Pakistan needs China’s growth model


February 03, 2015 – Salman Abduhu

LAHORE(nation)- Pakistan and China have very strong ties and cooperate with each other in many fields. Still they are poles apart as far as economic performance is concerned.  While China is about to leave even the US behind in the years ahead, Pakistan has not been able to solve basic problems, which it should have solved long ago.

The frequent changes in the economic policies could be an important factor responsible for Pakistan’s sluggish performance. The situation has led many to think if the China model could help Pakistan overcome its economic difficulties.

In Pakistan privatization is considered the solution of every problem by the economic managers and it is said that only privatization programme can save the public institutions including railways, Wapda, PIA and PSM, with the creation of sense of competition that would drive improvement.

Chinese growth model, instead of relying just on privatization, focused on making its public institutions stronger and merit based appointments.

China has become the world’s fastest-growing economy and is one of the world’s top exporters, attracting record amounts of foreign investment, keeping its key public enterprises and institution under state control.

The collapse in international export markets that accompanied the global financial crisis of 2009 initially hit China hard, but its economy was among the first in the world to rebound, quickly returning to growth.

In 2011 it formally overtook Japan to become the world’s second-largest economy.

As a member of the World Trade Organisation, China benefits from access to foreign markets.

The Gross Domestic Product (GDP) in China expanded 7.3 percent in the fourth quarter of 2014 over the same quarter of the previous year.

GDP Annual Growth Rate in China averaged 9.08 percent from 1989 until 2014, reaching an all time high of 14.2 percent. In last month of 2014, industrial output and retail sales beat expectations.

Industrial output increased 7.9 percent year-on-year, rising from 7.2 percent a month earlier.Retail sales grew 11.9 per cent, accelerating from 11.7 percent in November. Fixed asset investment, a key driver of the economy, grew by 15.
7 percent in 2014.

Though, China has moved from a closed, centrally planned system to a more market-oriented after 70s, yet its support for state-owned enterprises in a large number of sectors still continued. Reforms began with the phasing out of collectivized agriculture, and expanded to include the gradual liberalization of prices, fiscal decentralization, increased autonomy for state enterprises, growth of the private sector, development of stock markets and a modern banking system, and opening to foreign trade and investment. China has implemented reforms in a gradualist fashion.
Presently, China has renewed its support for state-owned enterprises in sectors considered important to economic security, explicitly looking to foster globally competitive industries.

During a visit to China, meeting with different entrepreneurs and attending several gatherings with experts I judged that China is making progress with a fast speed without selling its public institutions rather its government focuses to make its state enterprises stronger through merit based appointment.

The major examples are China Air and Chinese Railways. The state-owned Railways every year continued to introduce new bullet trains allover the country under state control.

The high-speed Chinese rail system has quickly grown to over 9,700 km in five years, and will expand to 19,000 kilometers by the end of this year. It is already transporting some 2 million passengers a day on trains.

Haier Group- the Chinese multinational electronics company, is another example of state-run public enterprise like our Pakistan Steel Mills, which is earning huge profit.

Headquartered in Qingdao, Shandong province, the company manufactures and sells products including air conditioners, mobile phones, computers, microwave ovens and refrigerators.

In 2014 the Haier brand had the world’s largest market share in white goods, with 10.2 per cent. Haier convened an International Symposium on Haier’s Business Models and Internet Age in early January 2015 in Qingdao, Shandong province of China, which was addressed by the top global management innovation experts who came from America, Europe and China.

Experts said that under the joint action of the investment-driven platform and entrepreneurial ecosystem, Haier Group achieved a steady growth.
In 2014, Haier Group global turnover achieved 200.7 billion RMB, up 11% from a year earlier and online transactions achieved 54.8 billion RMB, up 2391% from a year earlier.

Marshall W.Meyer, the professor of University of Pennsylvania Wharton School, in his address, observed that the management and creation system on the construction of the entrepreneurial ecosystem is extremely innovative, surpassing the traditional management concept, this creation benefits from one key advantage, namely Zhang Ruimin – the Chairman and CEO of Haier Group, who is a great management thinker, devoting himself to promote the management creation, and subverting Haier into a great company rewriting the global theory. From the view of him, Haier will become an outstanding representative of the great company, and the management theory on the creation will have an influence on the whole world and management field.

Like Haier group a large number of companies are running under state control, making huge profit and expanding all over the world.

Pakistan may also benefit from Chinese industrial sector growth, its innovation, research and marketing model. Decades of internal political disputes and low levels of foreign investment have led to slow growth and underdevelopment in Pakistan.

Agriculture accounts for more than one-fifth of output and two-fifths of employment. Textiles account for most of Pakistan’s export earnings, and Pakistan’s failure to expand a viable export base for other manufactures has left the country vulnerable to shifts in world demand.

Official unemployment is around 6 per cent, but this fails to capture the true picture, because much of the economy is informal and underemployment remains high.
Over the past few years, low growth and high inflation (except the end of 2014) have increased the level of poverty.

Foreign investment has not returned, due to investor concerns related to governance, energy, security, and a slow-down in the global economy.
The country remains stuck in a low-income, low-growth trap, with growth averaging about 3.5% per year during last five-six years.
The government will have to address long standing issues related to government revenues and energy production in order to spur economic growth that will be necessary to employ its growing and rapidly urbanizing population, more than half of which is under 25.

Other long term challenges include expanding investment in education and healthcare, adapting to the effects of climate change and natural disasters, and reducing dependence on foreign donors.

Presently Pakistan is the second largest producer of buffalo milk, the third largest producer of cotton, fifth largest country for the occurrence of gemstones, 4th largest Livestock population, which shows that Pakistan is enriched with a huge potential of economic growth and needs nothing but a progressive generation of SMEs to transform these resources into business.

SME sector is an engine of growth and innovation for the economy of Pakistan but lack of finance has frustrated the development of this sector. The government should lay down a viable strategy in collaboration with banking industry to enhance loaning for this sector on easy terms and conditions in line with Chinese model.

Pakistan should follow the Chinese industrial growth model according to which in the first phase China identified its potential sectors, services and supplies such as plastic industry; lifestyle products; medical supplies, pharmaceuticals, healthcare, biotechnology; automotive and aero plane technologies; high value brand products; and building products and services, all are the areas in which Chinese industry excels.

Presently, 95 per cent of the contemporary enterprises belonged to SME sector in China that accounting for 65 per cent of country’s gross domestic product and generating 82% of the total employment opportunities there.

Chinese government provided numerous incentives for encouraging small industrial units to expand their markets by enforcing business friendly financial policies.
Chinese are also promoting specialization and coordination among industries so they can pursue collective development of materials supply, production, sale, and technological innovations.

Pak-China Joint Chambers of Commerce and Industry president Shah Faisal Afredi observed that China has emerged at the cutting edge of global management practices and is regaining its historical position as a global innovation power.

Chinese are explicitly targeting innovation as a national priority, in the hope of speeding the shift from brawn to brain that is required to prosper in this new century’s economy.

Developing country like Pakistan can attain the value addition targets only by adopting innovative practices. The adoption of innovation was the main vehicle for organizational adjustment especially in view of the scarce resources, dynamic business environment, intense competition and changing customer demands for better quality.

He pointed out that, there is a strong need of research and development in Pakistani manufacturing sector in order to produce innovative and user friendly products.

He asserted that adoption of innovation is a main vehicle for organizational adjustment especially under the conditions like scarce resources, dynamic business environment, intense competition and changing customer demands for better quality.

He suggested that, Chinese experts from various industrial fields should be engaged to train our labour force, entrepreneurs and R and D professionals. He said that a vibrant and workable “Industrial Policy” reflecting the aspirations of our industry can pave way for manufacturing sector of the country.

It is to be noted that as a result of privatization process in 1990s a good deal of the national wealth fell into the hands of a relatively small group of so-called business oligarchs, and the wealth gap enhanced significantly.

Although, the privatization of some financial institutions produced a relatively faster and efficient way of promoting competition and enhancing growth, on the other hand, the programme experienced the exponential increase in unemployment, reducing the access of worker’s class to the basic needs of life and contributed in declining the social status of workers’ class into poor get poorer.

The privatization programme was launched in 1991 by Prime minister Nawaz Sharif in a vision to promote free-market economy, private-ownership and the major goal of attracting foreign investment in the country.

But, as a result of privatization, major portion of national wealth fell into the hands of small group of businessmen, and the wealth gap increased dramatically in the 1990s.

Revisions of privatizations were made in 1999, and finally launched the much more intensified privatization programme under the leadership of Prime minister Shaukat Aziz in 2004.

Finally, the programme was ended effectively in 2007 when 80-90 per cent of the industries were put under the management of private ownership of enterprises by Shaukat Aziz.

Agricultural Research, Agriculture, Crops, Food, Pakistan, China, Growth

This website uses cookies to improve your experience. We'll assume you're ok with this, but you can opt-out if you wish. Accept Read More