Among those who have made a career of studying China, there is an apocryphal story that as Deng Xiaoping told his successor, Jiang Zemin, to keep focused on developing China economically.  “Do not antagonize the United States”, he reportedly said, “but bide our time, wait until we are economically strong, and then we can assert our national rights and views.”

The story, whether true or not, does reflect China’s historical consciousness, and the single-mindedness with which the Chinese have pursued their dream of economic growth.

For most of its long recorded history, over three thousand years, China was one of the world’s great civilizations, by whatever yardstick one chooses to measure greatness.  Consequently, it was the sudden reversal of fortune and status that began with her defeat in the Opium Wars in 1839 the Japanese invasion, and World War II, that makes the present situation all the more incredible and a source of pride for China. Starting in the middle of the nineteenth century, China attempted to understand the source of Western wealth and power in order to commence her own modernization. While Japan discovered the path and grew rapidly in the late nineteenth century, China stumbled from one failed attempt to another.  The May Fourth Movement, officially dated as being in 1919, was but one of these attempts, and men such as Mao Zedong and Deng Xiaoping matured in this environment. It is not surprising that some seventy years later, when Mr. Deng saw his own attempt almost crumble in the middle of 1989, that he cautioned his successor to precede firmly, but with caution and a sense of time and history.

It was President Jiang Zemin and Premier Zhu Rongji, who assumed the torch and  carried China’s modernization forward with such amazing speed that the world is now left to gasp in wonderment at China’s spectacular growth.  Already the world’s third largest  economy, and soon to pass Japan and become number two, the Chinese  have lifted more people out of poverty and into the middle class in two  decades than any other civilization in recorded history.  What is even more amazing is that  in barely two decades since Deng’s  admonition to President Jiang to proceed cautiously in dealing with the U.S., China is now strong enough to publicly question the  strength of U.S. bonds and the efficacy  of denominating the U.S. Dollar as the basis for the world’s currencies and foreign trade.

Perhaps the key to China’s economic growth does lie within one aspect of the Western experience.  Rather than mire their country with trillions of dollars in debt to be paid for by future generations, the Chinese response will lead to an economic growth rate of nearly 8% for 2009, and leave China in an even better position to move forward as an economic power.  Rather than follow the scatter gun approach of the pork barrel ridden economic stimulus package passed by the U.S.  Congress, the Chinese approach has been a US$585 Billion package focused on specific key industries and key infrastructure projects.  Hundreds of new infrastructure projects were started in the first two months of 2009, and Chinese imports of raw materials are already increasing.  Rather than looking to increase taxes, China has included tax incentives to industry as part of the stimulus package.  Tax incentives helped automobile sales hit a monthly record high in March.  

China’s lesson to us is a rather simple one –the lesson to be learned is that focus is the real answer.  The Chinese will tackle and succeed in developing other aspects of their society, but only when they have reached the goal of sustained economic growth.  The Chinese have learned from the lessons of Alexander Hamilton whose report on manufacturing argued for a focused economic package that led the United States forward towards modernization.  Or, maybe they understood the essence of the  Reagan Revolution, that it is tax cuts and tax incentives that  truly drives both industry and individuals forward to maximize their own and the nation’s economic growth.  

In years to come, there will be another leader in another country who will give rise to another apocryphal story – to study the Chinese example and China’s focus on targeted growth and tax incentives as the path to modernization.