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文章原始标题:What economic strategy is carried out by China that makes other countries amazed?

Kokwai Thong Retired Medical Professional, Anti Nuclear Peace activist.
What economic strategy is carried out by China that makes other countries amazed?
I have a pet theory about China’s economic strategy. It is called the Economic Ant Theory.
Have you ever seen what an ant nest looks like?
Don’t you think what goes on beneath the surface is amazing? The whole complex web of interlocking units is just incredible. And this is the secret of China. In China, the unit of production is the individual, the economic ant, within a vast colony of like-minded individuals eager to make their nest/country become a safe refuge, a vast colony filled with resources to be used in an emergency, and ready to defend their home at all costs. Filled with a whole of country resolve which means that it is a collective effort. Yes, there are people who are singularly successful and there are also detractors and non-compliant actors but in the larger scope of things, these are the minority.



Please read my answer to Kokwai Thong's answer to Why is China seemingly so capable at doing almost anything it puts its mind to? From coronavirus eradication to poverty alleviation to technological development. Why has China risen so fast and so quick? What is the secret?, to understand the Chinese mind set.
Jerry’s answer singularly desc1ribed the strategy as currency depreciation but I would like to argue that currency manipulation is somewhat too narrow a descr1iption. The truth is that the USA and the western economies have also been depreciating their currencies after the 2008 GFC and allowing the Asean economies to depreciate especially after the 1997 economic Asian Crisis. But China did not follow suit. There was no obvious relationship between the exchange rate and the real GDP before China’s reform and opening up period. This was between 1952 -1977 when China’s economy was relatively closed. China had a fixed exchange rate regime and extensive exchange rate control because the RMB was highly overvalued. This actually allowed the government to provide imported machinery and equipment to prioritised industries at a relatively lower domestic currency cost than would have been otherwise possible.


After China started to open up between 1979-1993, there was a significant positive relationship with the depreciation of the RMB associated with a more productive output and an increase in the GDP and there was steady growth. This made the number of tradable products increase when reforms were enacted to allow private production. However, the RMB which was overvalued devalued rapidly because the stable population and the rising per capita income made for a demand for imports to increase even though exports also increased. During this period, China’s foreign reserves were not high and the government allowed exporters and provincial governments to retain a share of their foreign exchange earnings, even up to 40% were retained by the provinces. Then the government in the mid 80s sanctioned foreign exchange markets known as swap centres in dozens of cities which still showed continued overvaluation of the RMB.


To move the RMB to a market determined rate, there was steady devaluation but using a dual exchange rate system, the official rate being RMB 1.5 to the 1 US$ for non trade transactions but in internal settlements for trade transactions it was RMB 2.8 to the dollar, almost 100% devaluation for trade purposes. By 1985, this system was abolished after the two rates slowly converged to RMB2.8 and even went to 3.2 by mid 1986 and to 3.7 in July 1986. By December 1989 it was even 4.7 and was at 5.8 by end 1993. By 1994, the swap rate was 8.7 and it stayed there for some time. By then China’s retention system for foreign exchange showed 4/5 of all foreign exchange transactions were flowing through the swap markets, and it was obvious that this was market determined. By 1993-1994, China’s current account position was not far from equilibrium being 2% deficit in 1993 and 1.4 % surplus in 1994 and 0.2 % in 1995 and 0.9% in 1996. So basically China managed a controlled devaluation to market determination levels of the exchange rate mechanism.


Between 1977 to 1995, China’s foreign reserves were low. In 1987 it was only 16.3 Billion USD. Between 1988 to 1991 some moderate accumulation occurred but then there was the prodemocracy movement and subsequent cutback in government spending although exports continued to rise. By 1992-1996, some rapid accumulation occurred with economic take-off and only by then did the reserves touch 145 Billion US$. So there wasn’t any need to maintain a peg but more of a need to find the market level for optimal trade with the exchange rate. Even now, after Covid-19, China’s currency has gone up relative to other major currencies like USD.


Only by 2001 after accession to the WTO, did the economy improve further with significant reforms. China had a currency peg since 1994 but as we said above, the result was a rise in foreign currency reserves to 3.8 trillion by 2014/2015, and this was unsustainable with inflation. Hence you can see from the chart below that China changed to a managed float system similar to other countries worldwide, pegging the currency to a basket of currencies of all its main trade partners. China’s currency peg was also beneficial to its trade partners, lowering their inflation, providing cheap Chinese goods, providing employment in their service sectors. You can see from the chart that when China changed to a floating rate, the balance of payments became normal and the IMF said that the Yuan was fairly valued in terms of its Real Effective Exchange Rate (REER).


What other major economic strategies were employed?
Please read my answer to Kokwai Thong's answer to What do you think of the fact that a large percentage of things in the world are made in China?
You will probably understand why there is an Economic Ant theory. Because China has utilised the full scale of its workforce as optimally as it can. It has educated them as much as possible, as soon as possible and trained them as fully as possible. The skilled labour force is just not comparable anywhere else. And the productivity is being improved by 5G and artificial intelligence and the evolution of the complete industrial chain such that the advantage of stronger infrastructure, better managed factories, and advanced machinery improves your overall production process and supply chain. They have scaled their manufacturing capabilities well beyond what was ever believed possible. When you outsource to China, you’re working with time-tested factories that have been producing quality products in similar industries as yours for years on end, and in massive supply. And there is the logistic network and maritime port facilities to match. Towards the end of the answer you will find a reference to the work ethic of the industrial worker which is the descr1iption of China economic ant.


“For me, this is the big advantage of China, the speed,” said Thomas Schmitz, president of the China branch of Austrian engineering giant Andritz, which has seen a big uptick in demand for its wet wipe-making machines in recent weeks, also due to the virus. “When you need to run, people know how to run, and this is something which has been lost in other countries since their industrial heydays.” Chengdu Aircraft Industry Group, repurposed part of its factory to design a mask production line, according to local media reports at that time. The Sichuan Daily said 258 of the company’s engineers spent three days fast-tracking development of an assembly line with more than 1,200 components.
People forget that China was embargoed by most of the major economies after the Korean War and apart from some Soviet help before their ideological split, they had practically no industry to speak of. However, it taught the Chinese one thing - what you cannot make you do not have! Even simple things like fertiliser were embargoed, and that is one good reason why they had a famine during the early 1960s, when the weather El Nino event occurred to reduce their harvest. The Chinese are battle hardened economic ants. They had to learn to survive under the most arduous of circumstances. In my country for example, a mining company may have a lease in the dense jungle but has problems finding enough workers to go there and endure the tropical heat, mosquitoes, wild animals, loneliness and still produce whatever mineral is found there but when they find a buyer in China which uses that mineral for manufacturing, the links appear which magically gets a team of engineers, workers, technicians and other support staff to help the locals get the product out to port and to the manufacturer. Win – win—local company gains, country taxation gains, Chinese contracting firm gains, manufacturer gains! And what is wrong with that- remember the economic ant theory. They forage far and wide for economic opportunities.


Kevin Augustine Chong
Wow. What an excellent answer.


Mo Xiao
That's interesting. A retired doctor's view of economics is very valuable.


Kokwai Thong
Thank you. Economics affects everybody and every market, and obviously also affects the financial future of people. Therefore understanding economics is still beneficial for doctors. We were never taught about finance and economics in university and personally I think it should be a school subject as universally as possible.


Pooi-Hoong Chan
Learn economics from China, do not learn from the west.
One fundamental reason for western economic dominance is colonisation, their hold over former colonies but western economics ignore this and preach free markets is the reason. A huge myth.


Benny Jan Mgt & Financial Sectors (1999-present)
I am an overseas 3rd generarion Indonesian born Chinese ethnics with ancestral from GuanDong. Before 1995 I have not any positive outlooks towards China. All that changed after I joined/participated in province based organisation in Indonesia. I get opportunities to visit China from year 2000 till before pandemics. I noticed they have a department's that specialised in helping overseas Chinese in tracing their ancestral roots. Then they helped us in location our villages and and contact our distant relatives.
Other than that services, they also promote and let us meet up with the local businessman in mainland to increase our networking links. Vice versa they also will sent local bussiness mana to meet up in Indonesia and helping them to get contact or find local partners for their bussiness. So it's an effort that actually aid in synergising both sides. That's is my appreciation. So during the pandemics many local businessman and overseas Chinese have many opportunities in actualising those networking to fruition.
I remember an event where the China Govt invited 47 nations around the world comprising of 470 participants. Some are 1st generation to even 9th generation born Chinese to converge in Beijing. We met with minister taht welcome us and five a short encouragement to improve networking with all brothers and sisters around the world as the world shrink by leaps and bounds. So trade is fully encouraged. So those many activities definitely provide real results.


Chang Pak Seng Retired engineer
It is simple.
China now has a succession of leaders who really cares enough for the country and its people to invest in the people instead of stealing from the people.


Robert Quek former Retired. Prior Employment in Finance Sector
China’s industrialization strategy is more akin to the Taiwan, Hong Kong, and Singapore models, based on attracting FDIs and exports to the rich countries. The early investors following reform and opening were from Japan, Hong Kong, Taiwan, and the Chinese diaspora in Southeast Asia, including Singapore. The influx of the MNCs and others from US and Europe followed China’s admission into WTO in 2001.


China’s industrialization was from a very low base, the country was much poorer when it started, and it is a huge country. So, while there were features similar to Japan and the Asian Tigers, there were also unique ones.
One outstanding feature was the set up of industrial processing zones in the coastal region, most notably, Shenzhen next door to Hong Kong. It has developed from a small village into a tier-1 city, the leader in China’s technology development and home to some of the country’s home-grown giants or conglomerates like Huawei and Tencent, the first city to have full 5G coverage. Exports of cheap consumer goods like garments, ties and socks were the mainstay. Now it is all about technology.


But China’s conglomerates were not the early drivers of growth. They grew from growth and are assuming increasing importance. SOEs were also not the drivers. They serve more the government policy purpose, like highway and railway construction, and strategic areas like defence and aerospace, playing a significant ancillary role. The drivers of growth were the millions of private enterprise companies, the SMEs. Many had invested alongside the foreign companies and took off on their own. Many are still co-investors or JV partners. Foreign companies remain an important part of the industrial scene.
Government is pro-active, pro-business, and pro-economics. Notables are:
Farm reform which changed from collectivist to the household responsibility system. It wrought a massive rise in farm productivity. The setting up of marketing board allowed farmers to sell directly to the market instead of through government agents. It enabled farmers to get better prices for their produce, better matching of what they produce with the market demand. Farm income rose and the surplus farm labour migrated to the cities to meet the rising demand. Direct marketing by the farmers enabled stable prices in the cities and keep the cost of living low, an important consideration at a time when wages were low.


The government was able to mobilise the surpluses from the farms and from industrialization into infrastructural developments, such as roads & railways, power & water, and telecommunications that serve the social and economic needs of the country. Of particular significance was the facilitation of the mobility of people and goods.
So also was the government’s role in the area of vocational training and education, especially in science, technology, engineering, and mathematics. China’s early industrialization took off quickly because the people, including the peasantry already had basic literacy and were able to fit quickly into factory life and become productive. With training and education, the Chinese workforce is now highly sophisticated, matching the needs of an increasingly technological era.
China did not have any magic elixir. It plenty of sweat and hard-work. In the process, it learns, absorbs, innovates and creates. Government remains pro-active, concentrating on policies and strategies, and leaving the execution and pursuit of businesses to the private sector, the government and the private sector collaborating and working in cooperation.


H. C. Ma knows Chinese
I believe the rather spectacular economic performance of China in the last few decades which has now made China a target of many western countries, notably US, is not just the result of good economic strategy but a combination of many factors. I will try to name a few.
* Political stability. The fact that there is only one party in China has given the government the advantage of being able to focus on economic development and not on political bickering like what happens in many countries. Many in the west would condemn this as authoritarian etc. but this is an over-simplification. Within the government, there is still strong competition and democracy (yes democracy, but a very Chinese type) so only the proven people gets to the top. The leaders at the top are less hand-tied than politicians in the west when it comes to making decisions and taking actions for what the country needs. However, they are still held accountable for those decisions and actions. Only the best can stay on and continue to contribute.

* 政治稳定。事实上,中国只有一个政党,这使得政府能够专注于经济发展,而不是像许多国家那样专注于政治斗争。西方许多人会谴责这种做法是威权主义之类的,但这种说法过于简单化了。在政府内部,仍然存在激烈的竞争和民主(是的,非常有中国特色的民主),所以只有久经考验的人才能到达高层。在为国家需要做出决策和采取行动方面,高层领导者们不像西方政客那样束手束脚。然而,他们仍然要对这些决定和行动负责。只有最优秀的人才,才能留下来并继续做出贡献。

* Social stability. The best times in Chinese history were those with social stability. Those were the times when economy, creativity and arts flourished. For this reason, Chinese always want peace and don’t meddle with other countries business. China has to build up its military as a defense mechanism to prevent what happened to it in the last 200 years when it is weak. At heart, China wants peace for itself and for the world.
* Meritocracy. China has a long history of selecting government officials through public examination. The first such examination was in 600AD. The concept of having a fair playing field for everyone, no matter how poor one may be, to excel by being a knowledgeable, wise, and decent individual, not just give hope to everyone, but helped the government to select the best to help run the country.

* 社会稳定。中国历史上最好的时期是社会稳定的时期。那是经济、创造力和艺术繁荣的时代。基于这个原因,中国人总是渴望和平,不干涉别国的事情。中国必须建立自己的军事防御机制,以防止在过去200年里脆弱的时候所遭遇的事情。从本质上讲,中国希望自己和平,也希望世界和平。
* 任人唯贤.。中国有着通过公开考试选拔政府官员的悠久历史。第一次这样的考试是在公元600年。有一个公平的竞争环境,让每个人,无论多么贫穷,都能通过成为一个有知识、有智慧、有品格的人而出人头地,这个概念不仅给每个人带来了希望,而且有助于政府选择最好的人来帮助管理国家。

* Long term vision. China makes long term plan about the future and execute them methodologically. Not long ago, talks about China building ghost towns were circulating in the western media. Well, some of them has now been filled with people though some are still waiting for its time. The ability to anticipate the needs of the country and be prepared for it is something western country is not good at, because it could cost someone’s career if you are wrong. For China, this is the key for survival. Making strategic plane under good advice of economist and experts are what make China different, and more importantly those plan will affect the livelihood of many people. After lifting almost 100 million of its poorest population above the poverty line, the latest China’s 14th Five Year Plan is about how to make them stay above that line permanently.

* 长远目标。中国制定了关于未来的长期计划,并将其付诸实施。不久前,西方媒体上流传着中国建造鬼城的说法。不过,其中一些现在已经挤满了人,还有一些人在等待时机。西方国家并不擅长预测国家的需求并为此做好准备,因为如果你错了,可能会让某人的职业生涯化为乌有。对中国来说,这是生存的关键。在经济学家和专家的良好建议下,制造战略计划是中国与众不同的原因,更重要的是,这些计划将影响许多人的生活。在使近1亿最贫困人口脱离贫困线后,中国最新的十四五计划是关于如何使他们永久地保持在贫困线以上。

* Education. Education is very competitive in China but every parent takes it seriously and spare no resource to educate their children. At the same time, the government is spending a lot of money to education its population and has many high calibre tertiary institutes to train talents to serve the country’s needs. Each year, 8 million graduates or so joined the work force, and 1.3 millions of them are STEM graduates (comparing to 300k in US). They contribute to the fast industrialization and advance technological development of the country.
Here are just some factors I mentioned. I just want to emphasize that China needs a peaceful environment to develop its economy. So the least China wants is war or instability for its neighbours.

* 教育。中国的教育竞争非常激烈,但是每个家长都非常重视,并且不遗余力地教育他们的孩子。与此同时,政府在教育人口方面投入了大量资金,并有许多高质量的高等教育机构来培养人才,以满足国家的需求。每年有800万左右的毕业生加入劳动大军,其中130万是STEM毕业生(相比之下,美国有30万)。他们为国家的快速工业化和技术发展做出了贡献。

Christiaan Van Hyfte Masters degree in 1973 Economics
There is certainly a large part of economic strategy involved in China ‘s ultra rapid development but it dies not stop there unless grand scale organisation is part of the economic strategy. When gov need and demand to start and finish a grand scale project such as BRI or a small scale project such as a brand new covid clinic in 14 days, then their speed and short timeframe are indeed amazing to all Western countries. That organisation then does not loose time with licenses, local rules, private ownership, capital funding and setting up the qualified workforce that is required to handle the project. In the western world the first thing required would be to select the planning bureau and the contractors through legal tenders and the latter alone might take 3 months. China still has a large number of State Owned Enterprises currently laying idle and at the ready to start production of whatever is needed in emergency cases.


Freddie Chen Agnostic
Nothing should be.
My medicine will be your posion.
Some policies work in China may just bring damage to other countries. Every government needs seek truth from fact that set the plan based on its own practical situation.


Yausi Tamn
no idea , amazed yes , but still China is still too far away from decent western standards of social security and living except for the rich business class


Eric Sutherland Research
Controlling the growth of its population, Biomass even done by small farmers, building cities, public transport moving the population.


Anupam Majmudar former Senior Scientist at Department of Atomic Energy, India (1962-2001)
China and to a great extent India, both had completely controlled economy like USSR. What USSR DID WAS THAT IT DECONTROLLED EVERYTHING ALL IN ONE GO very very rapidly. While India and China opened up very slowly. In india’s Case, it took about 25 years and China, even more, so economy had time to adjust and unlike Russia, Mafias or Oligarchs could not take over the economy

【回答】印度原子能部 前高级科学家(1962年-2001年)

Alvin Lee former Engineering Manager in EMS Industry (Retired).
Simple ! selling at reasonable price and benefit people from all walks of lives.
Selling reasonably priced for more customers is definitely better than selling unreasonably expensive to just a handful of rich people.

【回答】电子制造行业 前工程经理(退休)

Yee Ernest Retired Bookseller
Free enterprise system and world trade make China an advanced country following the example of the five Asian tigers after WWII.
Therefore, free world trade should be the norm of modern human society.
Too much protectionism and nationalism would keep a country isolated from the world.
The world is a global village by now. No country can survive or progress when isolated from the rest of the world.


N Aroney lives in Sydney, Australia (2005-present)
In any case international trade is a bilateral system.All credit to China though for keeping a tight rein on capitalist ventures.


Dongxu Li studied at University of Toronto
Economics is a study based on observing capitalism countries in Europe.
Therefore, China is a special case which most economists are observing and researching.
The regular economic predictions on China mostly failed.
China has constantly creating economical miracles for approximately 40 years.
Sure, economists do know that Chinese development model only works in China and it is only designed for China.
However, China is a good academic topic to research.
Should all poor developing country carry out plans to improve infrastructures there?