China Boom CMS

<p>Actually, we are very confused. Maybe a lot of people are extremely bullish on China's future, but I would say that, personally, I am extremely confused. What will happen going forward is, to a large extent, not going to be decided by economics, neither will it be determined by the global environment, it is really in the hands of the Chinese people, even in the hands of a small number of politicians. And what will happen in the next 30 years is probably going to be determined by the political situation in China in the next ten years. Because we haven't talked about the political developments of the past 30 years, for example, I think that Hu Jintao's succeeding Jiang Zemin was a very big political development. While it involved a lot of competition and power struggle, in comparison to every other power struggle in modern Chinese history, this one has actually brought great benefits. At least on the surface, the transfer of power has been very smooth. But, going forward, how is it going to be? To what extent can they further China's economic and political reform? What system of checks and balances will the next generation of leaders have between themselves so that when they encounter difficulties they won't be walking too far ahead or too far behind? Because we all believe that China is currently walking a tightrope. Whether they move to the left or the right, there is a possibility of falling off. I think the key point is whether the government of the next ten years, or 30 years, will be able to keep this balance well. Currently, a lot of people are optimistic about this because the leaders-to-be already seem to have a basic structure. But is this the way that it will be? Because history is too complicated and the tightrope is too narrow, it is extremely hard to keep the balance. So, personally, I don't dare have any particularly optimistic or pessimistic view.</p>

<p>I sometimes think that a China expert is an oxymoron--or just a plain moron; particularly predicting the future, which is the hardest part to predict. So, &quot;I&rsquo;m not sure&quot; is the honest answer of what&rsquo;s going to happen. I think, on balance, their economic performance will continue to be really quite good. I think they have a kind of momentum now and, on economic questions, they have shown a pretty savvy way to go about it. I do think the biggest factor of uncertainty, which I&rsquo;ve already mentioned, is their political system. I don't know how long you can go trying to control the Internet in the Age of Information and experts disagree how well they can do this, but I suspect that with growing numbers of people and sophistication of eluding the censorship that, even with 50,000 censorship police and a crackdown, there are ways of getting around this. And issues, as we speak, like the families of the earthquake victims, where they have one child, that was destroyed in schools that were badly constructed and they're trying to clamp down on the bloggers and the Internet complaining about this. And you wonder how long they can continue to do this. We're seeing this in the Olympics, where they've broken every conceivable pledge of openness with respect to the Olympics. I was over optimistic about political progress after Tiananmen, so I'm very cautious about predicting early progress, but in terms of the basic question, how long the economic boom can go on, I think, for the near term, it certainly will go on. But, over time, and by time, I mean 1 or 2 decades, I think they're going to have to loosen up their political system because, otherwise, they're going to run out of contradictions. When you have such revolutionary changes, many of which are to be applauded, there are bound to be some people hurt versus others and we talked about income disparities. These people cannot express their dissatisfaction through the rule of law and they can&rsquo;t because the party controls the courts. They can&rsquo;t express it through the press and they can&rsquo;t because the party controls the press, or even the internet, in many ways, despite best efforts to elude the censors. And if they can&rsquo;t really hold officials accountable for performance because there aren&rsquo;t free elections, and even at the village level they&rsquo;re mostly rigged, what avenues do they have but to take to the streets? And that is what they&rsquo;re doing. And with the increasing use of the Internet to link up causes, this is going to create more and more of a challenge for political stability. So, both in terms of political stability, but the performance the economy, I think they&rsquo;re going to have to loosen up. Does that mean they need multi-party elections over night? No! People sometimes confuse that as the only definition of democracy. But it does mean a freer press, it does mean the rule of law, not the rule by law, and it does mean civil society being built up, freer reign given to non-governmental organizations like those that rushed in the earthquake in Sichuan, despite the government. And if they don't do those adjustments, and I see no evidence under Hu Jintao that they're planning to do so, then they're going to run into contradictions and both political stability and economic growth will be threatened. But they may well move in that direction, particularly after Hu Jintao. I don't think they'll do that for the next five years. He's been a big disappointment and I just talked to a Chinese academic, who, of course, will remain anonymous, who said that Hu was worse on political reform than Jiang Zemin. And he is going backwards. But, perhaps those coming after him will see the need. They pay lip service, even now. Even Hu Jintao, he mentioned democracy 70 times in his Party Congress speech last fall, but it's a ludicrous use of the word and it's particularly acute now as you see the Olympics. So, that's a long-winded way of evading your question. I think, given the skills of the Chinese people and the economic skills of the leadership and the need for the rest of the world to continue to trade and invest in China, that I would put my bets on their continuing a very good performance, although continuing to be hampered by corruption and pollution in general. But, I don&rsquo;t think this can go on more than a decade or two without a loosening of the political system.</p>

<p>Well, I think this question of the connection between the economic reform and political reform is one that&rsquo;s very important and very interesting in the Chinese case. It&rsquo;s often said that China is a historical experiment of retaining an authoritarian, communist political system while introducing an open market economy. And, as that kind of experiment, it has been, actually, remarkably successful. And I try to make this case to the North Koreans all the time. &quot;You could do it too. And it doesn&rsquo;t mean committing political suicide. You can use the economic reform to build support for the regime, and that&rsquo;s what they&rsquo;ve done in China.&quot; So, on the other hand, I do not believe that China is exempt from the forces of world history and is so unique, I mean every country&rsquo;s unique in many ways, but I believe that the urbanization, the size of the college-age population, increasing income, that people become increasingly frustrated with not having the authority to select their own leaders. That they&rsquo;ll be fed up with corruption, with unequal income, and that maybe even, conceivably, this financial crisis, this downturn, could combine with other issues that people have and stimulate widespread unrest. And the thing we&rsquo;ve seen about these kinds of political systems is it doesn&rsquo;t take a well-organized opposition to bring the whole thing down. It can just erupt in a crisis. If large numbers of people are mad and upset about the same issue at the same time [shakes head]...And the leaders know this. This is why they&rsquo;re so nervous. They feel this political insecurity. On the other hand, if the leaders at the top can hang together and maintain their cohesiveness, which is another thing we haven&rsquo;t talked about, but that&rsquo;s very hard to do in an oligarchy like this; we don&rsquo;t have a Deng Xiaoping, we don&rsquo;t have a Mao, we have a bunch of fairly unimpressive people who are trying to govern this big country and hang together, and are in competition with one another, of course. So, how do you manage to prevent public leadership splits? My view is that the regime can survive, even with widespread unrest, if they can avoid public leadership splits. But, if one guy at the top decides to defect when he sees the protests and he&rsquo;s just sees this as his chance to really shake things up and become number one or number two, there&rsquo;s always that temptation. So, I think there&rsquo;s a lot of political uncertainty. I don&rsquo;t think the downturn necessarily dooms the Chinese political system or Communist Party rule, but I think it&rsquo;s a big challenge. Now, as to what happens in terms of economic policy and reform, again, what I would imagine is that maybe somebody at the top tries to make a political challenge; for the system being so corrupt, unequal income, this kind of populist reformer, maybe a nationalist reformer, which is something we should be concerned about, who says, we really have to, at least, strengthen the legal system, or introduce local elections so people can kick out the rascals. So, of course, we had hoped that Hu Jintao would be that kind of person; he&rsquo;s proven, I think, to be fairly timid, [to] not want to take any risks. So, it may be that the economic reform has kind of reached the limits it could go without some more substantial changes in the political institutions.</p>

<p>But, at the same time, I think it's still maybe too early to tell what they actually have lost. The chapter is not closed yet. For instance, taking the example of Confucianism: Do they really believe in that? Do they still pretend to believe in that? How does it fit into that stale orthodoxy of communism, a credo? I think they still have yet to reach the consensus. I remember I had a very good conversation with Zhang Ruimin, the CEO and chairman of Haier Corporation, when I wrote a book about East Asian maritime civilization and I think Haier is one of the most symbolic enterprises for China to explore their maritime identity. Haier, its name itself is &quot;sea.&quot; And he told me, this is one of the most international companies, Chinese company, very dynamic company, home appliances company. And he told me that one of the most difficult tasks for a CEO in that big Chinese company is how to actually teach ethics to the employees, what kind of ethics, or belief system, they should share. And Confucianism is the only thing he can think of. But, yet, it's so difficult for the Chinese employees to share that mutual belief and trust in the company, the company's future. So, basically, I think Chinese society is still not too dissimilar to what Sun Yat-sen called just sand, individual, atomic sands; not a cohesive thing. So, I think that globalization, this Chinese boom, still is very much [at a] precarious part.</p>

<p>Well, I think, as you said, the corruption issue is very complicated. First, we have to realize, in the last 30 years, almost everything we have done has been illegal in some sense. If we followed our constitution strictly, we wouldn&rsquo;t have been end up today. For example, we privatized most of our SOEs and, of course, [this was] against our constitution, before the constitution was amended. Of course, after the constitution was amended, then it was made legal. Otherwise, it was illegal. I can point to a lot of examples to show that. But, in terms of corruption, if you look at the government officials&rsquo; salaries, they vary tremendously across regions. A government official['s salary] in Xi'an, my hometown, is very low, but if you go to Shanghai, the salary of an ordinary official is very high. You can call that corruption because it&rsquo;s not in book, at least not in the central government&rsquo;s book. So, you can say that is corruption. But, on the other hand, it has a lot to do with incentivizing government officials. If you do not pay them enough, they&rsquo;re going to be even more corrupt. So, in that sense, I think it&rsquo;s better to institutionalize corruption; if they&rsquo;re corrupt, you&rsquo;ve got to institutionalize, make it on the table, make it transparent, so at least people can say, &quot;Hey, you have that much, but you have more, that&rsquo;s corrupt.&quot;</p>

<p>My model of China in the late 20th and early 21st century, the boom years, is essentially a raft going down a category 5 white water stream where there&rsquo;s an infinite series of boulders and, at the last minute, they&rsquo;ve kept missing them. So far, the biggest boulder they hit, of course, was Tiananmen Square in 1989, and that one set them back quite a bit. But since then, whether it&rsquo;s been dealings with the United States, rural unrest, environmental disaster of the moment, they have dodged instant by instant, and at the last instant, the problems they&rsquo;ve been facing. That is impressive to me if you compare it, for example, with Japan, where there was, for a while, the virtue of quite rigid and coherent and nation-wide system. But, I think, in the 90s they saw some of the drawbacks in that rigidity. So, the relative adaptability of a communist regime has been impressive. Then, just moving back a second, what I view, just thinking about it at this moment, as the &quot;secret&quot; of the Chinese success, is combining a successful part of the preceding East Asian model, which is forced savings, you know, industrial concentration, export growth and all the rest, and combining that with a certain latitude and allowance for chaos, of letting lots of the country essentially be ungoverned, letting people come in and make deals from around the world. So, the combination of control and anarchy, I think, both characterizes China as one observes it now and explains something about its boom.</p>

<p>It's actually quite interesting. I think, frankly, on that front, we should thank Chairman Mao. I think that, really, the women's role, certainly in theory, was really elevated to a high level. Obviously, we all know the famous saying by Chairman Mao, &quot;Women hold up half of the sky.&quot; And so, politically and socially speaking, I think Chairman Mao, certainly under the Communist regime, women's status has been elevated a great deal. Even to this day, certainly, I worked in Hong Kong, I worked in Singapore and my colleagues included female professionals from Hong Kong, Singapore, Japan, Korea, and the overall impression that people have is actually that female Chinese professionals are pretty strong. In a sense, that [they are] strong-willed and ambitious. So, in some ways, I think it's because of the education we had when we grow up. But, if you look at the broader data, I believe that the women's situation may have deteriorated in the last 30 years in the sense that with the multiple economic forces at work, and then there seem to be a lot more complaints about discrimination against women at work. Obviously, in the old days, it wasn't an issue because there was simply no vibrant economic activity at the time. So obviously, now, the multiple employers in the market, it's not just the SOEs, in fact, even in SOEs, we have been hearing these complaints about discrimination against women. And then it's harder for female graduates to get jobs because people worry that when they join work, then they're going to get married, they're going to have babies, and then for [a] few years they're not productive enough so, in some ways, they suffer discrimination, actually. So, in that regard, actually, things have not necessarily gotten better. But I think, in a way, that in the past 30 years, with the economic boom, also, the old Chinese kind of male chauvinism is sort of rearing its head as well. So, people kind of expect women to play, basically, a more active role at home as well, in terms of child care, in terms of taking care of the housework and this and that. So, in a way, of course you read about all those anecdotes or evidence about men having multiple wives or mistresses and then elsewhere and this sort of thing. So, in that sense, women's status actually sort of suffered I would say.</p>

<p>Microfinance in China is very underdeveloped for the moment. Compared to Bangladesh, we are very backwards. Financial services for farmers are very poor because the official financial institutions hoard their savings and do not grant any loans. In other words, the money from the farmers is used to build skyscrapers in the cities, or the Three Gorges Dam, therefore, the countryside is very poor. Their money has been taken from them. The absence of microfinance in China is due to the Chinese government's monopoly on finance. Unlike in the US, where thousands of banks are run by individuals, in China, not only in the countryside, but also in the cities, individuals are not allowed to do business in finance. All of the banks in China are run by the government. Individuals are not allowed to open a bank. Though I have done microfinance in the countryside for 16 years, it remains an illegal business. It is still an illegal business unit which is not under the protection of government law. It is actually an underground organization. Luckily, the government didn't regulate me. If they did, I could have been sent to the prison because it is an illegal business. There have, however, been some changes. The government is starting to allow private funds to provide financial services to businesses in the countryside. Even though it is a very tiny opening, there has been a capital inflow of 100 billion RMB to the Chinese countryside. This is a very important development in the reform of China's financial sector.</p>