It would be hard not to notice China’s ever-increasing domination of the production of ever-cheaper manufactured good. Many in the West explain this by pointing to China’s pool of cheap labour. This simplistic explanation is mistaken and will lead to missed opportunities as China continues to play an increasingly important part in the global economy.

Shanghai ("Blick auf die Skyline von Pudong" by Yorky ex Wikimedia)

Shanghai
(“Blick auf die Skyline von Pudong” by Yorky ex Wikimedia)

 If having cheap labour was the main factor in being able to produce and sell cheap manufactured goods, then counties, such as those in Africa, which have even cheaper labour should be outperforming China; or countries like Mexico and Egypt, with cheap labour and proximity to the major markets in the US and Europe, should be dominant. But, clearly, these countries are not matching China’s performance.

The fact that China’s success does not depend on the size of its cheap labour force is clear when we look at the statistics for the period from 1995 to 2002. During this period, China increased

If having cheap labour was the main factor in being able to produce and sell cheap manufactured goods, then counties, such as those in Africa, which have even cheaper labour should be outperforming China; or countries like Mexico and Egypt, with cheap labour and proximity to the major markets in the US and Europe, should be dominant. But, clearly, these countries are not matching China’s performance.

The fact that China’s success does not depend on the size of its cheap labour force is clear when we look at the statistics for the period from 1995 to 2002. During this period, China increased manufacturing output by an enormous average of 17 per cent per annum while reducing the number of manufacturing jobs by 15 million.

To understand the reasons for China’s success, we need to look at how the Chinese see their history and geographical place in the world.

Through most of recorded history, up to the eighteenth century, China has been the leading manufacturing and trading nation in the world. For well over two thousand years, the Chinese have been exporting their manufactured good, such as silk and porcelain, to these regions. The Chinese were manufacturing silk at least 3,500 years, and porcelain about 1,500 years, before anyone in the West was able to do so.

The Chinese call their country “Zhongguo” which is usually translated as “The Middle Kingdom” but really means “the central land”. China sees itself as the centre of the world, surrounded by the less advanced regions of Europe in the West, Arabia in the South-West, India in the south and Japan and America in the East. The great trade routes of the Silk Road to the Middle East and Europe, and the Silk Route of the Sea to India and Arabia, were developed to carry that trade.

China’s recorded history spans a period of more than 3,000 years. Throughout that period, there is a repeated pattern of a great emperor uniting the nation and founding a brutal but short-lived dynasty. This is followed by a long period of prosperity, and then a period of decline, ending in civil war before the rise of new great emperor who again unifies the nation. In 221 BC, the Emperor Shi Huangdi unified China and founded the Chin Dynasty. Soon after his death, his Dynasty collapsed to be replaced by the great Han Dynasty which lasted until 220 AD. This was followed by a period of decline known as the Three Dynasties. This period of decline ended when Wen Ti again unified the country and founded the short-lived Sui Dynasty (581 to 618) to be followed by the prosperous T’ang Dynasty and then the slow decline of the Sung. This decline ended when, China was conquered by the Mongols under the brutal Kublai Khan who established the Yuan Dynasty. Again, the first dynasty of the cycle was short (1279 to 1368) and was followed by the prosperity of the Ming Dynasty and decline during the Ch’ing Dynasty, eventually ending in the civil war of the Communist Revolution and a new powerful Emperor in Mao Zedong.

The Travel of Zhang Qian to the West. Mogao caves, 618-712 CE (Public domain)

The Travel of Zhang Qian to the West. Mogao caves, 618-712 CE (Public domain)

Like his predecessors, Mao united the nation but also brought the brutality of the Cultural Revolution. In this view, the next stage of the cycle is bound to be a long period of prosperity.

As it has always been, China expects that this prosperity will be based on advanced manufacturing and trade. China is achieving this by using technology to tie itself tightly into the supply chain of the wealthy consumer countries – so that the purchase of a shirt in an American Wal-Mart store will automatically trigger an order and begin a manufacturing process in China.

As China is showing, as manufacturing becomes ever more automated, the route to prosperity is not by exploiting cheap labour but in finding creative ways of becoming part of collaborative networks which supply needs worldwide.