Top Speed Ahead

WHAT DID CHINA do while the rest of the world staggered under the weight of global financial collapse? It spent the time, and the money it had carefully saved, working on becoming a superpower.

While the rest of the world struggled, China kept moving forward. China’s economy grew 8.7 per cent last year, while the world economy contracted by 2.2 per cent, and when order is restored in the economies of the West, when the debates about the manipulation of the Chinese currency are over and when Irish companies start to look at China again, they may find it hard to recognise what they see.

China’s initial fame was built on the ancient Silk Road, the trading route that opened China up to the world 3,500 years ago. The New Silk Road will extend from China to 17 countries, connecting China to Central Asia, Iran, Europe, Russia and Singapore. High-speed trains will run from Kunming, in southwestern Yunnan province, to New Delhi, Lahore and Tehran.

By 2013, China will have the world’s biggest high-speed railway network and 800 bullet trains. Seven years after that, China plans to construct a 120,000km railway network, including 50,000km of high-speed rail track with trains faster than any in Europe or Japan.

This state-of-the-art international rail network will boost the exchange of trade and promote China’s newly acquired high-speed railway technology, according to the experts at the rail ministry. The aim is to establish a new “Made in China” brand, which will compete at an international level.

China’s reaction to the global financial crisis was initially one of panic, just as it was in the rest of the world. Fears of rising unemployment translating into destabilising economic unrest, ripples that could have threatened single-party rule by the Communists, spurred the government into action, just as it did in the West. However, while the rest of the world floundered and cast around looking for funds, China was able to turn to its massive reserves of cash, after years of fulfilling the Asian dictum about how it is a good thing to save money for a rainy day, and it started to spend money – four trillion yuan (around €400 billion) in a stimulus plan. To give an idea of how big this stimulus was, it is nearly three times the size of the stimulus plan Congress passed last year. New bank lending added hundreds of billions to the amount of capital available to the economy.

If you haven’t been to China in a few years, expect to be taken aback by the amount of work that has gone on since the slowdown, right from the start. Partially because of the way construction has dried up in Ireland, the sight of so many cranes surrounding the airport at which you land, whether it be at Beijing’s gleaming Terminal Three, designed by Norman Foster and one of the world’s great wonders, or in a second- or third-tier city like Urumqi or Kunming, is impressive.

The drive in from the airport is on motorway that is like the autobahn from Frankfurt to Cologne, although the level of driving skills remains terrifyingly low, if a lot better than a few years ago.

As you enter the cities you pass gleaming new skyscrapers – last year, new floor space in China doubled and residential property prices rose 25 per cent. Many of the skyscrapers being built stand beside ones already finished, which still remain empty, but the “Field of Dreams” belief – build it and they will come – is a strong tenet in the Chinese real estate business. Others are worried about a bubble emerging that could have potentially disastrous consequences.

Spurred by what they saw as the failure of Western Capitalism, the “Confucian Capitalists” of China launched themselves on a major rethink of economic fundamentals. It largely translated into pump-priming on a scale the globe had never seen, and a government plan to make Chinese people spend money. China’s double-digit annual economic growth had been built largely on exports, because the domestic market wasn’t there yet. “We should shift the economys dependence from external demand to domestic demand, and make great efforts to shorten the gaps between regions, and between urban and rural areas,” premier Wen Jiabao said at a recent economic conference in the capital. This has been the government line since the beginning.

A trip to the Swedish furniture shop Ikea on the outskirts of Beijing is a superb illustration of how much this has changed. There are thousands of people crammed into the space, it’s impossible to move, and it’s like that all day, from 10am until 10pm. Exhausted shoppers sleep in the bed exhibits, and staff have to keep rousing them.

It’s not just high-end shops like Ikea – the Chinese are becoming consumers in a much more real way.

Chinese passenger car sales leapt 55 per cent from a year earlier in February. This came despite the fact that most of the country is not working because of Chinese New Year. The cars in demand, according to the China Association of Automobile Manufacturers, were smaller cars and sport utility vehicles.

As well as infrastructure, the Chinese built influence. While the West basically ignored Africa and Latin America, especially after demand for raw materials fell off following the onset of the recession, China extended the hand of friendship to Africa, investing in infrastructure there and buying into markets in some countries that the West, in particular, had long written off as basket cases. China, Africa’s “true and trusted friend”, needs the iron ore and the oil to fuel its simmering factories, and to lower its reliance on the Middle East, which is often too expensive for Chinese tastes. China has built up friendships with countries like Sudan, long a pariah in the West.

It promised €7.4 billion worth of soft loans to African nations over this year and the next two, and plans to cancel debt for some of the poorest countries on the continent. Total trade between China and Africa was €79 billion in 2008, which marks a tenfold increase in eight years. And Chinese direct investment in Africa has swelled from €364 million in 2003 to €5.78 billion in 2008. China’s presence in Africa is firmly established.

By engaging wholeheartedly in regional issues such as the North Korean nuclear crisis, China boosted its diplomatic profile. It has also been spending money on the military, modernising its two-million-strong army to make it better able to react to contemporary challenges.

In all of this, it’s important not to overstate China’s importance. Mark Williams at Capital Economics points out that China accounted for just 8 per cent of global GDP in 2009, compared to the share of around 25 per cent accounted for by the US and 22 per cent by the euro zone, and that it will only offset weaker demand elsewhere if it grows much more quickly than it did before the crisis, which has always seemed unlikely.

Some things have remained unchanged. The decision to impose hefty jail sentences on four Rio Tinto executives, including an Australian national, for paying bribes and stealing secrets has caused a major stir in the Western business community.

All four admitted they had taken bribes, but the lack of transparency about the decision, and the heavy jail sentences is the government showing, in a very public way, that foreigners are not above the law. Although, as some have pointed out, the Rio Tinto Four got shorter sentences than the 11 years doled out to dissident Liu Xiaobo.

Corruption remains a major challenge and there is a major problem for foreign companies about how one is supposed to operate in China. The rule of law is getting better, but there is still a way to go. And there is a perception that the Chinese government, using the legal system it controls, will intervene to help domestic interests.

These issues have not been dramatically altered by the Chinese steadfast response to the financial crisis, and fears that its growth may not be sustainable refuse to go away.

However, the strong growth that China has registered in the past few years – particularly at a time when the rest of the world is struggling – means that China needs to be taken seriously.