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PERSONAL VIEW: China's reverse brain-drain
Peter Cochrane, Financial Times, 9 May 2007
On my first trip to China in the late 1970s I discovered a world of bicycles and very few cars, steam trains but no street lights, and fewer than 500,000 telephones for a population of nearly 1bn people. Luxuries were few and far between, but the population had dignity, independence, and a need for positive change.
Today, China is a land of cranes, massive development projects, modern cities, with street lights and mobile phones everywhere, and a stranglehold on the manufacture and shipping of just about everything the world needs.
At the leading edge is a growing and modern transport infrastructure of new highways and airports, and the world's most successful "maglev" train. The journey between Shanghai and Pudong International Airport reaches speeds above 400kph and covers 33km in less than eight minutes.
How did this happen?
It started with a plan to modernise and a determination to do so faster that ever before. This was to be supported by a first class education system, a ready supply of people, rock bottom labour rates, and a dedication to the successful practices of the west - all augmented by an unabashed culture of copying and reverse engineering of successful products from the rest of the world.
Bit by bit, the capability and spectrum of abilities has grown with repatriated students, outsourced production plants, and perhaps most influentially, the dotcom bust. Until 2001, Silicon Valley and US high-tech industry was powered by European, Indian and Chinese scientists and engineers.
When hard times hit the US hot on the heels of September 11 2001, it was farewell to the Chinese and the Indians. At times, the San Francisco police were finding 80 abandoned cars a day at the airport as migrant workers headed home in a mass reversal of the technology brain drain experienced prior to the dotcom burst.
It was this raft of ex-pats that headed home with both the technical education and business expertise that gave the Indian and Chinese economies an invisible injection of capability. Hence there was a sudden acceleration of effort in China that is still evident today.
As well as knowledge, experience and confidence, these people had contacts, too. Soon, entire manufacturing plants were being shipped to China, as western companies struggled to reduce costs and maintain market share in an environment of accelerating globalisation that rapidly increased competition.
Simple and direct transplants saw newly trained workers in China doing the jobs of western workers within a few weeks of the move. But they were being supervised and managed by newly empowered countrymen ejected from the US. These plants began a drive towards perfection not seen since the Japanese miracle that followed the second world war.
Under mounting market pressures, western companies were forced to move operations to China. Manufacturing plants clustered in communities with all the supporting services necessary for a full production ecology.
Conversely, companies in the west started to suffer a growing isolation, which, little by little made their operations more difficult and more expensive. And today, the bar is about to be lifted further, as Chinese ambition is fuelling the desire to move up the value chain into research, development and design.
The visitor to China today sees a confidence and exuberance for success, and more than a desire to become a first world economic superpower. The buildings would be familiar to a western eye and doing business is also almost western-like - but with additions and protocols from Chinese history.
These changes have not come without costs. Indeed the challenges facing China are vast, with pollution being the most visible. Resource shortages are another major headache that will require radical solutions. For example:
So will these and other limiters herald a slowdown or reversal? While that is unlikely in the short-term, it is something that everyone should seek to avoid. China's economic health has become crucial to the world economy. If it falters, the impact would be immediate and on a global scale.
Take one simple example: computers and other electronic goods. As Beaumont Vance, a senior risk manager at Sun Microsystems, observes: "Every computer in the world has at least one critical component that is made in China.
"Your suppliers have supply chains and their suppliers have supply chains, so people don't know what's from China. If it closed its borders or had some type of catastrophe, no computers would be made until replacement factories were brought onstream.
"Business users of computer systems, as well as the heavy-industry and consumer-products companies that have their goods manufactured in China, would also feel the consequences."
Wearing my optimist's hat, I see China becoming an increasingly strong economic power that will eventually edge toward democracy in the same way that it has embraced capitalism.
I also see it, out of necessity as well as by choice, becoming an outsourcer and investor in other countries. This will encourage and propagate globalisation on a scale not yet seen, with the net result being growing world stability.