Understanding China’s economic miracle

China has recorded the greatest economic growth by a major country in the whole of human history. In parallel, China has produced the most rapid increase in living standards of any major country in human history.

A new book China’s Great Road collects together in English a number of analyses by John Ross on China’s economy and its relations with the world published in 2010-2021. The reasons for this economic “miracle” are not mysterious, and are analysed in this book.

These economic and social achievements since the creation of the People’s Republic of China in 1949 are by now so great that it is widely acknowledged internationally that China has changed the world situation. That fact has produced an extraordinary change to almost 30 years ago, when I wrote my first major article on China, “Why the Economic Reform Succeeded in China and Will Fail in Russia and Eastern Europe”. Many people at that time asked: “why are you studying China so carefully? It is a poor country.” My reply was: “just wait a little, it has a correct economic policy, it will therefore have enormous success.”

That 1992 article defined what was to be the different positions in the next thirty years of economic discussion on China. The great majority of Western economists argued that China was pursuing the wrong policies, predicted failure, or even disaster, and held up as a superior alternative what became known as “shock therapy” in Russia – when it was this latter which in fact turned out to be a disaster.

The majority of Western writing on China was summarised in dramatic titles such as “The Coming Collapse of China”, “The Coming China Crisis” and a small industry of articles predicting economic crisis. But after three decades it is clear which was the correct analysis. In those thirty years, China experienced the greatest economic growth in world history. It therefore remains somewhat farcical that those who made such totally inaccurate predictions of crisis and collapse are labelled “China experts”, frequently today promoting cold war with China, and appear regularly on Western media when all the fundamental things they predicted have been falsified by the factual development.

Today nobody anymore asks why anyone should be interested in China. Every day in the global media hundreds of articles appear on China. What was thirty years ago a potential, due to correct policies, has now become a fact. China is now the world’s second largest economy measured at current exchange rates, which it prefers to use, and is already the world’s largest economy by purchasing power parities (PPPs) – which many Western economic institutions and economies prefer to measure by.

In a personal sense this inaccuracy of Western media on China was fortunate for me for financing research work. For many years, before I became the Director of Economic Policy for the Mayor of London, to make the finance necessary to fund my economic research I made money by advising large international companies on the perspectives of the Chinese, Russian and other economies. The reason it was possible to make money from this was precisely because of the inaccuracy of media such as the Financial Times, the Economist, the Wall Street Journal etc on these subjects. They were constantly predicting a disaster for China’s economic policies, and the correctness of policies such as “shock therapy” in Russia. Although it was known I was a socialist I always simply asked for a factual comparison of the accuracy of my predictions of what would occur in China, Russia and other economies with the predictions in media such as the Financial Times and the Economist. Companies would see my predictions were proved to be accurate and those of the Western media were proved to be wrong. So they paid. Therefore, the inaccuracy of the Financial Times and Economist indirectly financed a lot of research which drew exactly the opposite conclusions to the ones they did on China, Russia and other countries.

This, of course, exploited a contradiction in Western journalism. Political journalism in the West can publish what is in reality purely propaganda, with inaccurate analysis and predictions, all the time without any great consequences for themselves. But businesses lose large amounts of money, sometimes hundreds of millions or even billions of dollars, if they take judgements based on inaccurate information and analysis. Therefore, there was a gap in the market for accurate analysis and information.

But in another more important sense, of course, this was frustrating in numerous ways. First, it meant that a lot of inaccurate propaganda in the Western media continued to affect the international situation. With the large-scale inaccuracies, and even falsification, now appearing in the Western media to attempt to launch a new cold war against China, this has become an even more serious matter.

This interacted with a second issue. To raise the finance to do this research imposed restrictions on how widely it could be publicised. If a company is paying for accurate analysis of a situation, it does not want that to be available to its competitors – it prefers them to act on the basis of wrong analysis and information. Therefore, I was able to finance research on a number of countries which was proved to be accurate, but the circulation of this was limited to companies which financed this research, socialists and key people within these countries.

Then, from 2000 to 2008, I was the Director of Economic and Business Policy for the Mayor of London – which imposed a different type of restriction. I was at that time responsible, among other things, for the Mayor of London in establishing offices and a presence for London in China – to link the city into the world’s most rapidly growing economy. But a mayor does not wish to have advisers writing on controversial issues in public which may be used by hostile media to distract from the agenda the mayor is setting. Therefore, I could only publish few articles in public under my own name.

In 2009 a new situation was created which removed these restrictions. There was a new Mayor of London, and I was offered a job at a Chinese University – I then became the first non-Chinese citizen to be employed by one of China’s new think tanks, Chongyang Institute for Financial Studies, Renmin University of China. This appointment was precisely based on the work I had been doing since 1992. It is from this time, 2010-2021, that the analyses brought together in this book were published – chiefly in Chinese as most Western media continues primarily to publish inaccurate predictions on China. I am therefore extremely pleased that these analyses are now available in English as well as Chinese.

The contents of the book explain the reasons for China’s success in a way that, I hope, will be understandable to many different audiences. The first chapters establish factually the unprecedently huge scale of China’s improvement in economic growth and human living conditions. Some chapters analyse China’s success in terms of its own theories – which are Marxist. Other chapters explain how China’s success can be explained in terms of “Western” theories.

A residential community for poverty-stricken rural people relocated from inhospitable mountainous areas in Zheng’an County, Guizhou Province in southwest China, on October 11, 2019. (Photo/Xinhua)
But the facts stand independent of any of these analyses. A wise Chinese saying is “seek truth from facts”. China, since 1949, has achieved the greatest improvement in life of by far the largest proportion of humanity of any country in human history. From China being almost the world’s poorest country in 1949, in only 72 years, a single lifetime, China has risen to the brink of a high-income economy by international standards – something which will be achieved by around 2023. This is not simply economic success but an incalculable improvement in the living standards, life expectancy, education, culture and numerous other dimensions of human welfare for one fifth of humanity – 1.4 billion people. Since 1978 China has lifted 853 million people out of poverty by international classification, three out of every four people in the world lifted from poverty.

It is the gigantic scale of these facts which means China is now increasingly entering the attention of every thinking person on the planet. But such an increasing global role of China in turn makes it vital that there is an accurate understanding of China. Everything from errors of judgement, to financial loss, to catastrophic geopolitical mistakes can result if people base themselves on propaganda or delusions instead of facts regarding such a huge global development.

To take a historical comparison, Hitler mistakenly believed his own analysis of the USSR that: “We have only to kick in the door and the whole rotten structure will come crashing down.” On the basis of this analysis Hitler, by invading the USSR, unleased the greatest war in human history. This led to the total destruction of his regime, the only good thing to come out of it, but to more than 30 million deaths.

In the same way today similarly disastrous errors may flow from taking seriously all the false analysis of China’s supposed “crisis” – to be misled by one’s own propaganda, instead of seeking truth from facts, is a very dangerous mistake.

If a theory and the real world do not coincide, a responsible person abandons the theory, a dangerous one abandons the real world. The latter is what has happened over the last thirty years. China has experienced the greatest economic growth of any country in history whereas the theories of the majority of Western economists predicted that China would suffer failure. Rational thought demanded that, given the contradiction between the theory and real world, the theory should be discarded. Instead, the real world was abandoned with a refusal to face the facts and the stubborn prediction that China’s economy was about to enter crisis “soon”. The “soon” simply being repeatedly pushed forward in time for decades when no such crisis occurred.

That has nothing to do with rational thinking or science, it is a type of dogmatic myth making which, can lead to very dangerous mistakes.

With the correct analysis, it was perfectly possible to predict in advance the success of China’s economy. This was already being done in China forty years ago – as is well analysed in works available in English by Chinese economists such as Justin Yifu Lin. It was also predicted in my articles, the most recent of which are collected in this book, and as readers can judge for themselves.

Economics is not a matter of subjective opinion. It can be tested against facts. And those facts have already settled the decades-long dispute on whether China’s economic policies would be successful or it would suffer failure. To return to the starting point, China not only didn’t suffer economic failure, it experienced the greatest growth in a major country in the whole of human history. This success could be and was predicted in advance – as so also can be China’s continued success. The reasons are given in this book.

Author:  John Ross is a Senior Fellow at the Chongyang Institute for Financial Studies, Renmin University of China.

He is a prize-winning resident columnist in private, academic based and state media in China with over 200 articles published on China and the international economy including in Sina Finance, International Finance News, China Finance, People’s Daily, Global Times, Guancha.cn, and Shanghai Daily.

Source: This article originally appeared on China Focus under the title “China’s Road to Prosperity”.

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