Printed in The Edge, May 16th 2022
China’s mercurial economic rise is seen as a modern miracle. It is now the world’s second largest economy and is expected to overtake the top world economy, the USA, in the not-so-distant future.
Many believe that the accelerating GDP (Gross Domestic Product) numbers are mainly due to the huge population. However, on a per capita basis, it is not a poor country as many think it is.
The economics world uses GNI (Gross National Income) per capita as a measure of a country’s well-being. The World Bank has defined Middle Income Countries as economies with a GNI per capita of between US$1,036 and US$12,535. China’s stood at US$10,550 in 2020 based on World Bank’s data. On a PPP (Purchasing Power Parity) basis, it is an even more stunning number at US$17,2000 PPP Dollars.
China’s GNI per capita is skyrocketing as this chart from World Bank shows:
It is quite obvious that they will pop through the top of the Middle-Income level soon, and in right smart fashion, too.
Here’s the thing: they are a hair’s breadth away from overtaking Malaysia, whose GNI per capita was US$10,570 in 2020. A glance at the chart of Malaysia’s GNI per capita shows that it has been stuck in the Middle-Income level for quite a while, since at least 2014. In other words, it is in the Middle-Income Trap.
Why is that?
There are many angles to approach answering this vexing question but let us start from the top: how each country does its economic planning.
Like Malaysia, China has their own 5-year development plans and Industrial Master Plans. The current 5-year plan for China is the 14th, while Malaysia’s is the 12th. All China’s 5-year plans have a Vision Statement of realizing the ‘China Dream of Rejuvenating the Nation’. That it has remained the same for many years provides stability in planning and execution thereof for the nation.
It is the 13th 5-year plan that is of interest for us in this question. The main target for this plan period is to build a ‘Moderately Prosperous Society in All Respects’. Importantly, realizing perhaps that they are in a transition period from being an FDI-led (Foreign Direct Investments) economy and part of the Global Supply Chain (GSC) towards being one that is turning mainly to local brands and final products, fueled by local consumption, they have a specific target NOT to fall into the Middle-Income Trap.
Embedded in China’s 11th 5-year plan are 3 key requirements to guide the thinking (especially important during implementation), a 4-pronged comprehensive strategy and 6 principles to abide by. It has also 3 strong safeguards for itself. It has 6 key targets for the plan, most of which are social in nature (China being, of course, a socialist country). As we have further detailed in our paper “Malaysia’s 5-year Development Plan – How Does It Compare to China’s?”, the plan is for Supply Side reform, broadly meaning to improve its own final products and brand names. This is well within their powers and shows their practical nature. The plan objectives are cascaded down via 165 initiatives and programs organized into 23 areas. They are implemented by local governments, rather than Ministries.
Working hand in glove with the 5-year plans are the Industrial Master Plans. The current one is the “Made in China 2025” plan, popularly known as “MC2025”. When it was launched, MC2025 shocked the world. The two items that sent traumatic jolts were these:
- To gain access to China’s domestic markets, foreign companies must surrender their technology as required, and
- The key targets amounted to an import substitution strategy, squeezing out imported goods markedly.
As we had pointed out in our paper “China’s Industrialization – Are They Doing the Stepladder Sequence?”, the domestic market share targets drew gasps of disbelief from the world:
Clearly, China intends to launch its own Second Industrial Revolution via the hi-tech field.
A clear distinction exists between its 5-year plans and their industrial plans: the industrial plans focuses on whichever segment of industry that had the plan’s spotlight on it (e.g., in MC2025, it was the hi-tech field), whereas the 5-year plans outlined the major construction plans, sectorial distribution, and the government’s strategy policy priorities over a multi-year time horizon, and sets targets and directions for national economic development.
China has enough local producers making final products and brands that they are powering ahead in national wealth generation. Brand names like Huawei, Lenovo, Geely, Haier, HiSense, TenCent, AliBaba, MouTai, MeiTuan, Xiaomi, Bank of China, and so on are now global household names.
According to Statista, China’s share of global production by industry in 2018 is:
The United Nations Statistics Division noted that in 2019, China’s share of global manufacturing output was 28.7%, far higher than second placed US at 16.8%.
This then shows how China is powering its way to high-income levels: industrialization with local brands and final products.
By comparison, of Malaysia’s 5-year plans, called Malaysia Plans or ”MP”, the 11th would be synchronous with the two China plans mentioned above. They leave a lot to be desired. It follows the nation’s Vision Statement, but changes in government meant that the Vision Statement changes, putting the MP out of synchronicity. During the MP11 period, there was a change in government.
The MP11 had 6 strategic thrusts when it was first written in 2016, with 6 “Game Changers”. Midway through, though, the government changed, and the 6 strategic thrusts disappeared, to be replaced by 6 policy pillars that had 19 priority areas and 66 strategies. Any planner will tell you that changing targets midway is a sure-fire way of ensuring non-success.
Sadly, there were no strategic level target in either MP11 versions.
Malaysia’s MP11 sub-targets are then cascaded down to Federal Ministries to implement, rather than local governments like China’s. China’s practice would pull the entire nation along with their plan, but Malaysia’s causes disconnect between the Rakyat and the plan. Such fragmentation can only cause less than optimal achievements.
Malaysia’s 3rd Industrial Master Plan expired in 2020, and after more than a year, the new one is still not on the horizon.
Malaysia’s current industrial structure is built primarily on the FDI/ GSC components with intermediate goods value-add. That, we believe, has maxed out its benefits to the country. It’s hard to easily name Malaysian global brands.
Time to reindustrialize Malaysia and focus on local final goods and brand names.