Economic growth leads China to worry about “Icarus paradox”

From wretched and mocked place to a great country; from the docile dragon of Asia to big brother of Asia; from a mocked country, mocked people, undermined and even forgotten super power to an incredible economic growing country. A place where about six hundred million people migrated from abject poverty to middle income. It is simply annihilating just as it is astonishing. China has made tremendous growth in the last thirty years.

China is a country of about 1.34 billion people with a GDP of about $7.29 trillion (in current Dollar and prices) or say GDP of $ 11.35 trillion (in Purchasing power parity terms). China has an export figure of $1.89 trillion and imports figure of $1.74 trillion (World Bank data 2011). This gives us a country that has exceeded expectations nay a country that made history. They developed another economic theory of development.

Before 1978, China was an autarkic economy-an economy that loathes international trade. They did not trade or traded little with other countries. Communism was enthroned into the country by Chairman Mao. From there, they toed the path of self-sufficiency, although this singular act brought untold hardship, poverty, and put the country into economic quagmire. It had deleterious impact on the citizens. China wondered in this wilderness of acute impoverishment, uncontrollable poverty, hunger, bad leadership and some social restiveness. But the death of Mao marked the beginning of the country’s turnaround as Deng Xiaoping made the famous ‘open window policy’ and China has not looked back since then.

The country has moved to the opposite part of the continuum. From an autarky economy to the most globalized economy in the world (highest exporting country and second highest importing country); from poverty ravished to a middle income country. The country is competing with both developed economies and the developing economies. All indicators are showing positive sign that the country is coming or becoming a developed country.

In a nutshell, China has moved from being a centralized economy to becoming a market economy, from rural agrarian economy to urban industry economy, from very low economy to middle income economy and from autarky economy to open economy. It is breathtaking after looking at all these.

Everyone is in awe of China’s economy. Its prodigious exports, heroic rates of investment and colossal foreign reserves are both deeply impressive and a little intimidating. China’s economic policymakers are a competent, confident bunch. Even though, they worry about the fabled “middle-income trap”, the tendency for fast-developing countries to slow dramatically when their per capita GDP reaches middle-income levels.

What China has achieved is common knowledge now and the paean and fete have not seized to pour. People shower praise and encomium to China and rightly so. But what becomes of China now that the country has reached the parts of economic growths that most times destroys development or say the level that most growing economies become inept? Can China break this curse? Can China show her uncommon finesse and break the middle income trap?

It is instructive to note that humans in our very nature loathe moving from what has worked for us for a long time. Which is better: to try new things? Or to continue with the things we do? This is a dilemma called “The Icarus paradox.” This paradox is about a Greek mythology that used a pair of wings, made for him by his father, to escape from an island where he was being held a prisoner. He flew so well that he flew higher and higher and close to the sun, until the heat of the sun melted the wax that held his wings together, and he plunged to his death in the Aegean Sea. The paradox is that his greatest asset, his ability to fly, caused his demise. This is exactly what is starring the Chinese leaders in the face.

The mixed economy approach (the combination of State control and market forces) which has seen China grow rapidly is estimated to be what will keep the country down as the country needs to make the needed leap to market economy in full. One of the sectors that have received a great deal of attention cum criticism is the financial and banking sector that is under the control of the state through the State Owned enterprises (SOEs).

In an article in The Economist of January 28 titled: China: the paradox of prosperity, the paper declared that “for China’s rise to continue, the country needs to move away from the model that has served it so well”. It could not have been more succinctly captured. It may sound alarmist or pessimistic, but it is true. But one aspect that most writers are not looking at is the learning culture in this crop of Chinese leaders. They take good advice and have the added ingenuity of discarding frivolous or unattainable advice. Remember that they rejected the ‘big bang approach” of changing to market economy.

The good news though is that the Chinese leaders also know their problem and are working towards it. In his parting speech, Wen Jiabao, outgoing Prime Minister of the People’s Republic of China stated that the government will emphasize the existing “adjustments and fine-tuning” to help move the economy to the right direction.

It, therefore, means that for China to keep the legacies of the likes of Deng Xiaoping, China must avoid the lure of sticking to what has worked and strive to tilt its economy to a stable market economy. In essence, China must discard the temptation of Icarus paradox to avoid ending like him.