In 1980 the American country music artist Mac Davis came out with the hit “It’s Hard To Be Humble”. The song gained international fame and rose to be one of the Top 10 on the Country billboard chart. Today, however, I want to trade on name and talk about the number 1 spot the USA has ‘regained’ on being the fastest growing economy in the world, surpassing China who was predicted to surpass it[i]. However, I don’t want to talk about the subject from a pride standpoint (besides, the world could certainly use a little more humility at present, but I digress). Rather, I want to address this subject from a nimbleness standpoint and what it takes to achieve that end – and hold it.
The United States is the undisputed largest economy in the world, with a Gross Domestic Product (GDP) of $25.5 Trillion as of calendar 2022. To be clear, the GDP of the United States is larger than China’s GDP by 25% or so, with China at $18 Trillion in 2022 nominal GNP[ii]. However, China was expected to surpass its growth rate in 2023 but the USA turned in a 6.3% growth versus China’s 4.6%. Further, in 2023, the Dow Jones Industrials Average finished up 13%, the S&P 500 was up 24%[iii], yet the China SCI 300 Index was down 11.8% and the Hong Kong Hang Seng plunged 14%[iv] — relative shortcomings of 20% – 40%. Having personally traveled to that great country more than a few times, I can assure you the Chinese businesspeople are as fiercely competitive as any in the USA, so why did it do less well than it planned? Further, why do some think China might be in its last great decade?[v] Let me suggest the reason has to do with business nimbleness – or the lack of it – and that lack of nimbleness is being impacted by the Chinese government in ways the average American does not see. We should learn a lesson from it.
GDP is defined as the aggregate sum of a country’s commercial goods and services. Every iPhone sold adds to GNP. If that same iPhone hardware was manufactured in China by a local manufacturing company (which many of them are) then that phone’s contract value would be added to China’s GNP, as would the aggregate annual sales of the local Chinese cell phone manufacturer Huawei. We know that Apple is marketing like heck to sell mobile phones on a global scale, but so is the number one seller of mobile phones in the world (Samsung of Korea), yet Apple is bigger in size because even through Samsung sells more phones, their average price is less so they don’t contribute as much to the Korean GNP. That’s a short narrative on GDP, but still behind it all is companies creating, designing, manufacturing, and selling goods and services the market will buy. All of these companies, independent of their nationality, must be nimble on their feet or they will be eaten by their competitors. This unrelenting pressure is unnerving to some, but it is that same pressure that leads to growth through innovation. “Necessity is the mother of invention” isn’t just a nice Socratic ideal originally attributed to the great philosopher Plato, but is a reality that has driven mankind forward for 2,000 years.
So, given the innate competitiveness of the Chinese people, and their 400% larger population than the United States, what forces are a play that hold them back? I share with you just four actions by the Chinese government that are shooting their economic entrepreneurism in the foot.
- Starting 2 ½ years ago, the Chinese government under Xi Jinping has been seeking to assert increasing allegiance to the Chinese Communist Party (CCP) ideals. The exponential growth in the Chinese economy started with Chairmen Deng Xiaoping in 1978, who embraced capitalism as method to place China on the global map, and greatly loosened the controls on private land and company ownership. Xi’s desire is to expand the economy while simultaneously avoiding liberalization of market forces and the private sector, taking the country back to the idealism of Mao-like control and ideals. It’s always been a natural conflict but now the supremacy of communism or capitalism are now in a heated existential battle.
- The crackdown on technology companies was kicked into high gear when the largest Initial Public Offering (IPO) in the world’s history was summarily dismissed just days before it was to occur. Alibaba founder and company CEO Jack Ma mysteriously disappeared for 3-years. He would have become the richest man in the world…but he made the mistake of criticizing the Chinese government, saying State-owned banks had a ‘pawn shop mentality’. The CCP purportedly thought Mr. Ma had become too outspoken and independent. Since Ma, other very successful executives who ran billion-dollar Chinese companies have ‘disappeared’ (Ren Zhiqiang and Xiao Jianhua, etc.[vi]).
- The capabilities of facial recognition technology and data storage are growing rapidly. This technology is used to rank / rate every citizen in China, and the governments declared aim is ‘more trustworthiness’. In China it is estimated that there is one camera for every seven people. Every person is tracked and given a “Social Credit Score”, a score which enables certain Chinese citizens more benefits or less penalties. Creative people like their freedom and some are very concerned about this effort to enforce compliance. Increasingly, entrepreneurs are leaving the country[vii].
- In China last year, the population (1.410 billion) dropped 2.08 million[viii]. This decline was a by-product of the ‘one-child’ policy China adopted in 1975. It is extraordinarily difficult for countries to grow in economic terms if you are shrinking in population terms and exhortations by Xi Jinping for women to have babies and young adults seeking employment to ‘eat bitterness’ and work on farms in the country[ix] are falling flat.
The above tells us that country leadership matters. We might have a hard time even conceiving the above items happening in this country. Nonetheless, the reinforcing environments of business and individual freedom are crucibles to nimbleness. They must be governed by laws, but they cannot be controlled by lawmakers, autocrats or dictators. It is then we see manifested the creation of new goods and services and a hope for a better future. We would all do well to keep that in mind.
It remains my deep honor and privilege to serve you.
Patrick Zumbusch
Founder and CEO
[i] “US becomes world’s biggest economy in 2023, beats China” (Sonu Vivek, January 26, 2024, India Today)
[ii] “The Top 25 Economies in the World: Ranking the richest countries in the world” (Investopedia, January 28, 2024)
[iii] “Stocks close out 2023 with a 24% gain, buoyed by a resilient economy” (MoneyWatch, December 29, 2023)
[iv] “Asia markets wrap up last trading day of 2023 with small declines; China stocks inch higher as tech firms continue to rise” (Shreyashi Sanyal, CNBC, January 29, 2023)
[v] “Has China lost its golden opportunity to overtake the US? Here’s why one analyst is predicting it’s the country’s ‘last decade’ of prosperity and power” (Vishesh Raisinghani, Yahoo!Finance.com, November 19, 2023)
[vi] “Disappearing Billionaires: Jack Ma And Other Chinese Moguls Who Have Mysteriously Dropped Off The Radar” (Jennifer Wang, Forbes, January 7, 2021)
[vii] “Entrepreneurs flee China’s heavy hand: ‘You don’t have to stay there’ (Li Yuan, New York Times, January 24, 2023)
[viii] “China’s Population Decline Accelerates as Women Resist Pressure to Have Babies” (Liyan Qi, Wall Street Journal, January 17, 2024)
[ix] “The Chinese Communist Party is struggling to inspire the young” (Alice Su, The Economist, November 13, 2023)
