DeCoding China 2: Year Zero of Chinese Hyper Development

[00:00:00]Hello everyone, welcome back to Decoding China. This is episode two. I'm Jan Lean, an analyst focused on China's economy and industrial call logic.

[00:00:10]Today, let's uncover the pivotal truths behind China's economic rise. In this episode, I will identify exact turning point that launch China's economic miracle. Grasping this milestone is critical to for understand China. When did China's unique development mechanism fully take effect? Where lies this historical turning point? The critical shift arrived in the early 21st century.

[00:00:36]2003 to be exactly. After this turning point, the most remarkable capacity capability of modern China uh the one that once even surprised myself is its unmatched capacity to build continuous mega infrastructure project. These landmark projects cover all core sectors. The world's largest highspeed railway network, the most robust ultra high voltage power grid and count and countless power plants. Initially it's coal fire stations later is uh followed by wind and solar farms. China also have built up nationwide expressway network, numerous recording long span bridges through the waters, super high bridges across the deep valleys and ultra long tunos passing mountains plus uh newly constructed modern canels. Beyond that, China operate the world's most extensive cost effective telecom network deeply integrated into our daily life with full 4G and 5G coverage nationwide. And also we can see sprawing urban skylines, numerous new economic zones, airports, highspeed railway stations, and complete metro system. And don't forget the hidden infrastructure vital to our daily life such as the widely distributed EV charging networks. I open this core chapter of decoding China with topic for clear reason. This is a sense and a core secret of modern China's rights. It even reveals the key to unlocking the productive potential for all human societies. The reason is China has formed an exceptional smart monitoring mechanism. To be honest, this system took shape unintentionally without full prior awareness but with super effectiveness.

[00:02:32]Even today, this mechanism continue to drive China's sustain continued development.

[00:02:39]And one vital fact needed to noted by everybody. China did not always possess such capacity. For example, in the early opening up period in 1980s and 1990s when China has already entered an opening up periods, we don't have such system. So the complete system only mature in the uh early 2000. Before that large scale infra projects in China remain scarce with far slower construction progress than today. Let's take 1990s as example.

[00:03:13]I spend the years of my primary and middle school ages. At that time, the three gorgeous stems still as our national landmark project. However, this triggered nationwide heated debate with widespread opposing voices uh even heard in our official institutions in our people's congress or our parliament and also the founding of the three gorgees construction became a major national challenges and relevant debates lasted about one decade and similarly there is a a super hydro power station also called an in southwestern China It faces another institutional obstacle. Central government and the local suchan provincial governments engaged in a debate uh a dispute in late 1990s because of the founding of this uh dams construction and also the later operation rights. Even Guangong province, China's most richest uh most developed province at the time, it's still struggling heavily to build their expressways, their thermal powerhouses and their uh major bridges across the Jew River uh crossings. So, Guangong province actually has to introduce uh money or capital from Hong Kong or overseas from for example from overseas Chinese community to found the basic infrastructure in their own province.

[00:04:40]However, everything changed underwent a dramatic transformation in the early 2000s. Let's take still take a hydropower as a interest. So started in the year of 2005, four super large hydro power stations uh including Shjaba Shiro Udong and Bhutan all broke grounds and initiate construction and went to improvation one by one. The first two gigantic dams were completed between 2005 and 2012. The later two was operated uh started and finally operated from 2013 to 2021. Combined these four stations, their total install capacity reaches 46.4 gawatt, more than twice the generating capacity of three gorgeous dam. For comparison, American's iconic Hoover Dam, the industrial landmark of the 1930s holds a mere 2.08 gawatt of capacity. after its core construction finished in 1961. Actually, it's uh it has outputs uh capacity settle at 1.35 gawatt and stay for 20 years. Finally, its final expansion happens in the late 1980s, which is the last year of large scale of US construction capacity.

[00:06:03]Today the Hoover Dan's actual operating output level has lowered to 20 to 40% of the design capacity due to various reasons and US largest hydro power station the grand kulie dam which is located in uh in Washington state. So it is a core new deal project in Frankly Loser's periods. It started on uh 2.25 25 gawatt and only expand gradually expanded 6.81 gawatt in 1980s. So now let us draw a direct comparison. The three gorgeous stem and the later 21st century four giant upstream Yangsu river hydrop power station in China are respectively 11 times and 23 times larger than hoover dam or 3.3 times and nearly seven times greater than the largest dam in America Grand Kuri dam.

[00:07:01]So this contrast is stuck. Most US infrastructure was built nearly a century ago when USA is a far ahead number one industry power. After World War II, large scale construction gradually decline and falling to nearly zero in 21st century in USA. In contrast, all of China's mega projects were launched within the past 15 to 30 years.

[00:07:28]Expressways, large bridges and thermal power plants reflect the same dramatic shift. proposal actually if you look at the historical timeline starting from 2003 China's economy enter an era of hyperrowth what I call hyperrowth the most explosive expansion occurred between the year of 2003 and 2008 laying the foundation for China's systematic economic transformation only briefly halted by economic financial crisis in 2008 in by less than half year and then a second rounds of growth super growth uh started From 2009 to 2012 and after our new national leader raised to power since around 2014, China enter a phase of steady sustain mod speed qualitative growth period. I will uh mention some examples of the core basic industry indicators which can demonstrate how the scale of it historical boom. First let's talk about installed capacity coal fire power plants.

[00:08:32]I want to emphasize this point. Despite China's current focus on renewable energy, coal fire power station lay the groundwork for China's industry took off. Coal power lay uh so let let's uh see the data. All data is measured in gawatt. In 2000 is 238. 2003 290.

[00:08:59]2008 68.

[00:09:02]2012 819. So by the year of 2012 the total capacity of the coal power surged to 355% of its 2000 years level. And with 2003 and 2008 as its fastest expansion period and parallel to this power surge it comes an unprecedented expansion of industry capacity.

[00:09:29]I will raise some uh uh example uh to show that how these core industry indicators experienced a revolution shift between 2020 with a most dramatic change taking place from 2003 to 2008.

[00:09:43]Steel which is basic material for all industry for all society. Steel output measured in million tons in the year of 2000 128 2003 222 2008 500 2012 724 so two China's 2012 steel production reach reaches a level of 563% of a 2000year level. Stainless steel which is a sector of the steel uh industry in million tons measured in 2000 years is 0 uh 0.73 million. In 2003 is two 2.818 million. 2007 it jumped to 7.2 million.

[00:10:29]In 2012 is 16 16 million. So the 2012 production is 22 times of the year of 2000. Aluminum in million M towns in the year of 2000 is is less than 3 million about uh 2.7 million in 2003 is more than 5 million is 5.5 million in 2008 is 13.2 2 million in 2012 is almost 20 million. So the 2012 12 output is 715% of the two 2000 semen outputs in million tons.

[00:11:08]The year of 2000 it's uh less than 600 million. In 2003 is 862 million. In 2008 is 1,400 million or 1.4 billion. in 2012 is 2.2 billion. So the 2012 semen production is nearly four times or 370% of the 201.

[00:11:34]All these statistics only represent finished production output. If we examine the total production capacity, let gross multiples become even larger.

[00:11:45]For example, China's steel uh production capacity in 2012 is 7.2 two times of 2,000 times while aluminum capacity expand almost 10 times also quantitative growth is also accompanied by comprehensive quality upgrading within a single decade China standard steel industry which is uh I think a large category of upgraded steel grow from a minor niche in global industry map to a super giants claim global market dominance and in semen manufacturing outdated vertical cleans were completely out. It was replaced by advanced modern dry process technology.

[00:12:26]Bear in mind all these profound transformation unfolded within a nation of 1 billion people in a decade. So I called it the first decade of the 21st century especially uh 7 to eight years after 2003. It's completely sh reshaping China's national landscape. This is the exact moment that the giant fry elephant really took flight in terms of overall economic strengths also that is measure in nominal GDP. So at in 2000, China ranked sixth globally, slightly above Italy and still below France. But in 2010, China officially overtook Japan to become number two in the global economy.

[00:13:09]And after that, in this later 15 years, China consistently widened its leading place over the third largest economy, usually Japan or Germany. So the gap is becoming wider and wider. So you can easily understand why in Clinton's final year the year 2000 USA didn't worry about China only treat China as a little part which just uh enter WTO one year later and why in 2010 10 years later in Obama's years they suddenly decide to so to started so-cal prival back to Asia Pacific and post 2018 and until now USA is so selfw worried no matter it's under Trump or Biden uh but actually I can tell you the situation is even more underestimated.

[00:13:58]There is a critical moment point to clarify nominal GDP severely understand at this mate this this indicator severely underestimate China's real economic scale and at the same time actually in recent seven years it severely overstate that of United States economy. So uh this bias is more and more obvious after 2018 and this distortion uh actually I should say uh stem from America's uh economy structural shift towards uh I call the virtual economy dominated by finance which is included uh dominated by stock market value financial derivatives financial capital market valuation uh so actually I feel it's funny that Trump personally truly believe that what is good for US stock market and uh share price is good for US economy and good for us people. This is funny thing that he's so naive and there's no one in his administration dare to tell him the truth. Uh I will elaborate this more in the coming episodes focus on comparation between Europe, China, United States.

[00:15:01]Okay. So uh furthermore I want to mention there's a mainstream academic and media frequently cited figure saying that China accounts 35% global manufacturing output but actually uh even this number seem to be a historical high which is comparing to USA in early 20th century in my opinion still drastically underestimate China's true industry power. So when for me I prefer to use a physical product output to to measure this. So China actually holds 15% to 16% or higher in the global production across many major industry manufacturing sectors. For example in steel China produce more than 5%. But in some special occasion it could reaches 100%. I mean 100% of the output was actually done in China for example in many medical chemicals and uh in terms of the total production capacity was imagine with that China's global proportion or ratio will ranges from 60 to 65 I mean for steel most ordinary up to 100% across the major manufacturing fees. So now after this discussion and description uh let us discuss the core mechanism behind China's unmatched developments in 21st century that is ultimate secret to its economic miracle.

[00:16:24]How did China found such massive infrastructure and superized industry capacity or to put it a simplified question more simple where does money come from? The answer lies in an ingenious super smart super well functioned self-made monitoring mechanism that generates China's domestic currency uh in its own legal currency B. So that is the ultimate truth. It's not the export accumulate foreign currency which also I will discuss in later episodes. It's not that but it's domestic currency functions. So this mechan took shape in the early 2000s and sparked China's explosive economic acceleration starting in 2003 combined with China's unique institutional advantage is formed a distinctive e development model what I called public demands or stay on a public own infrastructure construction while on a supply side the industrial supplies are delivered through a competitive markets uh structure So usually in private producers or equal to private status supplier. So this structure is uh you can you can see that it's structural private producer uh and and public you know demand creation interwin cooperative model that is a foundation model for China's decades long sustained super growth that is through this mechanism China create its own currency our own money to fuse to you know to to support the domestic expansion in particular infrastructure without triggering any inflation. So actually in contrast this super large country has usually experienced prolong deflation since 2003. I didn't remember any inflation since my university age.

[00:18:21]So and this system will delivers widespread material abundance making affordable goods accessible to all Chinese citizens. of course also to the world. So now next to keeping following me we will fully unpack every layer of his sophisticated monitoring mechanism.

[00:18:42]Stay tuned for next episode of Decoding China. Never miss it. It will be the most important episode.

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