Business Advice

How did China become so ‘hot’?

- July 3, 2017 4 MIN READ

Anyone who has visited the country recently knows the growth in China is real, and very visible. In 1950 some 544 million people lived mostly in villages; by 2015, the population had ballooned to 1.38 billion people, with 56 per cent living in cities. The scale of construction being carried out to accommodate this population growth is stunning. Besides housing, the new population needs food, clothing, transport, services and entertainment. The supply of every household product to its own population alone would make China the largest market by volume in the world.

Built on top of the traditional industries, China now has the world’s largest telecommunication network. It has much faster Internet than Australia, even in small towns in the country’s relatively poor west. From one of the world’s poorest undeveloped countries to the world’s second largest economy, it is obvious that China has become rich mostly through real economic growth.

Even if you have never been to China, you can see the growth with your own eyes every day. An important part of this growth has been from exports to the rest of the world. While I wrote these words I looked around me in search of something in the room that was not made in China. I could not find much. I knew the microprocessor in my laptop was made in the United States. Some high-tech parts in my iPhone and Apple watch were made in the US, Japan or South Korea, but the final products were assembled in a factory in China and therefore also tagged ‘Made in China’.

China has the world’s largest telecommunication network

But do the Chinese get to keep all the profits from selling to the world? Definitely not. Although made in China, most of the products in my room were brands owned by global companies such as Apple, Sony, Samsung, Microsoft, IKEA and numerous other non-Chinese brands. They were made or assembled in China, transported to the port and shipped out of the country. The factory in China that made them gets a small cut of the profit. The transportation system gets a small cut too. The remaining profit goes to the brand owner and the distributors outside China.

Many of them had figured out in the early 1990s that simply working for foreign companies would make Chinese cheap labourers forever. So they started to build their own factories and produce small things they could finance locally – such as clothing, shoes, toys and all sorts of small commodities.

56 per cent of the population in China live in cities

By the early 2000s, in pretty much every major city in China, you could find a marketplace called a ‘Yiwu small commodity market’ (Yiwu is a small town where most of the manufacturing was going on). The marketplace, which sometimes takes up several floors in a mall, sells all kinds of household products. These markets are like the two-dollar Chinese shops you can find in Sydney only much bigger, with hundreds of individual shops.

While some people were busy selling what they made in the domestic market, many others travelled the world to sell their products. They began to build their own brands and learned quickly how to break into major business channels such as the supermarkets and department stores. These people made their money honestly and diligently.

Many of the business owners were previously employees of foreign – or Hong Kong-owned factories. They had learned the production processes through working in them. I am not going to deny there were some dodgy ones who had no respect for intellectual property (IP) and stole designs or brands directly.

Later, when they got rich and began to purchase luxury goods, it was an embarrassment to be found to have purchased counterfeit versions. They wanted the real thing because they were paying real money. People who purchased and used the fake items were often despised. When China joined the WTO, the government closed lots of illegal businesses in the Silk Street Market and many other markets in China that sold counterfeit products.

Most luxury goods for the Chinese consumer need to meet just one criterion to qualify as a luxury – the goods should not have been made in China; this is especially important for cosmetics, clothing and leather products. So rich people in China give their hard-earned cash obtained from selling made-in-China products to overseas companies that make not-made-in-China products. Which is quite ironic, I think.

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This is an edited extract from The New Chinese by Barry Li – an essential guide to the history, culture and mindset of Chinese migrants in Australia, and of the new China.



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