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Business

China seeks new business model

Chinese politicians and economists are convinced that the economy must be remodeled into an industrial powerhouse over the next three decades. Yet this transformation may prove far more difficult than they imagine.

China's communist leadership aims to overcome the economy's dependence on cheap manufacturing, envisioning instead one that is based on advanced industrial goods for domestic and foreign markets.

So far, however, it's still unclear how the country's leadership intends to transform China into one of the world's leading industrial powers by 2045. According to a recent Chinese study, this timeframe is simply quixotic.

The latest report by the 'Center for Modernization Research' comes to the sobering conclusion that the Chinese economy trails Germany, the Netherlands, Great Britain und France by a hundred years in terms of industrial development. The co-author of the study, Zhao Xijun, also claims that the country's economy lags behind the United States, Denmark and Italy by eighty years. And Sweden, Norway, Austria, Spain and Japan are said to be ahead by sixty years.

These sobering findings originate not from an obscure think tank critical of the government but from an institute linked directly to the Chinese Academy of Sciences. As such, it is hardly surprising that its conclusions have caused controversy. That the Chinese economy trails Germany by a whole century has provoked heated online debate even though this is but one of many findings in the elaborate study.

Weibo, the Chinese equivalent to Twitter, was awash with ironic, critical but also outraged remarks. "At last the Chinese Academy of Sciences has revealed that the emperor has no clothes," a user by the name of Education quipped. And user Limaojlu noted dryly: "This means we are currently in the era in which Carl Benz began manufacturing cars. Swell! If we give it all we can count down the days until we have caught up with the Germans."

Screenshot weibo

Does China trail Germany by an entire century in terms of industrial development? User comments on Weibo.com

Stuck betweeen humility and a sense of reality?

While a user by the name of Youlezhitianxia muses that "a sense of humility may be beneficial", others are less inclined to accept this outlook. Defiantly, Weibo user Mingjunzhiheng remarks: "Nonsense! How can we be lagging behind the Germans when they are eager to buy our high-speed trains?"

This, however, is the core problem of the Chinese economy, say the authors of the study. They argue that the country's economy only has few industries that can compete globally. And the manufacturing of high-speed trains is one of these exceptions.

Yet if one considers the rise in productivity and value creation, as well as the number of blue collar jobs as a percentage of the total population, then China is far behind, the authors argue. They claim that in 2010 their country's economy was on par with Germany's just prior to World War One.

Attempting an explanation

He Chuanqi, main author of the '2015 China Modernization Report', has seemingly moderated his claims in response to criticisms expressed by the Chinese nomenclature: "The conclusion drawn is incomplete and vague if it remains unclear which industrial indicators were used."

If one applies benchmarks that estimate China to be more advanced then the distance to other economies is less pronounced, he concedes. "Nevertheless China needs to develop more successful industries beyond manufacturing high-speed trains," he emphasizes.

He says the study's findings were primarily intended to help decision-makers understand the real state of the economy and think about ways to transform it into an industrial powerhouse.

Graphs indicate downward trend

A recent survey conducted among European companies operating in China reveals their frustration with the many bureaucratic hurdles they face.

Xi Jinping, Li Keqiang

Chinese president Xi Jinping (left) and Prime Minister Li Keqiang unveiled new economic policies in March 2015

While eighty percent of European companies viewed their Chinese business prospects favorably in 2011, this figure has shrunk to seventy percent in 2014, and to less than 60 percent today.

It is not only the Chinese leadership that traditionally has a hard time stomaching criticism. Weibo user Xiaoluo_11337 also struggles with it and warns that Hu's study "foreshadows what is in store when freedom of speech is no longer restricted!" To paint such a bleak picture of China's industrialization and the successes of the working class in this way "should not be tolerated," he says. "While we may trail behind in terms of industrial development, we must nevertheless refrain from ridiculing the Chinese economy."

Similarly, Weibo user Qichujiqin comments that China was well ahead of Europe during the Middle Ages: "A thousand years ago the world was following our lead."

steelworkers

Mao’s ‘great leap forward’ saw the construction of steel plants while millions died from hunger.

Still, many online commentators recognize that certain facts must be confronted head on if China is to progress. Weibo user Dongtayuanzhang for example notes that "accepting the facts is a prerequisite for improvements. Let’s start our catch-up process! But not in the form of a great leap forward."

Said great leap forward denotes a large-scale program with which Mao sought to rapidly industrialize China, yet ultimately caused a humanitarian and economic disaster. Between 1957 and 1962 more than forty million people died and the Chinese economy was setback by many decades. When Mao first announced his program in 1957 he boasted that his country would overtake Great Britain in just fifteen years.

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