“China is a sleeping giant. Let her sleep, for once she wakes up she will move the world,” said French Emperor Napoleon about 250 years ago.
In the late 1970s, China awoke from its century-longslouch and reformed itself. That triggered the start of its economic growth. Since 1976, China’s export value has increased approximately tenfold. Moreover, in the last decade, its average household income has quadrupled. Hence, it is no secret that China has the second-largest economy in the world (first in terms of Purchasing Power Parity) behind the United States of America. China’s economic boom can be attributed to its large and expanding workforce and Special Economic Zones.
China’s large, modernised and expanding workforce has played an imperative role in contributing to its economic boom. Around four decades ago, China’s economy was predominantly based on agriculture. However, due to increased mechanisation in certain aspects of agriculture, jobs were being slashed. As a result, employees flocked to the urban areas and sought employment in the manufacturing industry, according to Explaining the Rapid Economic Growth of China In Recent Decades: Geography, 2020. The aforesaid migration of workers to the urban areas demonstrates how China has modernised along with the times.
Additionally, it exhibits the key factor to the rapid expansion of the manufacturing sector. The proliferation of the manufacturing sector was instrumental in China’s economic boom. As of June 2020, China’s manpower stands at an astounding 778,700,583 people, which dwarfs the manpower of India, the country with the second-largest workforce. With a large workforce at its helm, China is enabled to produce large quantities of goods and products. Examples of such products include toys, cars, and tech associated products.
As there is a large pool of workers available employees accept minimal wages under the apprehension of being replaced by another worker if they complain or demand higher wages
China’s large workforce permits it to exploit any vacant niche. Currently, it is in the process of exploring niches in the aeronautical and space industries. Since all areas are tried and tested, China is capable of actively rivalling its competition in various areas, according to China’s Space Industry Will Exploit Any Vacant Niches, 2020. Moreover, as a consequence, China has diversified from a manufacturing hub to branching out into fields such as research and development. With the backing of the biggest workforce in the world, China has become the biggest exporter in terms of value and volume in the world.
As of the fiscal year 2018, China’s export value was $2.59 trillion. The exports range in diversity from telephones, to steel products to auto parts to vegetation. It is clear that exports add significantly to its economic prosperity. Moreover, the sheer size of these exports is only feasible due to the backingof an enormous workforce. Other reasons that support China being the strongest exporter in the world include cheap labour costs and the integration of women into the workforce. As of the large pool of workers present, employees are content with minimal wages.
Their content facade stems from the apprehension of being replaced by another worker if they complain or demand higher wages. The companies take advantage of this situation and hence pay the workers accordingly. These trivial wages allow Chinese products to be cheap, hence spurring its exports, says Silva-Ruete, Alternate Executive Director, in IMF in The Development of China’s Export Performance, 2020.
In addition, the integration of women into the workforce is possible because of the one-child policy and the absence of cultural gender divisions. Currently, the one-child policy has eased, hence, allowing couples to have two or more children. The one-child policy did not allow women to take multiple obligatory maternity leaves to nurture their child; thus maximising productivity.
The formulation of Special Economic Zones (SEZs) attracts foreign direct investment (FDI) in China. In 1979, the central government established four Special Economic Zones. Special Economic Zones are geographical regions in which foreign and local investments are orchestrated without the consent of the central government. The Special Economic Zones are located in Shenzhen, Shantou, Zhuhai, and Xiamen. Shenzhen became the forefront of China’s SEZs after it transformed a rural village into a bustling economic metropolis. Due to the profound success of the four economic zones, the Chinese government declared another fourteen cities to be included in the list of Special Economic Zones.
The primary functions of these zones are to accelerate economic growth through the employment of tax and cooperate inducements. SEZs induce economic growth in a region, and they can be characterised based on five major distinctions which include a commercial-free zone, traditional export possessing zone, free enterprise, hybrid export processing and free port. The incentives of the above distinctions are to hasten the exports of manufactured goods and to expedite local growth.
Subsequently, SEZs entice foreign investment into labour-intensive fields such as textiles, footwear, electronics, and auto parts. As of 2019, China’s foreign direct investment was $137 billion, making it the largest recipient of FDI in Asia. Furthermore, the FDI grew approximately by 5.8 per cent in comparison to the previous fiscal year.
FDI incites the development of new jobs through the creation of new companies that employ otherwise idle workers. However, it would be a misconception to state that FDI is only attracted by SEZs. Other factors that attract FDI include economic stability in the country, tax cuts, tariff breaks and lenient government policies for custom clearance. SEZs allure FDI which leads to economic growth.
Napoleon had pinpointed China’s open potential which was not conceived by others at that time. Reflecting upon the last four decades for China, an individual can truly grasp the extent of its economic boom and perceive the tremendous foresight Napoleon had.
Published in Dawn, The Business and Finance Weekly, August 16th, 2021