America, China and the world as Trump returns

By Labaran Maku   When huge fortune is involved there is no price owners of capital will not pay to get at it, even when it means eventual suicide. In one of history’s most classical examples of the shortsightedness of the profit motive: America’s political and corporate leaders beginning from the 1980s embarked on an […]

By Labaran Maku

 

When huge fortune is involved there is no price owners of capital will not pay to get at it, even when it means eventual suicide.

In one of history’s most classical examples of the shortsightedness of the profit motive: America’s political and corporate leaders beginning from the 1980s embarked on an accelerated industrialisation of China at a pace that was quite faster than the development of their own homeland.

The leaders of the Communist Party of China led by Deng Zipping took advantage of the West at a time of intense ideological rivalry with the Soviet Union.

The West led by the US went to China to drive a wedge between the USSR and China, the two communist giants at that time.

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The Chinese were relatively poor and far behind both the West and Russia in science and technology and in industrial production and wealth creation.

What China lacked in development they had in farsighted leaders who turned out to be far smarter than their counterparts in Russia and America.

Falling back on their ancient wisdom and prescient diplomacy, the Communist leaders of China played on the ideological rivalry between America and the Russians to suck in the Americans and the West.

When Richard Nixon and his Secretary of State Henry Kissinger arrived on the shores of China on a mission to set China and Russia apart, the Chinese smelled a rare opportunity in the air.

They coolly welcomed the Americans and their allies and offered to cooperate with the “western imperialists” against the Soviet Union.

Curiously the Chinese communist leaders accepted free market reforms to entice the west; but they would neither renounce communism nor accept the privatisation of the public sector of their economy.

The Americans too did not insist on the classic regime of privatisation, reduction in social spending, political reforms; and other conditions the West normally imposes on weak developing countries of the South.

The Chinese instead accepted to ‘open up’ China to free enterprise from the West and designated ‘Free Trade Zones’ where Western corporations could produce whatsoever they wanted and export to wherever they chose without any interference from the Chinese communist government.

To add to this exciting opportunity for the West, the Communist leaders of China made the Free Trade zones almost tax free and made available cheap labour of highly educated Chinese workers at very low wages!

The Americans and their allies soon discovered that they could produce goods in China at almost no cost compared to their homelands and export to the global market at huge profits.

Labour was almost free and highly trained; The Chinese provided good infrastructure; fairly efficient social services; appropriate legal reforms to allow and protect private property and investments; and products were almost tax free.

China soon became an attractive haven for western companies; and potentially huge market opportunities both in China itself and in Asia opened up to the west in addition to Japan and South Korea.

Western companies soon discovered that they could even produce high quality goods in China and transport them to their own counties at higher profits compared to goods produced at home!

A new term called outsourcing soon entered the commercial production lexicon as American and European corporations moved their commercial industrial production to China to avoid high wages and taxes in their home countries.

China soon began to witness astronomical, double digit GDP growth rates as western corporations jumped over each other to take advantage of the remarkable opportunities to make more profits in China without the cumbersome regulations and labour laws and strikes in their home countries.

By the 1990s it was obvious that China’s accelerating industrial growth was becoming a concern to the West, but the huge profits and an emerging huge domestic market in China rendered these concerns of no effect on policy decisions in the West!

The Chinese smartly looked the other way and left the boom in profits to continue to grow. They did all they could to increase openness and to multiply the free trade zones to attract more investments to China.

Smart and resilient ancient warriors that they are, the Chinese quietly set up indigenous companies “owned” by selected individuals with experience of working with western companies to compete with their Western counterparts.

They began with low-end goods such as toys and apparels and food processing and base engineering production.

The West was very comfortable with that, and even zoned the production of low quality goods to Chinese enterprises, while they focused on high-end goods both for the Chinese market and for exports to the global markets.

The Chinese kept to their promise not to interfere with the development of private enterprises; they did nothing to undermine private ventures; they avoided excessive regulations or policies that could limit the free flow of capital between China and Western countries.

The communist government of China meanwhile held on to the public sector; they resisted the pressure to privatise the public sector; but continued to open the economy to private participation to attract more capital and technology from the West.

The result was that every dollar that entered China was invested in setting up new ventures and production lines rather than buying up existing public sector enterprises.

Consequently, the Chinese economy expanded at breakneck speed; and trade grew with the rest of the world.

The Chinese government used the increased revenue from the booming economy to invest in higher quality education, scientific and technological research; impressive investment in infrastructure; power supply; and in fundamental research in space exploration and in new sectors such as solar and other renewable energy industries.

As more Chinese understudied and mastered their western partners, the state provided capital to them to set up new industries to compete with those owned by international corporations.

By the turn of the last millennium, the indigenous Chinese producers of toys had graduated to producing sophisticated industrial goods.

By the last decade, the Chinese had caught up and were outpacing western companies in producing top engineering goods ranging from high speed trains, to construction equipment; ships and automobiles!

Suddenly, the West woke up to discover that the Chinese were overtaking them not only in their huge domestic market in China, but had actually taken over Western markets as well, since western corporations had outsourced the production of virtually all commercial goods to China.

At the last count China is now responsible for over 36 per cent of global industrial production! China is now the undisputed industrial production base of the world.

China is also the largest trading country in the world.

China leads is steel production, ship building; trains and automobiles; electronics; smart phones; agricultural equipment;; and industrial tools and machinery of all kinds.

One could add to the list the solar and other renewable energy products which are dominated by Chinese producers.

Presently the West is resorting to the ancient regime of tariffs and trade wars. Globalisation and free trade which were the commercial anthems of the 1970s; 1980s and 90s when the West held sway are now fading out!

Fair trade is now the battle cry when it comes to the West versus the Chinese.

Interestingly, it is now China that is pushing for free trade and for the observance of the World Trade Organization (WTO) rules.

As Donald Trump reruns to the White House, the next four years will be both exciting and tempestuous for the business world and for international relations.

The trade war with China is likely to intensify. The era of high tariffs is back. There may be more instability in the global system as the west struggles to contain China’s commercial dominance in Africa, Latin America and Asia.

The world has entered a new era of tough geopolitical scramble for global resources and markets.

Unfortunately for the West, they can’t easily decouple from China soon; because there is nowhere in the West at present where the production environment compares to the huge comparative production advantages in China.

It will take decades of hard work for the West to create comparative alternative production centres outside of China where goods could be produced to compete favourably in prices with those produced in China.

India, Vietnam, Indonesia, Malaysia; Brazil and Mexico offer possible attractive destinations for Western companies to relocate industrial production from China.

Yet none of these destinations is as conducive and ready as China is in terms of high availability of quality manpower; expansive infrastructure; processed and cheap industrial raw materials and industrial production capacity.

Besides, the Chinese through their Belt and Road Initiative have also gone ahead of the West in many of these countries to set up new  centers and infrastructure for the production of goods and services.

It is a long, difficult and uncharted road for America, the West, China and the rest of the world in the decades ahead.

The sad footnote to all this is that Nigeria and Africa are missing in these tectonic shifts and movements in search of new commercial and production centers by competing global economic behemoths.

Prebendal politics of crude sentiments and gross leadership incompetence in recent years have further eroded our chances.

We are only looked upon as the battlefield for raw materials and a market for cheap Tukombo and Okirika  goods!

This surely is not our place; we must strive hard to get out of here; we must reorder our governance and leadership choices and priorities to take our proper place on the ladder of global development and economic relevance.

 

Maku is a former Minister of information and communication