Can Iran Learn Anything from Chinese Economic Experience?
Latest breaking news from China indicates that Chinese GDP is expected to surpass Japan which is now the second largest economy in the world. If US and China continue to grow at their current growth rate, the Chinese GDP will surpass that of the US after nine years? Surprising? No. According to the data supplied by various sources show that the Chinese economy has grown between 8 to 14% per year since 1991. Even though, all other major economies are in turmoil, this economy is still growing at a high rate, 8.7% for 2009. The Chinese GDP has been growing on a non-stop basis at a healthy rate for the past 20 years, defying the theory of business cycles.
China has been quite successful in exploiting the market forces to its advantage. Since 1978, when market-based reforms were introduced to Chinese economy, its GDP has increased more than twelvefold.Thanks to pragmatic approach to market system. Deng Xiaoping once described their economic system as “Capitalism with Chinese characteristics”. He also once said, “It doesn’t matter whether the cat is black or white, so long as it catches mouse” indicating the emphasis on pragmatism by the Chinese leadership when it comes to economic approach as well as to foreign policy, which is primarily based on building welcoming relationship with other countries, especially with its neighbors, the so called “smile Diplomacy”. The successful Chinese experience will definitely point to the fact that a sensible diplomacy, based on mutual respect, plays a decisive role in economic development at the age of globalization. Positive image building has been at the top of the Chinese global agenda as manifested by its successful hosting of the 2008 Olympics. Today, many of its old enemies are its strong trade partners. In other words, China has tried to diffuse the legacy of fear and domination and engage in confidence building and securing support of its neighbors and major trade partners. To that end, trade barriers have been dismantled and export-promoting policies have been put into operation, especially through public enterprises (P.E.’s). China’s heavy industries have grown and are operating profitably. They saved a big share of their profit to plow back into the state-owned companies as investment. Consequently, China need not rely on individuals for saving; most of the investible funds come from public enterprises. To seek the support of other countries, China has extended its financial aids to many countries with no string attached, especially to the African nations. Accordingly, there has been a tremendous flow of valuable resources to this country from Africa and from the Middle East. One of the costly drawbacks of the Bush administration’s foreign policy, which was mainly based on a unilateral approach, was that it helped China to shun away from being the focus of world criticism for its poor record of human rights because that honor had gone to the U.S. The decline in the role of the U.S. since the invasion of Iraq has served China quite well in gaining its power as the moral and economic authority, and has turned it into a dependable world stakeholder.
Chinese politics have been influenced by its desire to progress economically. Its government has been very decisive, and this decisiveness has helped to successfully attract foreign investment by providing these investors a sense of assurance and a safety net backed by a strong and a resolute government. What makes this country distinctively successful in its quest for economic prosperity are:
1) High rate of saving, making this country self sufficient and not at the mercy of other countries for funds. The rate of capital formation has been high; more than 25% per year in recent years. Most of such investments are in infrastructures of the country, thus facilitating the long term growth of the economy. Even though the foreign multinational enterprises have invested in China, theirs has played a minor role and most of the public investment in China is financed by savings by government enterprises;
2) The cost of capital has been tremendously low or possibly near zero giving Chinese business firms a competitive advantage over foreign counterparts. In addition, exports promotion policies have been very successful in placing this country at the top of high export countries, with huge surplus and huge foreign exchange reserves which is nearly $1.5 trillion at this time;
3) Chinese government does not allow excessive speculation in the stock market, especially by individuals. Avoiding such destabilizing speculations creates an additional safety net for investors. Even though this country has experienced a boom in real estate, just as the United States did, if the price bubble burst in China, the consumers are not going to suffer as much as they did in the U.S., because most of the real estate properties are owned by institutional investors and by the public enterprises. Therefore, if there are losses, most of them will be absorbed by the Chinese public sector;
4) China has a reputation for being a low-price producer in the world, thanks to inexpensive labor and to the state-owned subsidized business entities. That is why consumers in the U.S. can enjoy low prices at Wal-Mart and at almost all the other stores; finally,
5) Another unique positive factor concerning China is that since most of its government’s revenue is generated from public enterprises, the tax burden for the private sector is fairly light. The corporate sector pays only 7% of the total taxes. Such a system has made government budget more unwavering because its revenue is almost resection-proof. Can Iran learn anything from Chinese experience?