Napoleon once said “Let China sleep, for when she wakes, she will shake the world”.

James Kynge, former china bureau chief of best newspaper in the world (The Financial Times), won the FT / Goldman Sachs business book of the year award in 1996 with China Shakes the World: A Titan’s Rise and Troubled Future — and the Challenge for America which is a superb, concise introduction to how and why china is shaping our world.
The first half tells the condensed history of china’s post-cultural revolution rise and illuminates its leading position during much of the last six thousand years.
the book starts off recounting the mysterious disappearance of manhole covers all over the world (with plenty of reports of unsuspecting pedestrians falling into the suddenly-there holes from Mongolia to Montreal) as a signal of when the direction of the world – China relationship switched: switching from how the outside world was changing China to how China was affecting the rest of the world. China’s voracious appetite for almost every conceivable resource including the scrap metal that those manholes were destined to become was just one signal that the causal direction was switching.
James has plenty of engaging first-hand accounts from his two decades living in china through which it often seems we are witnessing china’s economic transformation unfold through his eyes.

Some of the major themes / ideas that run throughout include:

• Businesses everywhere are finding it harder to compete (manufacturers in particular), the sustainability of Europe’s welfare state model is in question as the industrial base there is hollowed out;
• China out-competes and out-capitalizes everyone, including America;
• Chinese possess the impressive combo of intelligence and second-to-none work ethic;
• China through lowering the cost of goods and its insatiable appetite for us treasuries (in part to manage its currency) has fueled the low-interest rate driven housing boom and general drive for yield that has resulted in the current sub-prime, credit-crunch, free-fall dollar mess we’re in;
• 400 million people have been lifted above the poverty line over the last 28 years of above 9.5% economic growth.

Here’s my (could be briefer!) summary of some of the book’s chapters:

Rags to Riches.
Kynge recasts the economic revolution that started with Deng Xiapong’s (who famously said “to be rich is glorious”) reign (after the madness that was Mao’s cultural revolution) as one based on the creative disobedience of China’s local governments rather than the top-down implementation of a genius Xiapong vision (which is closer to the official line). Deng’s genius lay in his strategy of running with whatever seemed to be working (i.e. creating jobs). We follow China in the 80s and 90s as it takes the initial steps towards becoming the world’s workshop. It’s a time characterized by an impressively enterprising private sector scrambling through post-communist bureaucratic loopholes, aided by subsidized capital, power and water.
those who ‘got rich first’ were often the unemployed or unemployable (who had no choice but to become entrepreneurs) which made for some surprising characters filling China’s rich list lists a few decades later (former convicts, peasants, etc).

The Future is the Past.
Kynge attacks the historical determinism widely prevalent in today’s china that its superpower status is inevitable; after all the country has laid claim to that mantle for much of the last few thousand years.
he questions whether china’s status truly was as strong as is often claimed. he opines that the tang dynasty (800AD) was the country’s peak (and not unrelated, also its most open period) and that China had been in a state of relative, per capita decline through the end of the cultural revolution.

Most of the chapter takes place in Chongqing (once called Chungking), the contemporary equivalent of Chicago circa 19th century; twain wrote “…astonishing Chicago, a city where they are always rubbing a lamp, and fetching up the genii, and contriving and achieving new impossibilities. It is hopeless for the occasional visitor to try to keep up with Chicago–she outgrows her prophecies faster than she can make them. She is always a novelty; for she is never the Chicago you saw when you passed through the last time”. HG Wells wrote of an “unwholesome reek”, “a dark smear in the sky”, he found it “one hoarse cry for discipline”.

China is following the path trodden by America in the 19th century, or japan post-1950, but the sheer scale and speed of its trajectory puts it in a class of its own.
Kynge talks about the ‘compression of developmental time’ when describing the unrivaled urbanization taking place. and with 700 million still living on less than 2$ a day, it can still count on pre-industrial revolution wages to maintain its competitive edge for the foreseeable future.
Interestingly, China studies much from America’s own rise, and models its highways, railroads, infrastructure on the us (learning from its mistakes of course and leap-frogging straight to the 21st century).
This is the magic of China – it is replaying out the birth of a great American nation but on a scale that dwarfs it.

Population Paradox.

Highlights from this chapter:

• Kynge discusses how the lure of a billion person market often masks a highly fragmented and obliquely protected domestic market, but the foreign investments continue regardless;
• numbers hold a special, magical place in Chinese culture (as we witnessed with 8.08pm opening ceremony on 080808);
• China takes a super-long-term approach to things: Zhou Enlai, Mao’s premier, when asked whether the French Revolution had been a success, replied without irony that it was too early to tell;
• China may grow old before it grows rich (thanks to the draconian one-child policy);
• Its famous lack of respect for intellectual property;
• Many Chinese ventures are unprofitable and propped up by state banks (the state prioritizes jobs over profits, and china’s high savings means there’s is plenty of liquidity).

China goes to Europe.
James visits several cities in Europe to see first hand the crippling changes that china’s matchless competitiveness has wrought on the crumbling european industrial hinterland (steel mills in Germany, clothing factories in Italy etc).
If Prato, a city that has been at the center of the global fashion textiles industry since the Medici’s, is unable to stand up to the Chinese competition that starts with manufacturing and works its way up the value chain, in time buying brands, technology and skills, what does that say for the rest of Europe and its welfare state so painstakingly put together after world war ii?

America Bought and Sold.
takes us to average America to show first-hand how the country’s middle is being hollowed out (middle class, middle America, mid-sized businesses) and sets the scene for a possible future where the politically critical middle class turn against further globalization. The key idea here is that china started out at the bottom of the global value chain – manufacturing – but is moving higher and higher up much faster than a lot of people realize. although China is spending more and more on R&D, it still significantly lags the us on this front, but it is increasingly simply buying its way up the value chain (buying brands and the IP of companies bankrupted by China’s competitiveness).

Not Enough to Go Around.
The mismatch of resources (in part due to China’s inefficient, wasteful use of its geological assets) and the size of its population has meant the environment has been an incontestable loser of China’s magnificent rise. but as Kynge notes in the book’s final pages when tempering the possibility of a military clash between the US and China, pragmatism usually wins over at least in the short-term in China and as the environmental costs to China continue to be felt, action will probably be taken. in deed the SEPA profile seems to have risen noticeably since the book was published.

We also learn about the CNOOC v congress battle, and that the commodities boom kicked off when China joined the WTO – probably not coincidentally. also, the Yangtze river is running dry!

Corruption and inefficiency are to blame for a lot of this (as well as a philosophical disrespect for nature).

Collapse of Social Trust.
China has a rich philosophical history (we learn about the concept of ren- roughly benevolence) but as Mencius said in his Bull Mounatin parable (on ren, human goodness):

The Bull Mountain was once covered with lively trees.  But it is near the capital of a great State. People came with their axes and choppers; they cut the woods down, and the mountain has lost its beauty.  Yet even so, the day air and the night air came to it, rain and dew moistened it till here and there fresh sprouts began to grow.  But soon cattle and sheep came along and browsed on them, and in the end the mountain became gaunt and bare, as it is now.  And seeing it thus gaunt and bare, people imagine that it was woodless from the start.

Social trust is being eroded at an alarming rate, evident in

• News with bonus (pr companies customarily bribe journalists to print stories);
• The emergence of 100,000s of private detectives a job that did not exist just over a decade ago;
• State corruption has lead to HIV infecting one million peasants and orphaned 100,000 children.

Communism vs Democracy.
Kynge: “the main problem with China’s political system is that it does not permit the checks and balances necessary to supervise and regulate a capitalist society”

some personal thoughts: i believe in democratic in principle (checks and balances, efficiency, accountability, etc, legitimacy), but apart from police and military states that rule completely by fear and intimidation (Saddam’s Iraq, Iran, Egypt, etc) there is an invisible social contract between party and people in non-democracies.
the lack of legitimacy conferred by elections if anything drives regimes like China, Singapore and the UAE to work especially hard to appease their populaces (and you can’t help but be impressed with these systems’ efficiency- Beijing’s pre-Olympic transformation could only have happened in this context, India would fail given twice as long).
On balance, the loss of efficiency inherent in democracy is a worthwhile sacrifice in my opinion, but it needs renewal i think.

Can We be Friends?
‘Waishi’ or foreign affairs in china often blurs the boundaries between friendship of individuals and that of states when it comes to achieving goals.
Chinese schoolbooks teach that the 109 years leading up to the cultural revolution involved attacks and foreign meddling by the US, Japan, Russia, Britain and France without distinguishing between then and now (this will be unsurprising to anyone who grew up in the Middle East where the West, US, and Israel are given similarly unbalanced treatment) which is obviously unhelpful in building sincere fruitful relationships with foreigners.

The state uses nationalism and its ability in returning international respect and prestige to china to build its legitimacy amongst its people. but this brooding, sub-surface xenophobia is difficult to control (evidenced in the street’s reactions to the US bombing of the Chinese embassy in Belgrade or the recurrent anti-Japanese demonstrations)

We are entering a new era of international politics defined by the geopolitics of scarcity, Kynge outlines a very real possible scenario of heightened military showdowns between the US and China but ends the book on a more hopeful note extolling China’s pragmatism (at least in the short-term) as a characteristic that could lead to the unprecedented peaceful rise of a superpower.

My (more worrisome) thoughts on this at the moment are that key differences between the Japan and German post WW-ii rises including:

• The commitment to china’s (played down) military build-up.
  
• SIZE!
• Sustained domestic pressure to grow (they need 24 million jobs a year, and must feed the increasingly rich and decreasingly agrarian population).

and China’s is just as xenophobic as everyone else unfortunately.

A must read for everyrone remotely interested in what our future will look like.