China’s export success and the rapid growth of its economy would normally be cause for praise and admiration, and the development strategy that made it possible would likely be included among the policy packages that the World Bank, the IMF, and wealthy countries would require poorer nations to adopt as a condition for receiving financial assistance. Previous success stories—also from Asia, incidentally—were presented as models to emulate and were given inspiring labels. Thus, Japan’s rapid postwar economic expansion became known as the Japanese Miracle, while Singapore, Taiwan, Hong Kong, and the Republic of Korea were celebrated as the Asian Tigers in recognition of their economic achievements.
China’s results, however, have often been described in the West using negative terms, such as the China Shock (although not in the 2013 academic article published in the American Economic Review that originated the term), a concept that later evolved into the New China Shock (or China Shock 2.0) following the country’s recent success in global markets for electric vehicles, artificial intelligence, batteries, biotechnology, renewable energy, robotics, semiconductors, and other technologies of the future.
Rather than earning praise, the China Shock is frequently disparaged as a case of overproduction, overcapacity, and oversupply. This situation is attributed to industrial policies (state intervention in the economy) and the practice of picking winners (national champions), conveniently overlooking the fact that this very same strategy also underpinned the Japanese Miracle and the success of the Asian Tigers.
From the standpoint of supply and demand, overproduction would exist if minimum prices were imposed (by some hypothetical global trade authority?), which is clearly not the case. The reality is that Chinese companies, thanks to their high productivity and supportive government policies, have shifted the supply curve downward and to the right, putting downward pressure on the market-clearing prices of a wide range of industrial goods.
This has led to three socioeconomic consequences. First, millions of low- and middle-income consumers around the world have been able to purchase automobiles and other manufactured goods at affordable prices. Second, efforts to combat climate change have become more effective thanks to access to low-cost, high-tech renewable energy equipment. Third, low-productivity, high-cost Western industries have struggled to survive.
Rather than welcoming the higher living standards enjoyed by their consumers and the improved prospects for tackling global warming made possible by China’s integration into the world economy, Western politicians have chosen to align themselves with the interests of uncompetitive large corporations, their monopolistic and oligopolistic conglomerates, and the financiers who bankroll their costly political campaigns.
Instead of defending those interests and assigning blame to China, Western countries would do well to identify the factors that explain the competitiveness of Chinese firms. Among them, five deserve particular attention: first, a vast domestic market that enables economies of scale and intense internal competition; second, high savings and investment rates that drive capital accumulation; third, continuity and predictability in economic policy, together with political stability; fourth, substantial investment in education, infrastructure, energy, and research and development; and fifth, a development strategy based on sound macroeconomic management, long-term planning, and industrial policies, combined with an important role for markets and private enterprise.
All of these factors can be replicated in the West. Much of Europe, economically integrated through the European Union, and the United States, by virtue of the size of its domestic market, already share with China the advantages described in the first point.
China’s high savings and investment rates are the result of political decisions and historical circumstances that have fostered wealth accumulation and a culture of prudence. Western societies, by contrast, have embraced a growth model that relies on consumerism as a means of stimulating demand, in the expectation that demand will, in turn, spur investment and economic growth. Yet the low savings rates produced by this approach lead to relatively high interest rates, which ultimately undermine investment, capital accumulation, and GDP growth. Fiscal, monetary, and banking tools capable of raising savings rates exist in every Western country. The obstacles to adopting them are political rather than technological; they are matters of national choice and, clearly, cannot be blamed on China.
As for the third factor, establishing a one-party system to ensure continuity and predictability in the development path would neither be a realistic nor a desirable option. However, reaching agreements that guarantee the continuity of strategic economic policies within multiparty systems certainly is. Politicians in Western democracies have preferred polarization, short-term headline-grabbing achievements, electoral victories, and Pyrrhic triumphs over agreements that place long-term national strategic interests first. But that, of course, is not China’s fault.
The same can be said of the fourth factor. No structural barriers are preventing Western governments from allocating sufficient resources to education, infrastructure, and scientific research. Indeed, they did so in earlier periods. Today, however, pursuing that path would require reducing military spending, increasing taxes on billionaires, and challenging the interests of those who finance their lavish political campaigns—all politically difficult decisions given their short-term electoral priorities. Those priorities, too, were not chosen for them by China.
As for the fifth point, today’s wealthy Western countries also reached their current level of development not by adhering rigidly to free-market dogma, but through pragmatic and eclectic solutions (despite propaganda that seeks to convince us otherwise). Yet if China’s openly interventionist development strategy accounts for much of its success, as is often argued in the West, nothing prevents similar approaches from being adopted elsewhere. Doing so, however, would require abandoning ideological narratives that have been used for decades to justify policy prescriptions imposed on the Global South, as well as giving up one of the most frequently invoked arguments for discrediting China. But if pride or geopolitical ambitions stand in the way, those obstacles can hardly be blamed on China.
Instead of seriously considering alternatives, the West has chosen the path of blame and economic warfare—all while global peace is increasingly threatened by intensifying anti-China rhetoric.
Would it not be better for the world—and certainly for the West—to examine carefully the factors behind China’s success, as well as those that once underpinned its own success, and, free from dogma and threats to peace, build the strategies needed for the future?
Autor
Politician and economist. Professor at IE University (Spain). He holds a Master's degree in Economics from the University of Manchester (England). Former Congressman and Minister of Planning and Economic Policy of Costa Rica.
