My Impressions...
Gong xi fa chai!
Last week, Chinese people all over the world welcomed in the New Year of the Dragon.
“Why are there no Chinese films on the television?” my Mother asked perplexed that evening, “It’s Chinese New Year!”
Half smiling to myself, I replied, “Well, BBC Newsnight are doing a special on Chinese growth...”
In fact, it seems like every time I open a newspaper or journal, those words spring out at me: ‘Chinese growth’. You could be forgiven for thinking that the West was obsessed with charting the progress of its Eastern rival – when will China overtake the USA? Cast your bets!
My impressions of China have always been very confused – perhaps as a result of my very confused identity. Genetically, I am half Chinese, half English. But, having been born and raised in a Western culture, I almost feel like a fraud when I identify myself as half Chinese. I have no idea what it is like to look at Western civilisation from the outside, I have always known the luxury of being British, of living in an open, democratic, free society. Like most Westerners, I have never questioned that our way is the right way - our way of governing, our way of culture, of politics, of society is the right way, and anything else is backwards, corrupt, immoral or doomed.
But what do I see when I look at China? I see a great mass of people, driven to succeed and achieve, driven to pull themselves out of the poverty they have known for generations, driven to be the best, the fastest, the most innovative. I see a country that has prospered where other Communist states have failed, a party that has succeeded in channelling Communism into the great, powerful, all-producing state machine that so many in the Soviet Union had once envisioned. I see a great country, which for all its many shortcomings, I still respect immensely. A psychologist once told me, “From the hottest fire, comes the strongest steel.” I could not agree more. The strongest, steeliest people I know are of Chinese heritage – their backbones forged from ambition and heartache, and their resolve fortified with the desire to prove the world wrong - to prove that they will not be broken at any cost.
When Amy Chua published her novel last year “Battle Hymn of the Tiger Mother”, the Tiger Mother debate became one of the hottest topics of conversation. The basic argument of the book was that Western parents were too soft and too ‘laissez-faire’. Chinese parenting produced better results – strict routines, harsh punishments, high expectations and hours of dedicated study – this is what made you the best. Is she right? I can only speak from the experience of my own upbringing and tell you that my Tiger Mother was certainly the one who lit my ambition and my obsession with work and achievement. Being anything less than top of the class meant I was a failure, and that is still something I carry with me in everything I do today. I am not scared of pain or hard work; I am scared of failure. In a recent BBC documentary on ‘Tiger Mothers’, the interviewer asked one mother: “Why do you have to work so hard?”
“Because we’re Chinese,” came the reply.
Impressions from history...
What we are currently witnessing in China is a Golden Age – a strong central government, a stable society, improved living standards and rapid development. 150 years ago, during one of the most crushing events of the so called ‘Century of Humiliation’, nothing could have been further from the truth. To punish the Chinese Emperor for refusing to accept the demands of Western Capitalism, the British and French destroyed the Emperor’s Summer Palace – a beautiful building which had taken generations to construct. For those 100 years from the British Opium Wars to the formation of the communist state in the mid twentieth century, China was dominated by foreign powers. But now, the tables have turned, and as China continues to rise, her former enemies lie stuck in a self-made financial crisis.
Chairman Mao’s grand plans led to the enforcement of extreme industrial and social policies which caused misery for a generation of Chinese people. China turned inward, cutting themselves off from the flow of ideas and goods that had made Japan and other smaller Asian economies wealthier. The closed economy meant that large areas of industry were protected from foreign competition by high import tariffs and income in China shrank to just 5% of that in the US as the economy floundered in stagnation and isolation. However, when Mao’s successor, Deng Xiaoping finally opened China’s doors to the rest of the world in 1976, a string of economic reforms followed to bring foreign trade, technology and investment into the country, and the economy started to flourish towards the growth we see today.
But how does the Communist Party in China continue to remain relatively unchallenged and stable when we have seen similar parties in the Soviet Union and Eastern Europe fall throughout the course of recent history? For many, the answer is simple – growth. Deng Xiaoping is often cited as the man who made modern China – and his mantra: “To be rich is glorious” continues to resound throughout the country. The Chinese economy has grown from strength to strength and with this growth has come economic and political legitimacy. Delivering social justice and wealth has become The Party’s mandate to govern.
Political impressions...
There is no denying that Communist and authoritarian rule has allowed Chinese leaders to undertake ambitious initiatives, mixing political control and market reform to create a potent new formula which has yielded annual economic growth averaging at 10% a year. And here, I go back to clash of the Tiger Mum and the Western Mum. Sometimes Westerners forget that on the other side of the world, a different set of values are held dear. Rights and freedom seem less important when contrasted with the promise of wealth and stability. Opinion polls consistently reflect the strong trust in the central leadership in Beijing and the optimism that many Chinese continue to hold for the future.
While the spread of the Arab Spring, recent demonstrations against Vladimir Putin and movements towards freedom in Myanmar have not gone unnoticed by Chinese citizens, it is fair to say that these events have done little to stir up similar feelings of dissent. Similarly, though I always felt resentment towards my Mother for never allowing me the freedom to watch TV or go out with my friends, I will always be in her debt for the excellent work ethic which she instilled in me and has enabled me to aim high. Ultimately, freedom is a relative term. My Mother gave me the freedom to pursue a career in anything I put my mind too. The Party has similarly given many Chinese people the freedom to work hard, prosper and better themselves. This is a communist regime that feeds its citizens by satisfying western consumerist capitalism – and so far, it seems to have worked.
But of course, no analogy is perfect; this is not a story about Tiger Mothers. In researching for this piece, I was genuinely shocked at the accounts of honest, simple livelihoods which have been destroyed in the name of a bigger Communist project for growth and the stories of ongoing brutality at the hands of corrupt leaders and police on those who showed any signs of resistance. In a country where the state has a say in planning everything, the small businesses will always be the losers. The horror stories from the era of Chairman Mao upon my ancestors had brought tears to my eyes, and I found myself weeping again for hopeless and voiceless strangers living in a land I feel so disconnected from. It is no secret that for all its tremendous growth figures, China is still a poor country. Wealth per capita remains low and many migrant workers continue to struggle with poor access to education and healthcare services. Many lives have been improved – but not enough.
In the last few years there have already been a number of under-reported protests against closing factories, wage cuts, job losses and poor working conditions. How long will it be until the majority of silent Chinese workers are no longer willing to endure hardship and sacrifices for the national good and join in with these protests? Demands for a fairer division of the wealth from the recent economic growth will only continue to get louder, and if the slowdown that has started to emerge in the final months of 2011 continues and the global crisis takes a further toll on exports, the unrest and protests amongst workers in poverty are likely to grow in size and volume too.
In the absence of democratic elections, this October will see power handed over to a new generation of leaders in the Communist Party. Looking through the history books, the cycle of dynastic collapse in China has been continuous – and collapse of his own dynasty is likely to be a fear that will weigh heavily on the shoulders of the new President Xi Jinping. Average income in some parts of China is rising to the level at which the South Koreans and Taiwanese demanded greater freedom, and while strong government and growth may have been the answer for the last few years, the potential for volatility will remain, especially if growth continues to slow significantly.
Macroeconomic impressions...
Figures of 8.9% growth in the final quarter of 2011 compared with the same period in 2010 drew headlines when they were published at the beginning of January. Despite it being a still very positive and robust figure, it was a significant slowdown – and the slowest since the second quarter of 2009. Most reports, whether bullish or bearish on Chinese long-term growth, all agree that growth in the first quarter of 2012 will fall below an annualised rate of 8%. This is concerning to Chinese leaders who have long built up policies around the idea that a growth of 8% was the minimum needed to create enough jobs to keep citizens happy and maintain political control without unrest. While China may be second behind the US in terms of GDP, in terms of GDP per capita is still behind 100 or so countries. While 40% of the urban population is now part of the huge emerging middle class, there are still 700 million living in the countryside and 155 million people on an average wage of $1 a day – well below the poverty line.
There is still a long way to go before China can call itself a stable, developed country, but it is clear that Chinese leaders intend to get there as quickly as possible. Infrastructure projects have been a key part in a plan to generate returns to the economy – by increasing productivity, economic activity and future tax revenue, the cost of investment will eventually be repaid. In the last decade, China has undergone a massive internal infrastructure transformation – the speed of which has been incredible. High speed trains up to 380km/hour were unheard of in China 6 years ago – today there is more high speed rail track in the country than the rest of the world put together. This phenomenal infrastructure project was the result of a specific government plan in which thousands of engineers, academics and workers were mobilised. Not having to waste time of campaigning for votes clearly has its advantages.
As China’s exports have grown, its state-controlled companies have looked abroad to capture more commodities and high technology. China has done direct commodity deals in Africa for many years – usually in exchange for infrastructure built by Chinese engineers and is now using the foreign reserves built up from export success to buy mines directly and cut out big Western companies. Indeed, the clash of cultures between undemocratic, state-planned China and the democratic, free market ideology of America has caused a great deal of tension. By keeping the value of its currency artificially low – some claim by as much as 40% - Chinese exports are cheaper than they should be on the international market. Many US politicians have accused China of unfair state-controlled trade tactics and citied the resulting damage to American manufacturing as a reason for rising unemployment in the country. With so many countries relying on trade with China, and with so much domestic employment also reliant on the export sector, this is an issue which is not going to be easy to solve.
In response to the banking crisis in 2008, the Chinese government pumped the equivalent of over half a trillion dollars into its financial system. The amount of credit creation and lending that has taken place in China since 2008 to inflate the economy has led to a significant build up of risk in the system, particularly in the banking sector. China will have to find a way to manage the resulting problem loans or non-performing projects which are not going to pay back their capital before the system is slowly dragged down. Furthermore, as well as infrastructure and industrial development, a large portion of this new money was invested in housing. This asset bubble resulted in a massive surge in house prices and the government became concerned from a social point of view that middle classes in the urban areas would be left without adequate housing. Focus was moved towards providing affordable housing at the mass market level rather than at the high end, and a correction in the residential real estate market is now underway after two years of policies aimed at controlling the soaring prices. However, this has brought about new problems for the government. Housing-related spending is estimated to make up between 10% - 30% of GDP (depending on your sources), and the continued slowdown in the economy is set to intensify as the housing market weakens. Again, a collapse in this sector will have serious repercussions not only in China but also in countries which export commodities to meet Chinese demand.
Impressions for the future...
It is sadly ironic that exports and real estate - which were the two sectors which predominantly drove growth in the past decade - now pose the two biggest risks to the economy. Although the gentle slowdown of 8.9% growth has been in line with government efforts to prevent overheating, the ability of China to successfully weather the storms of the current global crisis is going to be severely challenged. The hit to Chinese exports at the end of 2008 was followed by a RMB 4 trillion stimulus package and resulting recovery to the market was relatively quick. This time around, Chinese leaders will be less inclined to further burden the financial system with more debt, plus there is the added problem that developed economies also lack the funds for similar stimulus projects which they were able to implement a few years ago. Falling demand from the eurozone and the US (which currently accounts for 18% and 17% of exports accordingly) will hurt Chinese manufacturing, and the numbers of underpaid factory workers who already gain very little dividends from the growing overall wealth of their country will undoubtedly become more incentivised to protest and strike.
With wages rising sharply, the low tech, low pay economy which powered China’s economic miracle is under strain. For China to keep growing at the rate it has in recent years, the existing model for growth will need to shift away from investment and exports and towards domestic consumption. While the Chinese government may be outstanding at implementing incredible infrastructure projects, it has been traditionally poor at supplying basic services like health and education. Considering the country is in the luxurious position of having a relatively low budget deficit of 2.5% of GDP, they have the ability to spend more on boosting the private consumption of goods and services through increasing social housing, subsidies, tax cuts, etc, and should aim to do so.
And what do I personally hope for the future China? I cannot deny that I am torn. China has been a phenomenal success story - it’s wonderful to see people drag themselves out of poverty with hard work. However, to continue growing and to maintain stability, China needs to evolve into an innovative, ideas-driven economy, and I find it impossible to believe that you can have the freedom to create if you don’t have the freedom to think. I will always be a Westerner at heart, and I hope we see a peaceful transition from a nation dominated by state power to one where individual rights and law really count and where individual success and entrepreneurship learns to thrive in a free market.
We are heading into uncharted waters. Throughout history, successful growth has come from nations starting with institutions, freedom of speech and a free press, and then going on to develop technology, economy, healthcare etc. Only time will tell how successful development is when it starts the other way round. Whatever happens, China is biggest emerging market and has increasing international influence and increasing responsibilities. Many countries now depend on the growth of China, and the direction of its progress in the next few years will have either positive or negative ramifications around the world.
Recommended Reading to build on your own impressions...
Mao’s Great Famine, Frank Dikotter
When China Rules the World, Martin Jacques
And with a pending application to study at the LSE-PKU Summer School of 2012, I am hoping to further develop my impressions on the “Power Shift? The decline of the West and the New International Relations of the Twenty-first Century” course!
