Why China? Who is Next?
Recently, in preparation for my AP exams, I completed a systematic study of both macroeconomics and microeconomics. I chose to use Professor Gregory Mankiw’s textbooks, “Principles of Microeconomics” and “Principles of Macroeconomics.” My father graduated with a degree in economics, so I’ve been able to engage in relatively specialized economic discussions with him. One particularly interesting topic we explored is why, over the past 30 years, China—despite its initial economic challenges—has developed into a powerful economic force after the United States and Japan. Additionally, we pondered which country might follow a similar trajectory next.
To address this question, I delved into extensive research and organized my thoughts into this article. While many viewpoints are still evolving, and some may even be incorrect, I welcome any feedback or corrections from readers.
After my study, I think over the past three decades, China has found itself on the express lane of history, benefiting from several crucial conditions that coincided as below.
Historical Consensus and Reform: China’s journey began with the First Opium War (1840), a stark realization of its backwardness. Then, 140 years later, under Deng Xiaoping’s leadership, China actively opened its doors to the world through reform and opening up, fostering a strong national consensus: prioritize economic development, reject poverty, and learn from the West. This alignment of purpose was both timely and essential.
Demographics and Market: During the 50 years from the founding of the People’s Republic to the start of reforms, China experienced rapid population growth. By the 1980s, a significant proportion of educated youth contributed to a competitive labor force. Simultaneously, China’s burgeoning population fueled increasing consumer demand, making it an attractive market. Again, timing played a crucial role.
International Context: Amid global competition, China emerged as a third force between NATO and the Warsaw Pact. Even after the Soviet Union’s collapse, the US welcomed China’s development due to shared interests. For most of the past 30 years, China received recognition and support from the West. This favorable international environment was a stroke of luck.
Leadership and Policy Stability: China’s three generations of leaders since Deng Xiaoping maintained policy stability, relaxed regulations, and encouraged creativity. This unleashed the nation’s potential, facilitated wealth distribution, and motivated wealth creation. China actively shaped its destiny.
Capital and Technology: Western developed countries, flush with capital and advanced technology, sought broader investment opportunities beyond saturated domestic markets. Enter China—a vibrant nation with abundant cheap labor and a rapidly growing market. The synergy between Western capital and Chinese labor and market led to a win-win situation. This alignment of interests was fundamental.
However, examining the present reveals changes in these five conditions over the last decade:
Spiritual Condition: China’s pursuit of wealth has led to a decline in spiritual hunger, replaced by a sense of emptiness and spiritual poverty.
Labor and Market: While China remains a massive and mature labor and consumer market, rising labor costs and competition from emerging markets (India, Vietnam, Indonesia) challenge its advantage.
International Politics: Western mistrust of China has escalated due to diplomatic missteps, isolating China globally.
Domestic Politics: Economic downturn, international isolation, and internal control measures have shifted China’s political landscape.
Capital and Technology: Escalating tensions have restricted capital and technology exchanges, accelerating decoupling.
In summary, the five conditions that drove China’s remarkable transformation are now shifting. Looking globally, only three countries—the United States, Japan, and South Korea—have harnessed such opportunities for rapid development in modern history. Each had unique circumstances, but timing, unity, and favorable conditions were common threads.
Let's look at Japan. Japan has indeed experienced two revivals: the Meiji Restoration and the post-World War II resurgence. Let’s focus specifically on the post-World War II revival. After World War II, Japan was utterly devastated, and its domestic economy was on the brink of collapse. However, it was fortunate to have five conditions that contributed to its revival:
Spiritual Unity: Post-World War II, Japan was ready for rejuvenation. The nation was remarkably united, having faced confrontation with the United States. Japanese people wholeheartedly embraced American economic and cultural values, making a conscious choice to learn from and follow the U.S. This unity fostered determination and hard work.
Human Capital and Market: Since the Meiji Restoration, Japan has prioritized improving the quality of its population through education. Despite its small land area, Japan’s large population provided a sufficient domestic market to nurture various local industries.
International Relations: Japan’s alignment with the United States prevented it from being isolated after the war. Instead, Japan gained recognition and support from various quarters. Strengthened ties with neighboring Asian countries also played a role.
Consistent Political Policies: Despite frequent changes in leadership (primarily prime ministers), Japan’s overarching policies remained consistent. The commitment to industrial development and global competitiveness never wavered.
Capital and Technology: Japan enjoyed a unique advantage post-war due to its alliance with Western developed nations. This partnership provided substantial capital and technological support, propelling Japan’s rapid rise.
After China, who will be the next? Looking ahead, the most likely contenders for the fourth position are India and Vietnam. India, in particular, possesses the necessary conditions in terms of population, market, international relations, capital, and technology, although uncertainties remain regarding spiritual and domestic political factors.
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