China surpassed Japan in 2010 as the second biggest economy in the world after the US which still retains the top position. According to the estimates given by the weekly Economist, China is likely to have a GDP of $11.6 trillion in nominal dollar terms (about 15 percent of the world GDP) in 2015 as against $ 18.3 trillion for the US and $ 4.96 trillion for Japan. If the current trends are maintained, Chinese economy will overtake the US in nominal dollar terms around the year 2027. In purchasing power parity terms, China’s GDP exceeded that of the US last year. The miracle of China’s rapid economic growth started in right earnest in 1979 after a radical change in its internal and external policies under the guidance of its paramount leader, Deng Xiaoping. Pakistan’s leaders and policy makers should try to draw lessons from the changes in China’s policies which have catapulted it to the position of the second biggest economy in the world within the span of about three decades. These lessons would be useful to us as we come to grips with the challenges of modernity and rapid economic progress confronting us.
Historically speaking, China is on the way to reclaim its lost position in the world economy. China produced over 30 percent of the world GDP in 1820. By way of comparison, the US share of the world GDP currently is about 25 percent. China’s economic decline and later humiliations at the hands of the Western powers started in the 19th century as these powers, strengthened economically and militarily by the industrial revolution and advances in science and technology, embarked upon the expansion of maritime trade and a world-wide campaign of conquest and subjugation of distant lands. The Opium War (1840-42) imposed by the British on China to force it to allow the import of opium was the beginning of the series of humiliations that China suffered in the next century or so at the hands of the West European powers, the Americans and Japan in the form of unequal treaties and the cession of the Chinese territory.
The success of the Mao-led communist movement and the establishment of the People’s Republic of China in 1949 brought a definite end to the reverses that China had suffered during the preceding century. While the Mao-led communist revolution emancipated China from colonial shackles, it did not generate economic prosperity in the succeeding three decades because of the flawed economic policies of the era. This obstacle was removed in 1979 when the reforms introduced by Deng Xiaoping put China on the road to rapid economic progress.
The secret of China’s meteoric economic rise lies in the decisions of economic reforms and opening to the outside world which were taken by the Third Plenum of the Eleventh Central Committee of the Chinese Communist Party in December, 1978. Henceforth, rapid economic progress was to be the supreme national goal to which everything else was to be subordinated. Internally, the policy of “iron rice bowl” was replaced by the policy of “to each according to his/her performance” to provide incentives for hard work and innovation. Starting with the rural sector, increasing role was given to market forces and competition to boost production. Around mid-1980’s, these reforms were gradually expanded to the urban sector. I myself had the good fortune to see the application of these reforms when I took charge as Minister/Deputy Head of Mission in our Embassy in Beijing in April, 1985. Internal economic reforms in China were combined with the policy of opening to the outside world under Deng Xiaoping to attract the inflow of foreign investment and technology.
The policies of austerity and self-reliance were to remain in force. The former by raising the national saving rate would enable China to invest a high percentage of its resources for economic development purposes. China has been saving and investing year after year about 50 percent of its GDP for economic growth. China’s high rate of national savings also enabled it to rely on its own resources for accelerating its economic growth instead of loans from foreign donor countries and institutions. By way of comparison, Pakistan’s national saving rate, according to our official figures, was only 12.9 percent of its GDP in 2013-14! This low national saving rate reflects the tendency towards profligacy and conspicuous consumption on the part of our elite including our kleptocratic politicians, corrupt senior government servants belonging to both the civil and military sectors, and the wasteful living style of our feudal landlords and top businessmen. A byproduct of our high consumption rate is the country’s excessive reliance on foreign loans for meeting the requirements of economic development.
The latest example of the way our ruling classes are virtually plundering the nation’s resources is the reported decision of the Nawaz Sharif government to restore the decision, earlier taken by Pervez Musharraf, to allot two plots each in Islamabad to senior government servants in BPS-22 in line with similar benefits which are enjoyed by the senior echelons of the military establishment. This whole policy of allotting expensive plots worth crores of rupees each, which are the property of the nation as a whole, to senior government servants is shameful, to put it mildly. This policy amounts to robbing the common man and the poor of the nation to enrich its privileged classes. It makes neither economic nor moral sense.
To sustain the national focus on the supreme goal of rapid economic development, two additional decisions were taken by China. Firstly, a policy decision was taken to defuse tensions in relations with neighbouring countries, particularly the Soviet Union and India, with the objective of minimising the risk of the outbreak of a major armed conflict and promoting a peaceful neighbourhood. Border negotiations were started with both of these countries with this objective in mind. It was rightly calculated by the Chinese leadership that this low-risk foreign policy would enable it to limit the military expenditure and allocate most of the national resources to the overarching strategic goal of rapid economic growth. Deng Xiaoping told his generals that they would not get more than 1.5 percent of the GDP for defense. They were expected to work out the military strategy for ensuring external security within this constraint.
The rest is history. Chinese economy took off soon after the initiation of economic reforms. As against the target of quadrupling its GDP by 1998, China’s GDP increased five times between 1978 and 1998. Having attained high rates of economic growth, sometimes as high as 10 to 11 percent, and reached the position of the second biggest economy of the world, China is now in a comfortable position to increase rapidly its military expenditure to safeguard its essential security and economic interests while maintaining high economic growth rates.
The lessons of China’s modern history for Pakistan are obvious enough. We must assign the highest priority to the task of rapid economic development to which everything else must be subordinated. Policies of austerity and self-reliance must be pursued by the nation combined with a programme of reforms to improve our economic management and accelerate economic growth. Externally, Pakistan should pursue low-risk and non-adventurist foreign and security policies. The military expenditure should be kept at the minimum level possible consistent with the maintenance of a credible security deterrent. While these lessons are obvious enough, the important question is whether our political and military leadership has the wisdom and courage to implement them as behoves a self-respecting nation.