The sleeping giant that roared

The Wealth of Nations was a book written by Adam Smith in 1776, and it outlines the basic principles of the free market as it tries to understand and explain, the concept of wealth, free trade and why some countries are wealthier than others.

The reason the United States had such an edge in the previous century was primarily because of free trade, the volume of such trade, as well as its ability to efficiently build, create and manufacture mass products in a cost-effective way.

Free trade is what has created the bounty of wealth that we call the modern world. In systems where free trade was weighed down by too many regulations or excessive government intrusion its potential was diminished.

Following the second world war, the United States flourished mostly because there simply was no competition. There was no Japanese economy and most of Europe was in ruins. Americans remember the roaring economy of the 1950s and 1960s with fondness, when America was ‘great’, but, in reality, it simply stayed true to its formula of free trade and had the luxury of no competing forces.

Whatever it built, it consumed and was free to export to the rest of the world the technology and products it was building. It not only had the innovation talent but the manufacturing base.

In the 1970s and 1980s Europe, Japan and the rest of the world caught up. Toyota was now providing competition with Ford and you had all sorts of German, Italian and British products entering the global market.

Then there was China. In 1978, as countries around it, such as Japan and Korea, were building modern economies, reformists in China pushed to embrace free trade. It was a very courageous decision. In previous centuries, China had one of the most modern economies in the world, but it had stagnated in the nineteenth and most of the twentieth century.

The reforms built on free trade and a free market economy were not easy to introduce and it took most of the 1980s to fully integrate. In the 1990s more radical reforms were introduced.

The sleeping giant woke, and boy did it roar. Between 1978 and 2013, the Chinese economy grew at an average of more than 10% per year. That consistency, at that level, was unprecedented. Per capita income saw increases just shy of 7% annually. Between 1978 and 2005, wages grew six-fold. That’s especially impressive when you consider most countries’ wages barely moved in that period.

It’s quite a story. At first it was about high volume in manufacturing. The knowledge to innovate was limited, but there were plenty of opportunities in terms of volume. However, this is where the clever part comes: with their new-found wealth, they focused on innovation and education. Today, manufacturing is simply the foundation of the success and the shift is towards innovation. And they’re kicking ass.

For example, electric vehicles in China are not the future, they’re the present. They built more than 1.2 million electric vehicles last year and are now, by far, the global leader in this industry.

According to the World Economic Forum, two-thirds of all investment in the world on artificial intelligence takes place in China. In 2017, this sector in China grew 67% and the vast majority of the investment is coming from private industry.

The areas where China is currently leading, such as robotics and structural engineering, are all innovation-oriented. They are also leading in areas you wouldn’t really expect them to, such as having the largest carbon trading scheme in the world, making it twice the size of the EU’s scheme.

The Chinese roads network, currently being built, is one of the most amazing engineering projects ever. China builds cities at a frantic pace and its tech scene is one of the most exciting parts of its economy – it now boasts more than 100 companies with a billion dollar evaluation and eight companies with a value of more than 10 billion dollars.

The combined net worth of these 108 companies is the same as the Belgian economy. The Chinese variant of Uber, called Didi, is bigger both in terms of passengers and in terms of value and they’re only just starting. Even in areas such as literature the Chinese are exceeding expectations.

It is simply an economic marvel and China is so much more than Beijing and Shanghai. Innovation, such an important ingredient in economic growth, is everywhere in China. Does the country have its own set of challenges? Of course it does. Does it have human rights issues which one must not casually discard? The answer is yes. But so do many other countries.

The truth is that China is an economic marvel and one of the success stories of the modern world, and its move towards free trade has been extremely successful. Its ability to provide a shift in wealth to hundreds of millions, in such a short space of time, makes it a wonder.

Malta enjoys much respect in China, mostly thanks to the approach by the former Prime Minister, Dom Mintoff, who saw its potential before everyone else. We must build on this and there are no shortcuts in understanding and appreciating Chinese culture and its way of doing things.

As Minister for Education, I’ve had the pleasure of meeting a lot of the leaders in the sector over the past years and they all are willing to contribute in the fostering of the relationship between the two countries for the common good.

We have a privileged place in the eyes of the Chinese and this means that we can build a better future together. The ball is in our court.