THE BLOG
30/08/2011 10:25 BST | Updated 28/10/2011 06:12 BST

China Goes Back to the Future

In 2001, Shen Wenrong, a child of the Cultural Revolution and all that followed, took his own great leap forward by audaciously purchasing and relocating an entire steel mill to remote northern China - from Dortmund, Germany.

In 2001, Shen Wenrong, a child of the Cultural Revolution and all that followed, took his own great leap forward by audaciously purchasing and relocating an entire steel mill to remote northern China - from Dortmund, Germany. The factory weighed 250,000 tons; the instructions to rebuild it weighed 40. A thousand Chinese workers set about the massive operation, which took 3 years to complete, and raised the firm's steel production capacity from its original 10,000 tons a year, to 15 million. Having pledged to his workers and townspeople his personal responsibility if it failed, Wenrong is now one of the world's wealthiest men.

This and other, similarly mindboggling, stories of China's swift and colossally scaled development, were among the blizzard of startling facts and sagacious analysis delivered by Sino-math James Kynge in his keynote lecture, How Chinese Money Is Changing The World, delivered as part of the Edinburgh International Festival's Continental Shifts series of talks.

Kynge is as good a Western interlocutor for the Middle Kingdom as you will get: fluent in Mandarin thanks to both his Edinburgh University language study and over 20 years in country, he is an acclaimed journalist, commentator and author on his adopted homeland. His 2006 book, China Shakes The World, is recognised as a masterwork, described to this writer by a BBC ex-China correspondent as having "nailed it". That said, as Kynge concedes, pinning down an accurate description of this most dynamic of nations is akin to trying to hammer jelly onto a vertical conveyor belt.

Kynge's thesis is that there are three kinds of money in China: private, state, and strategic, and each has its own implications domestically and globally.

The first has grown since the late 70s, when Deng Xiaoping allowed a measure of private enterprise to develop as an engine of economic growth. The energy, risk taking and endurance of the Chinese people has led it today to have some 130 dollar billionaires, and to be the world's second biggest market for luxury goods.

State wealth in China is deceptive: in the West, we are warily impressed that it holds $3.2 trillion in reserves. This comes from two areas: Western markets hungrily buying Chinese made consumer goods, and foreign investments in Chinese businesses. Yet Kynge reveals that just before being interviewed for a domestic news programme, the presenter whispered to him "Don't mention the reserves". There is a collective embarrassment, because China's vast surplus actually costs around $100 billion a year, thanks to currency fluctuations and the need to offset the purchase of US bonds with the issuing of (more expensive) Chinese ones.

So why does China persist in this export led economic strategy? Because, says Kynge, it is buying social stability. The colossal development project kick-started by Deng has been achieved on the back of the one thing of which China has had a near-infinite amount: labour. China's economic miracle is "primarily the product of the sweat and tears of the poorest people in China", and not everyone has gained equally.

In a generation, China has seen mass migration to the cities to work 18 hour days in dehumanising factories, huge environmental impacts destroying livelihoods, and the emergence of vast inequalities in personal wealth. Add the incendiary, consciousness raising possibilities of information technology, and unsurprisingly you had, in a country where the average yearly per capita income is still only $5500, some 180,000 incidents of "social unrest" last year alone.

So, the economic strategy provides jobs, gives more people electricity and cars, has levered up living standards and created an emergent middle class. (It also helps pay for the 32 million government officials, the police, army and others who keep control as required.)

In terms of geopolitical strategy, once again our Western eyes perceive China as acting from a position of strength with aggrandising intent. In fact, Kynge tells us, China is buying influence to offset its self-perceived resource vulnerabilities. Simply, too many of the things it relies on are too far away. So it buys up South American and Australian mineral producers, and protects its supply lines with the coastal 'String of Pearls'; ports and naval bases from Hong Kong to Sudan. China is also investing vast amounts of people, expertise and money in Africa.

What the future will look like for China, and its effect on the rest of the world, remain to be seen. The possible environmental impact of China's new industrial revolution alone could choke both it and everyone else. Can an authoritarian political system keep the lid on the seething internal tensions its hyper speed economic growth has caused? Will Western hegemony be given up peacefully, and what will its replacement look like?

Kynge's true story of the steel mill floated back up the Yangtze from Germany may also be read as a metaphor: the Middle Kingdom was responsible for industrial inventions, from watermills to the blast furnace, across centuries in which the West fumbled in the dark. From that viewpoint, China is simply reclaiming what it gave to us. It is not emerging, but re-emerging.

And whatever the future holds, as this fascinating address illustrated, we in the West will do better to meet its challenges if we learn more about China and its extraordinary people, and what history looks like from their, rather than our, perspective.

Continental Shifts

The Hub, until 2 September

China Shakes The World by James Kynge is published by Weidenfeld & Nicolson