphone and all three PCs are made in China. The container and all the stuff in it you bought was made in China.
If you pay for it the quality is there. If you pay buttons you get crap.
We never covered ourselves in manufacturing glory either. The Cortinas, Datsuns and Rootes group cars made in Ireland rusted as they left the line. They were terrible.
We forget very fast how backward we were and we feel free to criticize China a country that most of us have never been to nor will bother going to.
Germany owes its reputation as a manufacturing and industrial power house to the fact that back in the 19th century, before it was Germany,that particular federation of states produced toys and trinkets in mass. This process of practicing on small gimmickry things first before moving on to the more high tech products and achieving higher economy of labor at each stage, is not unique to Asia and in fact is a general principle by which manufacturing economies develop. The process whereby a company at first pumps out cheap things, can also be viewed as a way of funding or subsidizing… Read more »
David, you’re spot on – I witnessed Japan change from being the world’s number one imitator to become the innovation powerhouse that it is today. When I was a young engineer, I was given a job to evaluate Japanese products for possible re-branding in the UK. It was an interesting exercise – all of the products were obviously copied and some changes were made in an attempt to disguise that fact , however, these modifications had a negative impact on performance, and so, it was blatantly obvious that they didn’t understand the technology. The physical build quality was very good,… Read more »
Frankly, I see many here making the usual mistake of devising a future while looking into the rearview mirror of past successes. The old IDA trick we employed to entice MNCs to this country is not repeatable – not unless we somehow reduce costs. Differentiators in terms of expertise in the manufacturing/ logistics/ knowledge space is simply not there except for the odd one or two opportunists. US and Japan are still struggling and the old money in Europe is still sloshing around doing nothing as the global economy slides. Wake up lads…you need consumers who wnat to buy more… Read more »
Yes, it is time to learn Mandarin.
To wit, it is being taugh to affluent Caucasians in up-scale Naperville, Illinois!
Just continuing on my point on contradiction in our education system…”Getting back to Ireland, I see 2 contradictory issues in our 3rd Level education system – 1) We have more than enough spaces for IT and Manufacuring/Electronic disciplines. 2) But we are loosing people to colleges in other countries because we do not have enough places in Medicine, Law etc. Governemnt response – bring back fees. Have these clowns any idea what cost ignorance?” We are simply not gearing up for China – not by a long shot. Interesting comment about the affluent Caucasians learning Mardarin (which by the way… Read more »
There is a good article on how we should not waste money in the education sector here:
> bring back fees. Have these clowns any idea what cost ignorance?
Agreed, that suggestion seems to be a step backwards (dare I say batty?) and only increases barriers and inequality. Perhaps the 3rd-level institutions do need a root-and-branch review of their finances and what they are producing/providing, as we do need better value for money, but finance and output should go hand-in-hand. Oh, I forgot, its the public sector. Dont hold your breath.
“Getting back to Ireland, I see 2 contradictory issues in our 3rd Level education system – 1) We have more than enough spaces for IT and Manufacturing/Electronic disciplines. 2) But we are loosing people to colleges in other countries because we do not have enough places in Medicine, Law etc.”
Medicine and Law are not economy drivers, they’re indirect dependants (medieval society) – science and technology are the main engines – our problem is that we’re late into the game and we don’t have risk takers to capitalise on the investment in their education – it’s as simple as that.
Back to China- Missed out on in this article is the fact that there is already a real comparitive study for aspirational Chinese enterprise out there- that is Taiwan. Ethnically Chinese but having embraced Western capitalism over 60 years ago- “Made in Taiwan” is the real identifiable hallmark for cheap plastic toys, gimmicks and trinkets…but unlike the Japanese the Taiwanese have not made the necessary jump to higher tech. products…so why should we expect the Chinese to do so? Because we are looking at numbers only- the sheer weight of China as 1/4 of the Earths population must inevitably create… Read more »
I agree fully that there is a real need for a root and branch examination of our educational system which matches the financial and competence requirements for the country. My poorly worded comments on the contraction in our education system – just to explain where I am coming from Bumph Jargon first: Value Chain=Logistics/Manufacturing/marketing/maintence etc Value Net=Networks requiring critical mass to work – telecoms, Airlines, internet, etc Value Shops= Consultancies, Football players, Law, Medical, Accountancy practices etc.and House Building!!! We have technical colleges in the IT/ Hi Tech arena with empty seats. These colleges feed value chain/net businesses which are… Read more »
MK, While David McWilliams may not be overly keen on this forum discussing the writings of other economists – I feel I must disagree with your interpretation of the central message of the article to which you posted a link. Rather than suggesting that ‘we should not waste money in the education sector’, it suggests – in my view – that the govt’s spending strategy (assuming there is a strategy) on third and fourth level needs to be revised to ensure that the more ‘ambiguous but, potentially high yield’ research projects get their fair share of funding. Basically, we have… Read more »
Let’s not forget, the reason for China and indeed most other countries success is the good old USA. The US’s knowledge of agriculture, large scale farming in 19th & 20th century coupled with their oil development has led to a development of logistics and manufacturing that has driven the world as we know it today. They got their railroads going (on public private partnerships -which had detrimental effects on the natives) not for military purposes – but for trade – and their wealth in building and making the basics work has led to a community with a lot of disposable… Read more »