China - How did it become the World's 2nd largest Economy so quickly and Will it Continue?

By Mike Adams

China’s GDP in 1970 at $92 billion was less than 10% of the US GDP of $1.073 trillion. By 2024 China’s GDP had grown to $18.8 trillion, a 204 fold increase while the GDP of the United States increase to $29.2 trillion.

That increase for the United States was 29 times 1970 GDP compared to 204 times increase for China. How did that happen?

China had a model to copy. After 3 major wars and 2 minor wars France in 1661 was close to bankruptcy. There was no paper money in those days. Money was gold or silver. But France had no gold or silver mines. French industry consisted mostly of small crafts and the country was backward and could not compete worldwide. China in 1970 was in a similar situation as France. King Louis XIV appointed Jean Baptist Colbert as his treasury secretary and Colbert began a strategy that would make France into one of the most powerful countries in Europe. Colbert was ruthless, determined and able and he had full control of the finances of France. He started a five point expansion. First he began to recruit entrepreneurs  and craftspeople from other countries to move their business to France.

He offered them the “Royal Privilege”:

(1) government financing; (2) guaranteed sales; and (3) no taxes.

Second Colbert sent spies to England and other countries to steal their technology, production secrets, and machinery. Colbert had steam engines shipped to France. He copied them and began to sell the copied steam engines as French steam engines.

Third Colbert built factories that employed 1,000 or more workers. That was new in France. He recruited agricultural workers to the factories paying them minimum wages, working them 14-16 hours a day and housing them in dormitories. They only days off they had were the Catholic holidays and Colbert continued to complain to Rome there were too many holidays.

Fourth Colbert protected the pirated technical expertise, the intellectual property. Once in France the entrepreneurs were prohibited from leaving. If they left they might end by rowing on the King’s ships or even being executed.

Fifth, Colbert provided protection from outside competition. 15,000 small entrepreneurs were executed for importing foreign goods that competed with French goods.

Sixth, Colbert insisted on French goods to be the finest. French industry became renowned for quality and especially for luxury goods. Some of those companies continue today: Gobeliin Tapestry and St-Gobain glass.

Seventh, Colbert build a merchant navy with a preference for French goods and ports. The port fees favored French ships. Within 100 years France had become the top economy in Europe.That was the Chinese model.

The Ruling Communist Party controls

• The land

• Most of the economy

• The military

• Sets foreign policy

• Controls anything they deem of major importance

• Adopted some capitalistic practices without giving up control

The Ruling Communist Party Owns the Banks

• They decide who gets the loans

• They channel capital to meet industry objectives

• Keep out unwanted foreign influence

The Ruling Communist Party owns the infrastructure

• They own the land

• They own the roads

• They own the railways

• They own the airports

• They own the public structures

• They have no legal restrictions

• They can build entire cities

The Ruling Communist Party has a long-term development plan

• They control all key industries

• They control key domestic companies

• They have one third of the seats on board of directors of key industries including sofware

• They promote exports

• They purposely create trade surpluses

• They have built a base capable of innovation

The Ruling Communist Party has access to 2.5 billion people

• They build large factories

• They house the workers in dormitories some for over 10,000 workers each

• They pay minimum wages

• They work them long hours

It is the model that worked for France in the 17th and early 18th centuries. It has worked for China in the 20th and so far into the 21st century.

It led to the Ruling Communist Party in 2020 setting forth two initiatives:

• The Belt and Road Initiative

• The Made in China 2025 Initiative.

These are the programs which China has instituted to replace the United States as the world leader.

Consider “Made in China 2025”. China planned to dominate in these areas by this year:

• Medical

• Computers

• Telecommunications

• Electric Vehicles

• Advanced and Basic Materials

• Mobile devices

• Agricultural machinery

• Robotics

• In the past five years they have made significant progress in their quest to replace America as the world leader.

  
  

  In the next newsletter we examine how China is progressing on the Made in China 2025 and what they expect for 2030.

  
  

  China does not play by the same rules as American companies. That makes a difference in how and where and in what to invest. At AFC we are very conscious of that competition and we build client portfolios with that in mind.

  
  

  If you are not a client how does your portfolio stack up? If your financial advisor has not discussed this would you like a second opinion and comparison? Contact either Al or myself.

  
  

  Article Written By:

  Mike Adams, President & Principal

  Adams Financial Concepts LTD

  206-903-1019 

  https://adamsfinancialconcepts.com/

  1001 Fourth Ave, Suite 4330, Seattle WA 98011

  #madeinchina #gdp #imports #exports #trade #france #unitedstates #china #minimumwage #compassandclock