China celebrates 30 years of reform. By H. E. Ambassador Jeppe Tranholm-Mikkelsen

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The decision to embark on this new policy was taken under the leadership of Deng Xiaoping in December 1978, two years after the death of Mao. It was a pragmatic and farsighted reaction to insufficient economic progress and political and social turmoil during the preceding years.
 
Seen from a historical perspective the importance of this decision and the subsequent further steps in the same direction can hardly be overestimated. Since 1978 the GDP of China has grown 9.8% on average, leading to a 15 times increase in GDP. 300-400 million Chinese have been lifted out of absolute poverty and the rate of urbanisation has evolved from 18 to 45%. Chinese citizens have gained more rights and personal freedoms, and China is growing into a new role as a key player on the international scene, economically as well as politically.

Limited long term impact of the financial crisis
Currently China, like the rest of the world, is living through the financial crisis. The Chinese financial sector is relatively insulated from the problems elsewhere, but the reduced growth in demand for Chinese exports has a direct effect on the Chinese real economy. We do not yet know the full short term impact of this crisis and the effectiveness of the determined Chinese policy response to it (stimulus package of 3500 bn. DKK over two years). We will probably see a reduction of growth from the 11.9% of 2007 to somewhere between 8 and 10% in 2008 and maybe even lower in 2009. But, in all likelihood, the current difficulties will not change the long term development trends in the Chinese economy and the Chinese social and political life.

What then are these trends as I see them?

China is becoming a knowledge economy
The Chinese government is not satisfied with China being only “the factory of the world”. The government has taken a number of deliberate steps to make China move up the value chain. Education, research and innovation are given very high priority. For example, the yearly intake of university level students in 2007 was more than 5.6 million against 1 million in 1997 and 400,000 in 1978. At the same time, the central government as well as the provinces are encouraging production and service industry with higher value added through planning measures and incentives. On top of that, the market itself is driving China upwards as labour becomes more expensive, forcing companies to innovate. As a result, the share of high tech products in overall exports has risen from 6.8% in 1995 to 28.6% in 2007.

The Chinese domestic market is booming
The urbanisation of China is set to continue. Over the next 20 years a further 300 million people are expected to move from rural to urban areas which is where approximately half of the world’s construction activity takes place in China. At the same time, the urban population is becoming more and more affluent with increasing purchasing power. For example, the market for luxury goods is growing with about 40% per year. This fuels development of local retail chains and creates increased opportunities for foreign companies. More and more foreign companies established in China, therefore focus on production for the Chinese market rather than for exports. For the same reason, research and development activities are being set up in China to ensure that products are tailor made to fit the preferences of the Chinese consumer. Many foreign companies also strategically see the Chinese domestic market as their most important future “home market” and realise that they need to create a strong Chinese base to maintain their global position.

China is greening
It is evident to any visitor to China that the environmental problems in China are enormous. Furthermore, China has by now become the world’s largest emitter of CO2 and needs to address this issue. The Chinese government has therefore set ambitious targets in terms of energy efficiency, renewable energy and reduced air and water pollution. More importantly, the Chinese government is increasingly serious about implementing such targets at both central and provincial levels. As a result, China next year is expected to become the world’s largest investor in renewable energy. At the same time Chinese companies are or are becoming globally competitive players in such areas as wind, biomass and solar energy. Since energy efficiency, renewable energy and environmental technology are Danish strongholds, this development offers great opportunities for Danish companies.

Cautious political reforms continue
While economic and social changes have been momentous the last 30 years, political developments have progressed at a slower pace. China has witnessed greater personal freedom, more access to information, broader public participation and some reforms of the Communist Party. But nobody is permitted to challenge the monopoly of power of the Party, and human rights continue to be a matter of concern. That is why critical dialogue, bilaterally and through the EU, is a core element of Denmark’s China policy.

Looking to the future, it is my impression that we will continue to see cautious reforms within the framework of the one party state. A complex society does require more channels of information and participation to ensure rational governance. A market economy does need continuous improvements in the rule of law to work efficiently. And a growing, well-educated and more affluent middle class will demand more individual rights. Based on past experience, the development in these areas will not be an even one. Often we will see two steps forward and one step back. But I believe the long term trend is clear.

Prospects for Danish-Chinese relations
Denmark has chosen to engage constructively with China from the very beginning. We were among the first to recognise the People’s Republic of China in 1950, and we were also early in stepping up relations with China in response to the policy of reform and opening up. Today Denmark has a very strong presence in China, both commercially and diplomatically. During his recent visit, the Danish Prime Minister Anders Fogh Rasmussen agreed with Chinese Premier Wen Jiabao on a comprehensive and strategic partnership.

In my view we should build on this strong relationship in the years to come. In all likelihood, China will continue along the path set by the last 30 years of reform. It is in our interest to make an effort to continue to be part of that fascinating development.

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