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Sunday, June 14, 2009

As China Rises Will Her People Stay Crouching?

It is too easy for an observer from overseas (perhaps much more pertinent to say, outside the great walls) to focus on the big picture and miss the forest for the trees. The article below (warning - it is rather long) is courtesy from my dad. Had always wondered - what cost is this, China's rise, surely it can't be a bed of roses, there are just too many people to take care of. So big question is - what cost, this updated capitalism model that China is using as a tool for progress? Equivalent exchange, something's gotta give. Rising income gaps are never quite a good thing, in my books (and CCP seems to be aware of this). We have one planet to share, and these gaps only make worse the us and them syndrome (in 2005 city dwellers made 3.2 times more than those in rural areas) , leading to notions of 'self' being the centre of the universe in many perverse ways. The rich look at the poor with disdain, the poor look at the rich with implosive envy, and vice versa, in multi-faceted ways; it can't be good. It will be of great interest to see how China remembers to maintain the socialist aspect of their political mantra.


Photo from CommonWealth Magazine

As China Rises Will Her People Stay Crouching?
Yi-Shan Chen and Benjamin Chiang
May 27, 2009
Source - CommonWealth Magazine

The existence of the state and the purpose of economic development are to safeguard the people"s welfare. The greatest challenge for China as it rises on the international stage is how to make its people feel contented. "Over the past several years executive power has continued to expand. China has stood up, but China"s people are still crouching," writes Chinese columnist Edmund Xu.

Among the 20 indices surveyed in the International Institute for Management Development"s 2008 World Competitiveness Yearbook, it is clear that the bipolar phenomena of "a rising economy but lagging happiness among the people" are extant in China. China"s economic indices are in the vanguard, but the country ranks 40th or lower in such areas as education, health and environment.

The Unhappy Chinese
Song Qiang, one of the authors of New Epoch, Grand Vision & Challenges for China, a book (ed.: the Chinese title is closer to China is Fed Up) that has sold nearly a million copies this year, says in addition to being unhappy with the rest of the world, Chinese people are also unhappy domestically when they look inside China and still see so many poor people.

Song, sporting a military-style buzz cut and appearing a bit bashful on meeting with female reporters, reminisces fondly on the Cultural Revolution, saying that although he was quite young he vividly remembers Deng Xiaoping"s announcement of reform and opening, because it meant to him that from then on he would have meat to eat.

Best of all were the improvements in everyday life and availability of opportunity. Although one had to be in the 99th percentile to gain admission through the university entrance examinations, at least the system was equitable, and this son of an unremarkable family rode on his wits into East China Normal University in Shanghai.

"That was Chinese society"s finest hour," Song says.

Now the wealth gap is growing and the opportunities are no longer there for everyone. The old institutions have collapsed, the medical, retirement and housing systems they supported falling apart with them. An unwillingness to spend resulting from uncertainty about the future poses the greatest challenge to the domestic consumer stimulus policies of PRC President Hu Jintao and Premier Wen Jiabao.

There is a common saying out in China"s countryside: "There are two doors you can"t get into in China, the hospital and the university."

The one-child policy instituted in the 1980s led to a surge in personal savings among city and town dwellers alike. With only one child to count on in their later years, people began to busy themselves preparing for a rainy day. Those wishing to attend university must be prepared to foot the bill, as the average tuition is NT$150,000 a year, higher than in Taiwan, despite a median annual income in China of less than NT$100,000.

China"s Ministry of State this year outlined a plan to spend RMB$850 billion to underwrite basic medical services for workers and residents in cities and towns, with the objective of raising the ratio of coverage to 90 percent.
"The government is now taking the correct path," opines Jeff Shen, executive director of the Fuping Development Institute, which offers small loans to countryside dwellers.

Building systems can be a slow, drawn-out process, and in the short term one of China"s deepest worries in facing the financial meltdown is excessive and potentially misdirected investment.

Better to Have Running Water than a Washing Machine
Take the Consumer Electronics Subsidy Program for Rural Areas, for example. Seeking to determine the penetration of home electronics into the countryside, we decided to take a trip out to the city of Ulan Qab in Inner Mongolia. We set out from Beijing"s boisterous Deshengmen and headed north on highway number 110. Less than five hours later we were cruising into Ulan Qab on a six-lane thoroughfare nearly devoid of automobile traffic, the bells of donkey carts commanding most of the pedestrian attention.

In Du Family Village on the city"s outskirts, more than 30 aging villagers are crammed into five dilapidated mud houses. They earn less than RMB$2,500 per year in income and their most valuable possession is a 14-inch black and white TV.
For more than 100 years, this village has not even had so much as running water. The entire village has a single ancient well from which it draws its water, after which the sediment must be allowed to settle for three days before it is potable.
When it aggressively began promoting sales of home electronics in the countryside as part of its domestic stimulus program, China"s government was hoping to harness to consumer power of its 800 million-strong rural population. But people in Du Family Village are still worrying about their next meal, potatoes being the only crop the parched soil here can sustain.

"Every day, three meals a day, always potatoes, potatoes, potatoes," our driver, Wang, gripes candidly.
"What is this home electronics program about? Instead of cheap washing machines, the government should give us rural folk running water," a toothless old gent puffing on a cigarette rejoined.

Entering Hohhot, the capital of China"s Mongol Autonomous Region, the gleaming, modern offices of the regional people"s government dominate the city center and seem out of place in a nation with a per capita GDP of less than RMB$20,000.
"Don"t be surprised. Thousands of municipal governments across China have built such splendid palaces," cracked one Taiwanese businessman who travels extensively in China.

Pushing the absurdity level, after sundown the Hohhot municipal government"s urban brightening project keeps the city lit up like daytime, with streetlamps along major avenues festooned with strings of hundreds of bulbs like so many glowing grape vines. Proper illumination is a fine thing; the only things missing are cars and pedestrians.

The unforeseen costs of China"s investments may prove to be irreparably harmful in the long-term.

Build an Olympic Park, Destroy a River
Panning back to Beijing, about a forty-minute drive along the road from central Beijing toward Shunyi District along the banks of the Chaobai River lies the Shunyi Olympic Canoeing-Rowing Park, constructed for the 2008 Beijing Olympics. The Chaobai River in fact once earned Shunyi the evocative title of "Beijing"s Venice."

With the conclusion of the Olympic Games, the Shunyi Olympic Canoeing-Rowing Park was closed down, leaving a strange sight in Henan Village adjacent to the park. The Chaobai River was drying up. It turns out that government engineers had rerouted the river through rubber culverts to feed the park its water supply, draining this entire stretch of the river and lowering the water level along its entire length.

"In China you don"t need to worry about getting things done, what you have to worry about is overdoing it, doing it without accounting for unforeseen consequences," a leading Taiwanese businessman reminds us.

Aside from the social and investment elements of China"s new economic development model, there are fears that perhaps the greatest challenge lies in the underlying philosophy behind China"s state-sponsored capitalism.

Aside from a disinclination among the people to spend, one economist said a key reason behind China"s underdeveloped domestic demand market is on the supply side – even if you have money, there are no proper services on which to spend it. In the health care field, for example, some time back the Formosa Plastics Group proposed building a hospital in Beijing"s Zhongguancun, but was met with a deafening silence. This can be attributed to government control over licenses for operating in the domestic market.

State Controls 84% of Listed Companies
In his most recent book The Writing on the Wall: China and the West in the 21stt Century, British writer and London School of Economics governor Will Hutton succinctly notes that the party-state apparatus remains at the center of the spider"s web of China"s industry, controlling everything.

The state directly controls entire economic sectors of high strategic significance such as telecommunications, energy, transport, steel, automobiles, financials and media. Those companies appearing to be privately operated entities on the surface actually turn out to be state controlled when the layers of share ownership are peeled away.

Hutton cites a 2001 World Bank report 1,105 listed Chinese companies. At first glance, the government appears to have relinquished control of 90 percent of listed companies, but in reality the state retains actual control of 84 percent of listed companies through an intricate web of holdings. That figure remained as high as 81 percent as of 2005.
With state enterprises the major players in China"s domestic market at this time, "we will definitely encounter some issues with the reform of state enterprises during the structural transition period," admits Zhou Qiren, dean of Peking University"s National School of Development.

From the perspective of job creation and economic transition, private enterprises must ultimately be permitted to participate in the domestic market.

"Development can be seen as a process of expanding the real freedoms that people enjoy," the Nobel Prize-winning economist Amartya Sen wrote in his self-evidently titled book Development as Freedom. According to Sen, the growth of GNP, the rise in personal incomes, and industrialization are all "narrower views of development" that ultimately serve the grand purpose of achieving human freedoms.

For a China now standing tall, the biggest challenge will be allowing her people to stand up, too.

Translated from the Chinese by Brian Kennedy