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Sunday, October 31, 2021

Why Has China Become the Wealthy Country It is today

We look back on how the People's Republic of China's transition spread the extraordinary wealth - and entrenched inequality - throughout the Asian giant as the country commemorates its foundation anniversary.

"China was extremely, very poor when the Communist Party took control," says DBS China economist Chris Leung.


"They relied on self-sufficiency because they had no trading partners or diplomatic contacts."


Since 1980, China has experienced a significant poverty reduction. The national poverty rate declined from about 90% in 1981 to under 4% in 2016, according to the World Bank's $1.90 per day poverty level (in 2011 prices at purchasing power parity), meaning 800 million fewer people living in poverty.

China has implemented a series of historic market reforms to open up trade routes, and investment flows during the last 40 years, lifting hundreds of millions of people out of poverty. This is a fascinating topic to write about because I am heavily invested in Alibaba (Ticker: BABA), a Chinese company. Because of this reason, I researched why and how China became the wealthy nation it is today. This article will explain the history of poverty in China and how it has become one of the leading nations it is today. Moreover, I will explain what progress China has developed and why I want to learn Mandarin again.

History of Poverty in China

One of the worst human disasters of the twentieth century occurred in the 1950s. The Great Leap Forward was Mao Zedong's attempt to industrialize China's peasant economy swiftly, but it failed, and between 1959 and 1961, 10-40 million people died in the world's most expensive famine.


The Cultural Revolution, in which Mao began to purge the Communist party of his enemies but ended up destroying much of the country's social fabric, was followed by the economic turmoil of the 1960s. However, after Mao died in 1976, Deng Xiaoping's reforms began to transform the economy. Deng Xiaoping, the then-Chinese strongman, was so impressed with Singapore's social discipline and order that when he returned to China in 1978, he told his authorities to look to the Lion City for inspiration. If Singapore Chinese descendants of poorly educated coolies could succeed, how much better could mainland China be if the correct policies were implemented? Lee Kuan Yew reminded Deng Xiaoping.

During this period, Peasants were allowed to farm their plots, allowing them to improve their living conditions and alleviate food shortages. With the re-establishment of diplomatic relations between the United States and China in 1979, the door was opened to foreign investment. Money flowed in, eager to take advantage of cheap labor and low rental rates.


"We have seen what is easily the most amazing economic miracle of any economy in history from the end of the 1970s onwards," says David Mann, global head economist of Standard Chartered Bank.

The Turning Point

In 1978, the government enacted significant reform and opening-up programs, gradually transitioning to a market economy and beginning to realize its full growth potential. During that time, China's GDP amounted to barely 2% of the global total, and it now accounts for over 15% of the global economy.

In today's China, poverty primarily refers to the rural poor; nevertheless, decades of economic progress have significantly reduced extreme urban poverty. China has made significant headway in decreasing poverty during the last three decades. According to the World Bank, more than 850 million Chinese people have been lifted out of extreme poverty, with China's poverty rate falling from 88 percent in 1981 to 0.7 percent in 2015, as measured by the percentage of people living on less than US$1.90 per day in 2011 purchasing price parity terms.


Growth has fuelled a tremendous increase in per-capita income since the introduction of far-reaching economic reforms in the late 1970s, helping to bring more people out of poverty than anywhere else in the world: Between 1990 and 2000, China's per capita income climbed fivefold, from $200 to $1,000. Between 2000 and 2010, China's per capita income increased by the same amount, from $1,000 to $5,000, putting it in the middle-income category.


China's progress contributed to more than three-quarters of global poverty reduction between 1990 and 2005 and was a significant reason the world achieved the UN millennium development goal of halving extreme poverty. A combination of a rapidly expanding labor market, fueled by a long period of economic expansion, and a series of government transfers, such as an urban subsidy and the establishment of a rural pension, contributed to this fantastic accomplishment. According to the World Bank Group, the percentage of people living below the international poverty line of $1.9 (2011 PPP) will drop to 0.7 percent in 2015, while the poverty line of $3.2 (2011 PPP) would fall to 7%. At the end of 2018, 16.6 million people in China were living below the national poverty line of 2,300 (CNY) per year (in 2010 constant prices), accounting for 1.7 percent of the population. On November 23, 2020, China stated that it had eradicated absolute poverty throughout the country by raising all of its residents over the designated poverty threshold of 2,300 (CNY) per year, or less than a dollar per day.

Opening up the Chinese Internet Space

Bilateral relations got stronger and stronger throughout the 1990s. Xu Weicheng, Director of the Central Propaganda Department, visited Singapore in 1992. He wrote a book about Singapore, widely distributed in China, after interviewing Lee Kuan Yew, Dr. Goh Keng Swee (then retired), and others. Ding Guangen, the Politburo Member in Charge of Propaganda and a former bridge partner of Deng Xiaoping, spent a week in Singapore in 1996 with a high delegation that included two or three ministries.


They studied Singapore's media management (TV, radio, film, theaters, newspapers, libraries, cinemas, and the Internet) with such zeal that at the end of the week. Moreover, they were getting ready to reveal China's Internet policy and had traveled to Singapore to double-check everything.


Despite being relatively open to western influence, Ding could see that Singapore's core remained Asian. China's decision to open up the Internet within the country while keeping the domestic universe distinct from the rest of the world proved crucial. The thriving cyberspace that we now witness in China could not have happened without that necessary policy action.

The Number of Billionaires in China

Greater China had the most billionaires in the world in 2021, according to the Hurun Global Rich List 2021. Greater China, with a billionaire population of 1,058 persons, topped the list. In comparison, the United States had 696 billionaires. That year, a considerable number of billionaires lived in India, Germany, and the United Kingdom.


It is no surprise that the United States has many billionaires as consumer capitalism's creators and exporters. However, China has surpassed the United States as the country with the most billionaires in the world. The rise of China's billionaires has coincided with the country's economic liberalization and subsequent high growth rates. On the other hand, North America continues to have the most extensive number of ultra-high net worth individuals — those with a net worth of more than fifty million dollars – in the world. The prominence of Europe and North America is a result of their economies' higher levels of development. However, with China poised to reduce the gap on the United States, this might alter.

This is an exciting shift because China had zero billionaires in 1995, and now they have the most billionaires in the world. It took them about 26 years, and China has become the country it is today. This shows that many Chinese in China are getting wealthier, and their living standard is improving dramatically.


My father told me how he had visited China 20 years ago when I was still a child. He told me that China was very poor, and the last time he and my older brother went back to China a few years ago, we saw significant improvement. We were very impressed with the development in China, and people in China have a very high living standard compared to decades ago.

Why I'm going to study Mandarin?

Seeing the fast progress in China made me decide to want to learn Mandarin Chinese again. I think learning Mandarin is crucial for my dad's company prospects. If I can communicate in Chinese, I can work together with the Chinese. I want to expand my dad's business by working together with the Chinese. I am sure that the Chinese want to work with us because they want to expand their business to other developing foreign countries such as Indonesia.


I believe that Indonesia has much room for improvement. Indonesia is the 4th largest populous country in the world. If I can capture more market share in Indonesia, my dad can make a healthy profit from selling locally. My strategy is to learn the technique of manufacturing products just like the Chinese did in China. Labor cost in Indonesia is still much cheaper than in China. If my dad can manufacture products from Indonesia without importing them from China, we can earn a significant profit margin. My dad's company can add more home appliances products instead of just selling electronic fans.


I plan to wait for the Covid Pandemic to be over. When it is done, I'm going to continue learning the Chinese Mandarin language. However, I'm not going to China to get my education, and instead of going to a tutoring center in Indonesia that teaches Chinese. I'm going to be 32 years old soon, and I don't have the time to go abroad for education. By studying Chinese Mandarin in Indonesia, I can learn my father's company business traits while learning the Chinese Mandarin language.

Bottom Line

I hope this article gives readers details of Chinese history to becoming the prosperous nation it is today. China was a poor country just a few decades ago, and now they have more billionaires than any other country in the world. This shows how China has improved at a very rapid pace. It's no wonder why Charlie Munger believes investing in China is the way to go. I am also heavily invested in Alibaba Group (Ticker: BABA). This is a Chinese company in China, and I believe the company still has a lot of room for growth.


Seeing the impressive progress in China has made me want to learn Chinese Mandarin again. I believe being able to communicate in Chinese Mandarin is crucial to my father's business prospects. I want to add more products that can be manufactured in Indonesia instead of just selling electronic fans. Let's hope the Covid Pandemic case can end as soon as possible. I still have a lot of homework that needs to be done to impress my dream girl. Anyways, comment below what you think about the progress in China and what you guys think of my plan to learn Chinese Mandarin again.

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