China astounds us with big numbers – 1.2 billion people, for example – and Beijing lobbed another wild statistic at the world last week. The State Council will invest $1.5-trillion (U.S.) in seven strategic industries over the next five years in sexy sectors, including alternative energy, biotechnology, information technology and clean-tech vehicles. It is investment on an unimaginable scale, at once both impressive and meaningless – no central authority will write so big a cheque. Rather, it is a sweeping direction from the top to banks, regional governments and state industries. The objective is clear: China is to change from hum-drum exporter of cheap shirts to designer of low-carbon motor cars.
This is where China must go. Its low-end exporters are struggling to compete, squeezed in a vice between soaring wage and material-cost inflation on the one hand and creeping currency appreciation on the other. Better to sell know-how and innovation than plastic toys. Biotechnology commands big margins and it improves productivity per worker, essential if China is to narrow the wealth gap between it and North America. Per capita GDP in China, adjusted for purchasing power parity, is about $4,800 compared with $45,000 in the United States. The question is how the gap is bridged and how quickly.
It is not just about spending trillions of dollars. We may be puzzled by China's growth explosion, but the advance of the past two decades surprises few Chinese academics, who see the long and slow decline of past centuries as the anomaly rather than the recent and sudden catch-up. According to Fu Jun, professor of political economy at Peking University, China made up a third of the world's population two centuries ago, when the Middle Kingdom accounted for a third of the global economy. By the 1970s, the share of GDP had dwindled to just 5 per cent. Today, China represents a fifth of the world's people but produces only 10 per cent of the wealth.
The objective must be to at least double that share. Professor Fu reckons it will be achieved through the reform of institutions. China had a head start over Europe in the Middle Ages, he says, with its imperial civil service examinations, which provided a system that ensured talented people rose to the top in a bureaucratic system of government. Europe later took the lead with market reforms, guaranteeing property rights in written constitutions. Later, that was reinforced with patent law and in the United States with anti-trust law to control monopolies.
According to Prof. Fu, it is simple market reforms, such as allowing peasants to migrate to cities to sell their labour at higher rates, which have enabled China to achieve big productivity gains. But if China is to make the leap from industrialization to innovation, further reforms are needed. What is needed, he says, is "better representation of different interest groups in the political process of decision-making." Otherwise, tensions resulting from the widening gap between the rich and poor will stymie development.
In other words, China has done only half the job by importing the West's market reforms. The task now is to go back to the imperial civil service and reform the bureaucracy. It is the other half of the job: making sure that the talented, not the privileged, get to the top.
That is a daunting reform, the scale of which is brought home in a work of installation art currently on view in the Tate Modern museum in London. Sunflower Seeds, a piece commissioned from Chinese artist Ai Weiwei, is at first baffling, much like the statistics trumpeted by the political cadres in Beijing. It is a layer of porcelain sunflower seeds, stretching across the floor of the huge turbine hall in the Tate's old power station building. It looks like a dull layer of pebbles until you realize each of the 100 million porcelain seeds has been hand-crafted by one of 1,600 workers over a period of two and a half years. It was a mammoth task and, arguably, futile. Each porcelain seed is unique. But you don't see that, just a vast grey expanse until you look closely at the seeds.
In his grandiose status as the Chinese bad-boy artist, Ai Weiwei is like the emperor commanding the creation of a Terracotta Army. We wonder at the stunning craftsmanship and hours of labour that made the seeds, but who are these workers? Until they are heard from, China's trillion-dollar knowledge economy will remain just a great big plan.
Carl Mortished is a Canadian financial journalist based in London.
Carl Mortished