by Yong Zhao
Coca-Cola's prospects began to look better after the death of Mao in 1976. A year later, Tong returned to China to work for the state-owned China National Cereals, Oils, and Foodstuffs Import and Export (COFCO), the government's exclusive importer and exporter for the entire food industry. A Coca-Cola executive invited Tong to another meeting in Beijing and told him that their primary target consumers in China were not the Chinese but foreign tourists. Furthermore, the company had no relationship with American soldiers, the executive said. It was only a business that made money by selling sweetened carbonated water. Put simply, Coca-Cola wanted to be wherever there was a desire for its product.18
Tong seemed to have been convinced. He brought the issue to his company, which then sought permission from the central government to start talks with Coca-Cola. In 1978, COFCO, holding a hand-written permission slip from Vice Premier Li Xiannian, who later became China's president, began substantive negotiations with Coca-Cola at the Beijing Hotel, where another meeting, at a much higher level, was taking place on the same floor at the same time. President Jimmy Carter's diplomats were talking with the Chinese about normalizing the US-China relationship. On December 13, 1978, Coca-Cola and COFCO signed their agreement: Coca-Cola would set up bottling plants and sell its products in major Chinese cities and tourist areas. Until the plants were built, Coca-Cola would ship products to China. Days later, the US and Chinese governments released a joint communiqué to normalize their diplomatic relations.
The first three thousand bottles of Coke arrived in Beijing from Hong Kong in 1979. Foreign media gave the auspicious event almost hour-by-hour coverage. Coca-Cola had become the first foreign company to sell in Communist China.
But the construction of the first bottling plant didn't go as smoothly as the first shipment. Even selecting a location proved a challenge. Coca-Cola initially wanted to build in Shanghai, where it had its first plant in 1927. But Shanghai rejected the offer vehemently, condemning the acceptance of Coca-Cola as a national betrayal by which China would enslave itself to foreigners, import the American lifestyle, and damage national industries. The first plant ended up in a Beijing factory that prepared Peking duck. And with that compromise, Coca-Cola became the first foreign enterprise to run a factory in China since 1949.
After spending nearly $1 million, Coca-Cola saw its first plant go into production in 1981. “An old comrade in the party's leadership raised another round of concerns,” wrote Ma Licheng in his book Thirty Years of Battle. “Cannot Chinese drinks meet the needs of the people or foreigners? Must we drink Coca-Cola? This is a blatant act of treason.”19 The “old comrade” demanded an explanation from COFCO, which responded by saying that Coca-Cola products had Chinese ingredients and the distribution of products would be limited.
But it wasn't.
In 1982, Coca began to promote its products in mainstream markets in Beijing. In an effort to change the tastes of the Chinese, who were used to tea and thought Coke tasted like cough medicine, Coca-Cola mounted a campaign that gave out free balloons and chopsticks. Attracted by the giveaways, Chinese customers responded with great enthusiasm. But the promotion backfired when Chinese media launched another round of criticism against Coca-Cola. Beijing Daily sent an internal communication to the Politburo Standing Committee of the Chinese Communist Party accusing COFCO of wasting precious foreign currency. Chen Yun, one of the most influential figures in the Politburo, decreed that “not a single bottle of Coke should be sold to Chinese.” And overnight, all Coca-Cola products disappeared from shops serving domestic customers. It eventually took Zhao Ziyang, then premier of China and later secretary general of the Communist Party, to lift the injunction and allow Coke to be sold to the Chinese again.
Despite the challenges, Coca-Cola succeeded in the end. China has become Coca-Cola's third largest market in the world, after the United States and Mexico. It has invested over $5 billion in China. More important, Coca-Cola has blazed a trail for other foreign companies—Pepsi, KFC, McDonald's, Coors, Budweiser, IBM, Apple, Dell, Procter & Gamble, Walmart, Sheraton, Hilton, Volkswagen, Ford, General Motors, Boeing, and Airbus. China joined the World Trade Organization (WTO) in 2001, opening its vast market to virtually every business.
By opening its market to foreign businesses, China brought in capital, technology, and talent from the West. Through joint ventures and acquisitions, Western businesses helped transform some of the least productive state-owned companies and private enterprises. Western companies also provided opportunities for Chinese businesses to be part of the global supply chain and thus gain access to the global market. As a result, hundreds of millions of jobs were created. These jobs made it possible for hundreds of millions of peasants to move into factories, restaurants, and shops, alleviating China's population pressure and transforming its vast population from a liability into an asset. These new jobs generated higher income for hundreds of millions of people, increasing their purchasing capacity and enlarging their appetite. Bicycles, wristwatches, and manual sewing machines were the “big three” items in the 1970s, but today the Chinese have become consumers of houses, cars, vacations abroad, French wine, and American universities.
The story of Coca-Cola's return to China is yet another example reminding us that China's economic growth has not been the result of deliberate planning by an authority figure with great foresight. Rather it has been the result of the government's adapting to the demand of the market and people by retreating from planning and regulating. After decades of isolation from the outside world, the Chinese government gradually opened up and allowed foreign business to access its market, resources, and labor force. It has been this opening up, coupled with the autonomy now granted to China's people, that has generated the miraculous growth of the past three decades.
China's economic growth created enough wealth for the government to invest in awe-inspiring skyscrapers, space programs, and infrastructure; advance military technologies; purchase properties and natural resources overseas; and put up spectacular shows such as the 2008 Olympics Games in Beijing and the 2010 World Expo in Shanghai. As a result, the world is experiencing another wave of Sinomania and Sinophobia, four hundred years after the last one.
Déjà Vu?
“China is in big trouble,” wrote the Nobel laureate economist Paul Krugman in a July 18, 2013, op-ed piece in the New York Times.20 Krugman believes that China's “whole way of doing business, the economic system that has driven three decades of incredible growth, has reached its limits,” calling the “China model” into question. “You could say that the Chinese model is about to hit its Great Wall, and the only question now is just how bad the crash will be.”
Krugman is not the only one to begin questioning the China model. After China's economic growth rate slowed, for the first time in three decades, to 7.5 percent in 2012, Michael Schuman wrote in Time, “The recent slowdown is not a temporary cyclical blip or solely the knockoff effect of the tepid global recovery. China's growth model is broken and can't be so easily fixed.”21
Some think this is just a temporary slowdown and the Chinese economy will continue to grow. Stephen Leeb, author of Red Alert: How China's Growing Prosperity Threatens the American Way of Life, believes Paul Krugman is wrong in his prediction about China in the same way he was wrong about Singapore before. In a July 27, 2013, Forbes blog post, Leeb pointed out that Krugman predicted the end of rapid growth in Singapore and other Asian economies such as South Korea, Taiwan, and Hong Kong. “Of course, things did not work out that way,” wrote Leeb. “Singapore and the other Asian nations have since grown voluminously.” Leeb thinks “what Krugman and many others missed was the foundation for much higher productivity, and indeed Singapore has since proven second to none in leveraging the advantages of modern technology.” He argues that today's China, like Singapore twenty years ago, “houses many productivity drivers.” One of them is urbanization, which “promises their populace greater education” and “should also strongly drive up productivity and eff
iciency, as will the vast majority of Chinese infrastructure spending.”22
The Chinese government showed its appreciation for Leeb's message by placing a Chinese version of the blog in a prominent place on its state-run Xinhua news agency's home page. In an effort to instill confidence in its people, the Chinese government acknowledged the slowdown but promoted it as a deliberate action. “The slowdown is natural,” announced Xinhua, in response to a report of slow growth for seven consecutive quarters since 2012, reported by the Chinese Statistics Bureau in July 2013.23 “In fact the slowdown is an intentional policy choice of the Chinese government,” continued Xinhua. “The policy makers are keenly aware that only when freed from the psychological shackles of ‘GDP only’ and focusing on structural adjustment and further reforms will the Chinese economy be able to move to a higher level.” “No one believes that the Chinese economy will have a hard landing,” said Chinese Minister of Finance Lou Jiwei in an interview with Xinhua in July 2013.24
“The statistics show that the growth rate of Chinese economy is gently slowing down, at 7.9% at the end of last year, 7.7% in the first quarter of this year, and 7.5% in the second quarter,” Xinhua declared in another article the same month. “This means the slowdown of the Chinese economy is intentional, gradual, steady, and anticipated.”25
Whether it is intentional or inevitable, it has happened. The Chinese economy has slowed down. This slowdown, however interpreted, indicates the end of an era for China. The Chinese leadership installed in March 2013 has decided to work on an “upgraded model” instead of fixing the old one. Premier Li Keqiang has made it clear that the government would not provide short-term stimulus to avert the slowdown. Instead, China has adopted a series of policies that have become known as Likonomics, a portmanteau of Chinese premier Li Keqiang's name and “economics.” (The construction parallels “Reaganomics,” coined to refer to the economic policies of President Ronald Reagan.) Likonomics aims to bring more economic structural reforms, reducing governmental interference and increasing urbanization.26
The Chinese government's active pursuit of an upgraded model declares the current inadequacy of the old model that fueled China's growth and was admired by so many outsiders. While the old model has indeed brought China thirty years of high-speed growth, it has reached its limit and must be replaced. “If China's economy can be said to have gone through the ‘Bronze Age’ and ‘Silver Age’ over the last thirty some years,” noted a widely circulated article in the state-run Shanghai Securities News in July 2013, “today's new leadership is working hard to create an upgraded model to usher in a brand new ‘Golden Age’ driven by innovation.”27
Innovation is what's missing from the old model. China's economic rebirth was the result of the same scenario that made China the number one empire before the Industrial Revolution: a large population left alone by an autocratic government. China grew fast by offering the world the least expensive and most compliant and motivated workforce. But now the population is shrinking and labor costs are on the rise. Population dividends are drying up. Low-level jobs that once enriched China are leaving for countries with even less expensive labor, such as Vietnam. It is thus no surprise that China's new leadership has decided to pursue an innovation-driven economic model.
Zhen Haixiong, deputy chief editor of Xinhua, summarized China's urgent need for moving toward an economy driven by innovation in the July 29, 2013, issue of Outlook Weekly, the agency's official news magazine:
After over thirty years of rapid development, our nation has made enviable progress and certainly become the world's second largest economy. In the meantime, a number of problems have become increasingly prominent and unavoidable: unbalanced structure, low productivity and efficiency, rising labor costs, limited energy and resources, and constraints of the environment. These problems suggest that the traditional model of development cannot continue. The decisive battle for China's near and long term development is to focus our major efforts on scientific and technological innovations and realize the innovation-driven development strategy.28
But innovation does not come easily. It does not come simply as a result of economic policies or the desires of a government. It comes from creative individuals. Can China's education produce such individuals?
Notes
1. T. C. Fishman, China Inc.: How the Rise of the Next Superpower Challenges America and the World (New York: Scribner, 2005), 44.
2. G. Chen and C. Wu, Xiaogangcun de Gushi [Stories of Xiaogang Village] (Beijing: Huawen Chubanshe, 2009).
3. X. Deng, Deng Xiaoping Wenxuan Disanjuan [Selected works of Xiaoping Deng] (Beijing: Renming Chubanshe, 1993), 237.
4. H. Angang, H. Linlin, and C. Zhixiao, “China's Economic Growth and Poverty Reduction (1978–2002)” (paper presented at A Tale of Two Giants: India's and China's Experience with Reform and Growth, meeting of the International Monetary Fund and National Council of Applied Economic Research, New Delhi, 2003), http://www.imf.org/external/np/apd/seminars/2003/newdelhi/angang.pdf.
5. Chen and Wu, Xiaogangcun de Gushi.
6. X. Wu, Jidang Sanshi Nian [Thirty years of reform] (Beijing: Zhongxin Chubanshe, 2008).
7. Deng Xiaoping's speech on his 1992 tour of the south. Available in Chinese at http://business.sohu.com/20120113/n332115956.shtml.
8. P. Song, “Nian Guangjiu: Shui ye Wufa Daiti de Geshi Jingji Biaobeng Renwu” [Nian Guangjiu: An irreplaceable specimen of private enterprises], Chutian Xinwen Guangbo, 2008, China.com.cn, 2008.
9. Q. Xu, “Siying Jingji Shi Zengme Huode ‘Zhunshengzheng’ de” [How private economy received its legal status], April 30, 2007), http://theory.people.com.cn/GB/49154/49155/5689522.html.
10. Anup Shah, “Poverty around the World,” Global Issues, November 12, 2011, http://www.globalissues.org/article/4/poverty-around-the-world#WorldBanksPovertyEstimatesRevised.
11. X. Zhang, “Woguo Getihu Shoupo 4000 Wan Hu” [Getihu in China exceeds 40 million for the first time], February 16, 2003, http://finance.chinanews.com/cj/2013/02–16/4564431.shtml.
12. Sophie Song, “China Now Has More Than 260 Million Migrant Workers Whose Average Monthly Salary Is 2,290 Yuan ($374.09),” International Business Times, May 28, 2013, http://www.ibtimes.com/china-now-has-more-260-million-migrant-workers-whose-average-monthly-salary-2290-yuan-37409–1281559.
13. J. Y. Lin, Needham Puzzle, Weber Question and China's Miracle: Long Term Performance since the Sung Dynasty, in World Economic Performance: Past, Present and Future—Long Term Performance and Prospects of Australia and Major Asian Economies (Brisbane, Australia: School of Economics, University of Queensland, 2006).
14. Deng, Deng Xiaoping Wenxuan Disanjuan, 238.
15. Confucius, Lun Yu [Analects of Confucius] (Adelaide, Australia: University of Adelaide, 2012). Shun was a legendary leader in ancient China, around the twenty-third to twenty-second century BC. He has been considered one of the greatest leaders in Chinese history.
16. R. W. Belk and N. Zhou, “Learning to Want Things,” Advances in Consumer Research 14 (1987): 478–81.
17. L. Ma, Jiaofeng: Gaige Kaifang Sici Dazhenglun Qingliji [Thirty years of battle: Personal experiences with the four great debates of reform and opening-up] (Nanjing, China: Jiangsu Reming Chubanshe, 2008).
18. Ibid.
19. Ibid.
20. Paul Krugman, “Hitting China's Wall,” New York Times, July 18, 2013, http://www.nytimes.com/2013/07/19/opinion/krugman-hitting-chinas-wall.html?_r=0.
21. Michael Schuman, “The Real Reason to Worry about China,” Time, April 28, 2013, http://business.time.com/2013/04/28/the-real-reason-to-worry-about-china/#ixzz2Zd2Wjxnr.
22. Stephen Leeb, “Paul Krugman Is as Wrong about China as He Was about Singapore,” Forbes, July 23, 2013, http://www.forbes.com/sites/greatspeculations/2013/07/23/why-paul-krugman-is-wrong-about-china/.
23. Y. Wang, “Zhengque kandai Zhongguo jingji de xiaxian shangxia he dixian” [View in proper perspective the Chinese economy's lower limit, upper limi
t, and bottom line], July 21, 2013, http://news.xinhuanet.com/fortune/2013–07/21/c_125041239.htm.
24. Y. Liu, C. Lou, and Y. Ding, “Zhuanfang caizhengbu buzhang Lou Jiwei” [Interview with Minister of Finance Lou Jiwei], July 20, 2013, http://news.xinhuanet.com/fortune/2013–07/20/c_116620885.htm.
25. C. Li, “Ruhe zhengque kandai he bawo dangqian gongguan jingji zhengce kuangjia” [How to properly view and grasp the current macroeconomic policy framework], July 22, 2013, http://news.xinhuanet.com/fortune/2013–07/22/c_125041270.htm.
26. W. Shen, “Zongli tongchou Zhongguo jingji shengji” [Chinese premier to coordinate the economic upgrade], July 24, 2013, http://news.xinhuanet.com/fortune/2013–07/24/c_125055248.htm.
27. M. Liang and M. Tan, “Meiti: Zuigaoceng dazao jingji shengjiban, Zhongguo jiang yinglai ‘huangjin shidai’ ” [Media: High-level leadership to build an upgraded version of economy, China welcomes the “Golden Age”], July 24, 2013, http://finance.ifeng.com/a/20130724/10247422_0.shtml.
28. H. Zhen, “Zhenzheng ba chuangxin qudong fazhan zhanlue luodao shichu” [Truly realize the innovation-driven development strategy],” Liaowang Zhoukang [Outlook weekly], July 29, 2013.
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Hesitant Learner: The Struggle of Halfway Westernization