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Learning from success: China’s development miracle

Made in China

Since initiating market reforms in 1978, China has shifted from a centrally planned to a market based economy and experienced rapid economic and social development:

  • GDP growth averaging about 10 percent;
  • The most dramatic reduction in poverty.

It's economy has been growing so fast that, even though inequality is rising fast, extreme poverty is disappearing. China pulled 400m people out of misery in 1981-2010, and reduced its extreme-poverty rate from 53% in 1981 to 8% in 2011.

China’s great success in growth and poverty reduction it is not in question.

Source of success

For such a stunning record, the roots of China’s success remains a source of disagreement. 

  • Manufactured exports are a key to Chinas growth;
  • Market incentives has played primary motivational role in business decisions;
  • Activist industrial policies, pushing exports of increasingly high skill and technology content in 1980ties before significant trade liberalization.
  • Rural township and village enterprises which had quasi-cooperative and and quasi-municipality owned character. They were vaguely owned by local government, but their private entrepreneurs held some property rights
  • There was less privatisation of state-owned enterprises than in most developing countries etc.
  • As part of its economic openness and policy of opening in the world, beginning in 1980, Special Economic zones were created to attract foreign firms in many industries;
  • Rapid industrialization marked by increased clustering.

"Demonstration" models

The presence of regional “demonstration” models has been crucial.

v  Japan was emulated by other East Asian region;
v  Hong Kong, Taiwan  and South Korea provided an additional example for China (much of the success came from regional specific influences and regional spillovers).

Gradual Implementation of reforms

One of the most important features of its economic history is the gradual systematic implementation of reforms.

Opposite to many East European countries that opted for a sudden changeover toward free-market economy, China:

v  Introduced new and transitional institutions that exist side by side with previous institutions of central planning for extended period. The served a dual purpose: to improve inefficiency while compensating the losers;
v  kept the central planning system partially intact for an extended period;
v  SOEs remained in government hands for extended period and encouraged and allowed more efficient sector and to grow up around them.

High rates of domestic savings

Savings has been extremely high and raising in China. As of 2008 China was saving about a half of its national income. Explanations for such high domestic savings include 
  • “life-cycle” saving for retirement for the aging population;
  • precautionary savings due to increased income uncertainty;
  • poor financial intermediation;
  • compete for prospective wives by offering larger houses and other wealth, etc.

One country - two systems

After the unification in 1997 with China, Honk Kong’s economic performance remains unshaken and remains as a major trading and financial centre.

The basic law passed by the National People’s congress in 1990 stipulates that HK will retain it’s free market system for 50 years after unification.

Hong Kong has played a crucial role as China's window to the world. Since reforms started in the late 1970s, Hong Kong has done much to channel goods and capital in and out of China. As a result the two economies were closely integrated well before their political unification.

As Chinese window to the world it is an important source of knowledge and expertise in Chinas private and public sector management.

Corporate Social Responsibility in Contemporary China

China is famous for its sweatshops, environmental pollution problems and poor working conditions.

The recent episodes of scandals, involving substandard products, has reminded the world of the shocking fact that Chinese companies are unscrupulous about making money at the expense of human rights and human life. China as a product brand, has been badly damaged and “made in China” brand has been associated to low prices and low quality and socially irresponsible production process.

In a global market where countries are brands, China has to promote itself as a positive brand through effective corporate governance.

Numerous steps and measures has been taken to affect the shift toward more sustainable economic, social and ecological form of development.

This shift has led to many new laws, including the revised company law and labour law with additional provisos on protection of the environment and other stakeholders.

Business and work ethic 

China has always had skilled and disciplined labour force.

Chinese culture has been, and continues to be, shaped by three primary philosophies: Confucianism, Taoism, and Buddhism.

The Confucian cluster (China, Hong Kong, Japan, South Korea, Taiwan,Thailand) emphasizes hierarchy, pragmatism, entrepreneurship, mastery, and embeddedness, values consonant with Confucianism.

Many authors were able to establish a causal link between economic development and Confucianism.

Confucianism not only provides justification for Chinese business practices, but Confucian ideals of family, pragmatism, and interpersonal relationships are at the core of its economic life and success (Crawford, 2000).

As a 2500-year-old philosophical tradition, Confucianism is the fundamental belief system of the Chinese.

Emphasis on:
  •           morality,
  •           interpersonal relationships;
  •         social order.

Confucianism also serves as a code of ethics for the Chinese. Confucianism encompasses six core values: moral cultivation; importance of interpersonal relationships; family orientation; respect for seniority and hierarchy; pursuit of harmony and avoidance of conflict; and the concept of face (Fang, 1999).

The golden rule of reciprocity encapsulates the co care between real and concrete individuals in a community.

Management by guanxi

Guanxi can be seen as a key for the corporate success in China.Within this high-context culture trust is guaranteed via the potential damage to one’s face (mainzi) that would result from failing to honour an exchange obligation. The preservation of one’s face and the gathering of favours owed (rending) are the basis of the concept of Guanxi.

Within these confines, if someone does a favour for you, there will be an expectation that you, at some point in the future, will return the favour.

Some researchers believe that effective guanxi can reduce cost of information search, relationship monitoring and enforce contracts. Other argue that such relationship can provoke ethical concerns about bribery or corruption.

An effective management by guanxi works as a relationship-based mechanism that comes from Chinese cultural ethics based on cooperation that derives from the philosophy of Confucianism, gathers necessary resources for business performance and the survival of Chinese companies. Identifying and cultivating a network of the “right people” helps chines companies to work successfully in and out of China.

China 2015: A hunger for better services

China’s state-led model of economic development has favoured investment over consumption. Official has practised “financial repression” offering very low or even negative rates of interest for deposits. 

The gains are then used to direct subsidised capital to favoured state run firms. In this and other ways the system has repressed consumption. 

Rising middle class in China becomes increasingly fed up by poor services in some areas. 
Liberalization in the health sector, for example, means that 2015 could bring a flood of private capital in posh hospitals for the well-off. At the moment such people travel to Hong Kong or Singapore for medical care.

They demand for better ones through innovation boom in everything from dry – cleaning to gourmet – food delivery to entertainment.

Chasing the Dragon

India is on track to overtake China as the fastest growing major emerging market in the world this year.

Asia's third-largest economy is forecast to expand 7.5 percent in the current fiscal year ending March 2015, using the government's new method for calculating gross domestic product (GDP), up from 7.2 percent in the previous year, according to the International Monetary Fund.

China's economy, by comparison, is expected to grow 6.8 percent in 2015, down from 7.4 percent last year.


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