China: 3X More People than E.U. and on Average 40X Wealthier Since 1980
NAFTA’s United States, Canada, and Mexico as well as the European Union are regional trade associations assembled from very different regional, political, economic, and social networks. Plus the governments of each U.S. and Mexican state, Canadian province, and E.U. country vary significantly in their authority, operations, and level of competence and corruption.
China is much the same, only larger, more diverse, and more decentralized, with 85% of Chinese government spending directed by local governments (see China’s Economy: What Everyone Needs to Know). (Of course, which level of government directs state spending is less important that what the funds are actually spent on.)
Some 500 million live in the E.U. and nearly 450 million live in the NAFTA countries of U.S., Canada, and Mexico. China though has 1.4 billion people, so roughly three times as many as the E.U. or U.S./Mexico/Canada.
China’s 3x population compared to NAFTA or E.U. countries didn’t matter much when most in China were planting rice by hand or running sustainable fish and silkworm farms (see the video Carp Jumps Over Dragon Gate [updated link]).
Even if China had twice as many people, before the 1980s they wouldn’t much impact on the world economy, since most in China’s cities and rural agriculture were disconnected from the global economy.
All that changed when China’s communist government returned family farms to private ownership and opened Special Enterprise Zones where free enterprise and foreign direct investment were allowed and encouraged.
Consider the advances these reforms brought to over a billion Chinese people in the last 35 years: Average annual income rose from just $312 in 1980 to $13,400 in 2015:
• $312 a year in 1980
• $673 a year in 1986
• $1,516 a year in 1990
• $13,400 a year in 2015
Recent news articles breathlessly claim that China’s economic “impact” on U.S. manufacturing over the last ten years has been far greater than Japan’s was in the 1990s. That shouldn’t be a surprise as China’s population is ten times Japan’s 126 million.
When China’s economy was opened to foreign investment in the 1980s, Japanese, South Korean, and later Taiwanese companies began investing and building factories to employ lower-cost (and initially lower-skilled) Chinese workers.
According to the Chinese Ministry of Commerce, by the end of 2012, 23,094 Japanese firms had set up in China. … ‘by May 2015 Japanese accumulated investment in China had reached US$100.4 billion, making it the first country to surpass US$100 billion’. Source; What’s pushing Japanese firms out of China? 21 October 2015.
China’s economy includes partly autonomous Hong Kong and independent Taiwan. Taiwan and South Korea are, like Japan, integrated with China’s economy. To a significant extend U.S. and E.U. economies and companies continue integrating with Chinese companies and workers.
Consider Asian economic integration reported in The Economist (November 8, 2014):
88,000 firms from Taiwan employ 15.6m Chinese workers. About 11m are employed at 23,000 Japanese firms or their suppliers. Throw in 2m more workers for South Korean enterprises, and companies from around the troubled East China Sea have approaching 30m Chinese on their payrolls.
“Supply chain integration” is the key phrase. The electronics for computers, cars, and airplanes, and endless gadgets cross borders many times before final assembly in China, Mexico, or other lower-wage countries. Higher revenue usually flows to companies based in U.S., Japan, Taiwan, Germany or other developed countries where higher-cost design and engineering is based.
As with Japan, Taiwan, and South Korea though, advancing regions and companies in China are moving up the value chain to manage their own design and engineering innovation. Below is a recent Wired video on the free-wheeling nature and rapid-prototyping capabilities in Shenzhen, China.
Shenzhen was a fishing village of 30,000 in 1980, but when opened to free trade and foreign investment as a Special Economic Zone, it learned from Hong Kong and took off. Since 1980 production has increased 10,000 fold and population expanded to over 12 million. Shenzhen is now a specialized technology center for the world, and has production capabilities no other city can match, as the videos explains. Companies from around the world are opening engineering and design centers in Shenzhen to more rapidly develop new products and technologies.