HOW CHINA BECAME THE WORLD'S FACTORY

Book Excerpt taken from 'The Global Trade Paradigm'

- Arun Kumar

While China today is known as the world’s factory, its success is built on the foundation of investments in agriculture in the Mao era. Deng capitalized on this in his initial years in power, between 1978 and 1984. During this period, as agriculture transitioned from collective farms to a household responsibility system, the investments in irrigation, farmer education, fertilizer production and use and extension services started bearing fruit. Grain yield per unit area increased by 42.8 per cent, the total output of grain increased by 33.6 per cent, and real agricultural value-added increased by 52.6 per cent. It was this jump in agricultural production that laid the foundations for growth in manufacturing.

Another key was decentralizing decision-making. Provincial and local governments received increasing authority over investment approvals, fiscal resources and policies. This process had again started in Mao’s time, but the capriciousness of the Cultural Revolution had constrained it from yielding results. Once stability returned under Deng’s reformist policies, provinces, municipalities and counties were allowed, even encouraged, to experiment with reforms in specific areas. Successful experiments then became official policy and were quickly adopted throughout the country. During Mao’s regime, even a suggestion of any foreign influence, especially Western, was not just frowned upon but could have drastic consequences for the individual concerned. However, realizing that China needed global investments and know-how in manufacturing, Deng led the Chinese government to enact the Equity Joint Venture Law in 1979. The law allowed FDI into China for the first time since the Communist Revolution in 1949. Though the radicals criticized it, Deng was too powerful by then for any reversal of policy.