China headed for another massive social experiment?

By Frank-Jürgen Richter

Business Times, October 31, 2013

It’s difficult to forecast what China Inc may do, but history shows it’s being managed well

In fairy tales, giants are typically lumbering creatures, but the giant that is China is moving fast and rekindling the excitement that followed its opening up in the 1980s. That came as a shock to some observers, but its next moves will be even more momentous. Of course, one perceives “the positive” after the events while ignoring relative failures.

Few would have forecast that Deng Xiaoping’s Southern Tour in the early 1990s after the collapse of the Soviet Union would have bolstered China’s rise into controlled capitalism and into the modern China of today.

China has always had unique management problems, such as attempting to control distant provinces using poor roads and slow transport. Yet, Marco Polo (about 1300 AD) saw for himself the legacy of the Han Dynasty’s messenger system (about 210 BC) wherein messengers would ride flat-out for 200km and then the message would be taken on by fresh riders and horses. Of course, ordinary folk travelled on foot and not far.

Successive emperors built the 1,600-km-long Grand Canal by 600 AD, incorporating pound locks that would not be invented in Europe for another 300 years. The canal’s initial stretches were for wartime supplies, but later it was entirely used for general trade. China prospered and contributed about one-third of global economic output by 1820 before falling into internal and international squabbles.

The Western perception of the emergent People’s Republic was one of backwardness, but later the entrenched family and village economic prowess passed into modern commercial activities, into its diaspora across Asia and the rest of the globe – benefiting many, including hightech startups, in the United States.

China’s four decades of massive growth have brought hundreds of millions out of poverty. The building blocks for China’s future now lie in the opening up of its inner space. This is being done by inducing industry and commerce to move from the coast. Yet direct inducements are not enough: There have to be several other factors in place, notably educated people for new factories and good digital links, as well as good physical communications by air, railway, road and river.

Over the past years, China has ramped up its infrastructure. Its many business schools enrol overseas staff and are entering global rankings. Yet, while the US has about 1,000 MBA programmes with 130,000 students graduating annually, in China only one in 20 of the 420,000 graduate students would get an MBA. Even so, this bodes well for Chinese business management as there is the need to use the best of global methods, though not follow trends slavishly.

Chinese businesses are now better served by a more extensive and capable communication infrastructure. Its telecommunications systems gradually grew in range and quality by the 1970s and the vast installation of fibre-optic cable further increased the use of the Internet and the associated mobile-phone systems. This growth was also apparent across China’s physical logistics systems.

Although in rural areas ox carts still haul goods along poorly surfaced dirt roads, during the last decade the government has built a vast network of safe dualcarriageway roads, speeding the transport of inter-city goods and passengers.

There is a similar story for the rail service: Its capacity was always stretched at holiday times when millions returned home from the places where they worked. Now the railway network boasts almost 10,000km of high-speed lines, allowing the separation of goods from passenger traffic. This benefits all: Passengers are not held up by slow goods trains, and the latter are not sidelined in favour of passengers, allowing vital flows of minerals and food to pass unhindered. China has further increased its railway investment by 12 per cent over the first nine months of this year.

River navigation system
Perhaps the greatest increase in investment has been associated with rivers, especially Yangtze, and their management and development as logistics routes. Ports have been extended and coordinated with road and railway infrastructure and many have been given the “free zone” status. Many river navigation systems have been put under a coherent safety policy.

We have seen, month by month, increases in import-export flows with ever larger ships plying upriver, benefiting the short-sea shipping flows. Much larger ports have been constructed for oceanic trade. And the south-north canal system is being built to move water from the wet south-west to the arid northern parts of the country, benefiting agriculture and offering the potential to undertake fracking to exploit their reserves of unconventional oil and gas.

So much for history. What is next? It is never easy to predict what China Inc may do, yet history tells us it is being managed well. Its latest GDP (gross domestic product) growth is 7.8 per cent – lower than the stellar performance of the recent past but still among the highest in the world. I wonder if China is on the verge of yet another massive social experiment. I am sure its leaders are well aware of the developed world’s flight of workers from the countryside to the cities that generated their wealth creation.

Ahead of a potential catastrophe in China, the government has built many cities in its central and western regions that are oddly empty at the moment. Given the new communication infrastructure, I am sure that they will over time be able to accommodate new waves of rural to urban migrants. Businesses will be induced to come inland in greater numbers to absorb the new urbanites in meaningful work rather than allowing them to languish among the unemployed in the coastal regions.

Meanwhile, farmers will benefit from larger fields with fewer workers and more mechanisation. Call it a social experiment if you will, but this is a great example of government forethought that could potentially reap benefits on a huge scale.

The writer is founder and chairman of Horasis, a global visions community