China’s Big Failure, Missed Path to High-Income State, And Why Africa Must Avoid That

China’s Big Failure, Missed Path to High-Income State, And Why Africa Must Avoid That

China goes to break Ant Group’s Alipay as the nation continues to push for new ordinance for digital firms: “The Financial Times reported Monday, citing sources, that Beijing is moving to break up Alipay, and create a separate app for the company’s highly profitable loans business.”

Africa: do not follow China. China is scoring an own-goal and over the next few years, if this trajectory is not reversed, will begin to fade. As I wrote in Harvard Business Review, China transformed its economy by becoming the manufacturing capital of the world. China, despite that success, is not yet a high-income country. Yes, despite its aggregate wealth, China remains a developing economy. China’s per capita income is around (nominal) $9,000 while the US hits $60,000. In short, Chile is better than China (Nigeria is about $2,000).

Few countries have moved into the high-income status and in all those countries, one thing has been a constant: democracy and free markets. Yes, even if you produce for the world, without a free market system for capital to organize other factors of production based on market forces, you will struggle to get there.

Fair rule, transparency, democratic systems, retrenchment of states for the flourishing of the private sector, predictable and fairly applied regulations, and cardinal rule of law,  are some of the factors that enable economic redesign, towards high-income status. From Japan to South Korea to Taiwan and to potential newcomers into the high-income countries, there was and will always be constant: what worked when you were poor to mid-income, will not work for you to move from mid-income to high-income. 

At a poor state level, you need the government to create order, but quickly the government must retrench for markets, to drive productivity and improve the efficiency of the utilization of factors of production. It is through productivity in an evidently complex national system that nations move to high-income level. In my study of economic systems, only markets have the ability to allocate the factors of production at this level! No politician has any chance. President Xi is not helping China unless he never wants the nation to move to high-income status.

Yes, China is blowing the playbook thinking that what worked from its poor state to mid-income will work for it to move to high-income. Simply, China is scoring own-goals and it would be lucky to stay in mid-income. It has no chance of transitioning into high-income unless the Xi nation changes course.

China Moves to Break Up Ant Group’s Alipay

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2 thoughts on “China’s Big Failure, Missed Path to High-Income State, And Why Africa Must Avoid That

  1. Perhaps China could be the first nation to enter high income bracket by multiplying successful small and medium enterprises, without creating super companies. It’s a big challenge, but if it manages to do so, then it becomes a new economic model for others to copy.

    It’s easier for smaller nations to enter high income bracket, not necessary by being highly productive, older nations had where they stole from to prop up their status and relevance, today, such playbook won’t work well, because many countries are now wiser.

    In China’s case, a whole lot is required, because keeping 1.4 billion people happy by touting democracy may not be practicable, the state can easily lose control, and expecting the populace to magically organise themselves and be responsible can only be a wishful thinking, humans haven’t excelled at that level yet, that’s why you have state institutions.

    The only major drawback on China’s move is not recognising that its poster children are global entities, so by trying to localise and exercise absolute control over them, they will lose the ability to compete and attract new capital. But if the state manages to find a way to keep creating innovative and high growth companies in their thousands annually, it could keep the GDP northward, thereby increasing incomes.

    African countries cannot copy, because we are still inside the ground, so it’s not possible to destroy what you are yet to build.

    We will see how the dance will end.

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  2. China cannot grow hurting itself, yet it must not be reckless in handling innovation. Indeed, no one has seen this mass of population transit from poverty, so, there is no playbook yet on how to run things. Remember Innovation comes before Regulation.

    Competition uplifts a nation everyone knows that, and China has taken lesson. When one looks closely even America could not house Google if Microsoft and not slipped on Antitrust matters. Google rose because Microsoft was under scrutiny from dominating the market on 95 percent to less than 30 percent in search.

    Although, China would have a hard time uplifting it mass number, nevertheless, the metric of growth may be flawed because the other nations are not of the same population size.

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