Business Irish

Friday 24 March 2017

Let's take on the world's best with a China strategy

Continuing our series where top business leaders suggest ways of kickstarting the Irish economy, Eddie O'Connor looks to the East

should we care about China? Well, if you take the population count of Europe and the US together, then double it, you have the population of China. According to the IMF its economy will surpass that of America in real terms in 2026. So we should care very much indeed.

It's the oldest continuous culture in existence, the world's fastest growing economy and it's experiencing the greatest social transformation in history.

For over 30 years it has recorded an annual growth rate of 8 per cent per annum without rampant inflation, an achievement Western economies had thought impossible. Since 1980 it has, according to the World Bank, grown by 1,500 per cent, whereas the US grew by 120 per cent, and Ireland by 235 per cent.

In recent years China has built more roads, railroads, power and gas grids, schools, houses and hospitals than the rest of the world put together. Every year it builds a power system the size of Germany's.

The scale of the numbers is mesmerising.

Two questions spring to mind. How can China do this, and how can Ireland benefit?

Let me start with the first part. Firstly, this is not an overnight success and it's not a "miracle". It is the product of conscious design. A design called the Five-Year Plan.

Chinese planning represents the greatest ever exercise in organising the collective intelligence of a people, both in terms of the length of time involved and the numbers of people engaged; 57 years and 1,300 million people.

China recently launched the 12th Five-Year Plan. As of now they are at the mid-point of a journey which began in the Fifties and has an end goal of around 2050. At that point, China will be by far the biggest economy in the world.

The government sets the key long-term goals for society and remains responsible for macro-economic management and building the physical infrastructure. In the controlled market it develops key industries and services, but in the free market private companies play an ever-increasing role.

In short, a dual economy is emerging and the plan provides for substantial progress in that direction.

This political wisdom has been applied to the Chinese development process, but what is striking is the bottom-up approach whereby the facts are ascertained from experimentation at local level and then applied nationally -- the reverse of what most people understand by planning.

Dr Justin Yifu Lin is Chief Economist at the World Bank and was founding director of the China Centre for Economic Research at Beijing University. He describes this as a "micro-first" approach and references the 1979 farm reform which was "initiated by farmers, sanctioned by the government and introduced nationwide only after its performance had been demonstrated. This reform resulted in a dramatic increase in productivity and output growth".

This is not the vocabulary we expect from socialist theorists -- but it is the one the Chinese use as a matter of course, and it gives us westerners an unexpected insight into exactly what they mean by "socialism with Chinese characteristics".

The consultation and decision-making process which led to the new plan consisted of 10 fundamental steps with many smaller steps in between. It's proof that China has formed its own democratic, institutionalised procedures for public decision-making.

Indeed, we in Ireland could learn the value of mobilising all our intellectual resources to solve our own national problems and of applying intelligence, and reason, to the development of solutions.

Is this process any less participative or legitimate than decision-making in Western democracies, where so much is decided by unelected bureaucracies and influenced by unaccountable pressure groups and lobbyists?

Let's just look at a few headline aims of the plan. The annual growth rate is set at seven per cent and GDP is expected to increase by 40 per cent over the five years (incidentally, at seven per cent growth, the economy will double by the end of the next plan in 10 years' time); 45 million new jobs are to be created in urban areas and unemployment is to be kept below five per cent; 45,000km express rail network and the 83,000km national road network are to be completed.

So that's the how. Now let me address the second question: how can we benefit?

'Political wisdom has been applied. What is striking is the bottom-up approach whereby the facts are ascertained from experimenting at local level and then applied nationally -- the reverse of what most people understand by planning'

It's actually quite simple. The plan is based on the guiding principle that China "will work with the international community to tackle global challenges and share the potential for development".

It encourages increased outward investment by Chinese companies under the "Going Out" strategy, and this provides great opportunities for countries like Ireland to attract the very best of Chinese manufacturers to set up shop here and start producing.

Back in 2010 I wrote a paper on China which stated that the growth in Chinese personal incomes had opened up huge export opportunities for Irish agricultural products, especially in protein. I called for a national strategy to realise that potential. I now add to that call. I ask the Government to develop a "Chinese Strategy" to not only cover trade in both directions but include investment, both inward and outward.

We have a huge export market in renewable energy on our doorstep, if we choose to develop it.

Europe will need over a million megawatts of renewables if it is to reach the 2050 target of reducing its GHG emissions by 80 per cent. The other EU states cannot do that without importing renewable energy. We here in Ireland have the resources, and the right of legal access to the market; our Chinese friends have the technology and the capital.

We should put both together. We could create a whole new energy sector here based on clean energy exports into the wider European market.

That is a challenge I hope the Government will meet with vision and enthusiasm. I would be only too willing to play my part. The 12th Five-Year Plan is one of the most important political documents of its time. It signifies the re-emergence of China on the world stage. Now it's our time to take to that stage with China, the opportunities are there for the taking.

Dr Eddie O'Connor is CEO and founder of Mainstream Renewable Power

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