Saturday, March 19, 2011

ENTER THE DRAGON


The economies of two ancient Asian civilizations of India and China dominated the world for centuries. Around 750 BC that power shifted west to the Islamic civilizations of Middle East. A thousand years later the power shifted further west as the industrialized European Imperialism spread round the globe. The last century saw the power shifting west again to America. In turn of the century it seems like the global power has completed its full circle and is shifting back to Asia. The Asian giants China and India are preparing for the race to become the next global superpower. Who is going to win? Will it be the swift and powerful Chinese Dragon, or will it be the slow and lazy Indian Elephant? This post is about the Dragon....i will deal with our special elephant in another post....



Dragons are mythological serpentine creatures. Though it is considered evil in European cultures, it represents power, strength and good luck for the Chinese. The power, strength and luck of the dragon have been with the Chinese for ages. The Chinese civilization is one of the oldest in the world. The written history is found in the Shang Dynasty which is as old as 2700years. Since then China has been blessed with many powerful empires, the big ones being: Han, Tang, Song, Ming and Qing Dynasties. Qing Dynasty lasted till 1912 when the mighty dragon was finally drugged and splayed by the industrialized west. China had done everything right until the 18th century when it missed the industrial revolution. The industrialized west, armed with the powers of industrial revolution, was now ready to take on the mighty dragon. Lured by Chinese silk, tea and porcelain Europe wanted to trade with China. The reluctant Chinese finally agreed in 1793 to export their goods in return of silver and gold, but was not ready to buy anything. The British didn’t like this imbalance of trade and came up with a brilliant and cunning solution – OPIUM. This new business of drugs was very lucrative for the British and the balance of trade was restored. The Chinese Emperor protested by destroying large supply of Opium stored in China. British retaliated with the First Opium War. The drugged dragon was no match for the industrialized west and in 1842 China was forced to sign the unfair Treaty of Nanjing. France, Russia and US saw the opportunity and jumped in to rain more blows to the wounded dragon finally slaying it in the Second Opium War in 1856. Humiliated and frustrated by the Qing Dynasties inability young officials, military officers and students overthrew the Qing Dynasty and created the Republic of China in 1911. In 1st October 1949 Mao founded the People’s Republic of China at a massive rally in Beijing. China became a totalitarian state. But with the dragon dead power, strength and luck were not yet with China. However, the world forgot that the dragon was immortal. Like the Phoenix it was going to rise again.
The dragon did rise again, 30 years ago with the end of political instability in the post-Mao era. Then onwards it gained strength rapidly. This time, with the new found armour of industrialization, it was more powerful than ever before. The miracle of dragon’s revival was caused by many factors. As rightly pointed out Raghav Bahl in his book ‘Superpower’, the most important reason was the massive capital spending on a scale never seen before. Ambitious China has build schools, factories, roads, buildings, bridges, airports, ports, malls, parks, hospitals in massive scale investing upto 50% of its GDP (in turn raising their debts to 160% of their GDP in 2010).  History has shown that this type of hyper-investment is not sustainable and the bubble is inevitably going to blast. 30 years have past and the bubble is still growing without any signs of blasting. It did face minor hindrances like the 2008 recession, but it always bounced back strongly. One has to remember that the case with China is a bit different. China has the advantage of a huge population which unlike India is fairly uniform. The massive money that China is spending is never seen before in the human history and hence does not truly fit with the examples that created the 200 year economic logic. Moreover, China is not a democracy in the true sense, it has a semi-authoritarian rule. The government controls the media and also can force its citizen into cheap labour. Hence China can produce export goods at a very cheap price thus dominating the trade market. China has also pulled out a trump card- Africa. Africa is a market as big as India, and China is now slowly, but surely, becoming its big-brother. China has its own internal problems but it seems that the dragon has defied the 200 year old economic logic and is creating a new economic rule. Will China be successful and become the next super power? Or, will there be a twist in the tale (check out Five myths about China's economy and Assessing China’s Economic Rise: Strengths, Weaknesses and Implications) as the lazy Indian Elephant wakes up? 

You React:

5 comments:

  1. it was a bit difficult to understand for a non economical person like me. but yeah china seems a next super power. the reasons are china exports its good at the cheapest rate in the whole world. and hence it is growing its GDP rate. and the reasons you have already mentioned population of china. keep writing and let me increase my knowledge :)

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  2. Great post..!!
    A Dragon is never afraid of anything :)

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  3. @ some unspoken words....
    thanks.....:-) you are not in bad company...like most geologist, i hate maths...and economics goes over my head...all i know is that more the people spends more the countries economy grows....thats what china is doing with ruthless efficiency...

    @ Sanjana....
    Thanks :-)...yea..the dragon is good....hope our lazy elephant catches up....

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  4. agree china can force and produce cheap products with force.

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  5. @sm...
    thanks for your comments :-)

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