China 2009: An Ox in a Box.

Posted January 4, 2009

A journalist once claimed that after a week in China he could write a book, after a month, he could produce a good article, but after a year he had nothing to say — so complex and layered was the country's economic, political, and cultural life. Unfortunately for pithy summaries, my recent visit to Beijing and Shanghai to check in on Jamie lasted only ten days. Commentary on my visit in two years ago is here.

I came home with more impressions than answers. Here are seven things I am watching in the year of the Ox:

1. The calendar. There are several key dates coming up.

December 26 was the 115th anniversary of the birth of Mao Zedong. 15 years ago, the centenary was highly celebrated and even five years ago, there were official celebrations in several major cities. I expected to see some commemoration, some mention in the press of the birth of "The Great Helmsman".

So far as I could see, China did not celebrate Mao's birthday at all and when I mentioned it to locals, they shrugged it off. Have they figured out that the founder of their country was the greatest mass murderer of all time? Many scholars would place the count of his victims above 60 million. As fellow contender Stalin once noted however, "A single death is a tragedy. A million deaths is a statistic."

This lack of celebration is something to celebrate. Mao is now visible in China only on the currency and in the "Maosoleum" in Tienanmen Square (I love that Mao campaigned for all CCP leaders including himself to be cremated only to end up a textbook case of bad taxidermy). These days, many schools do not mention Mao until junior high. One textbook mentions Mao only in a section on manners (!!). Bill Gates literally gets more textbook time than Mao.

Well, progress is not always pretty. But it is progress.

What was celebrated everywhere with large exhibits and photos was the 30th anniversary of China's policies of “reform and
opening”, As with Mao, the actual history was more complicated than the Party's presentation of it. China's opening began before Mao's death but did not accelerate until Deng Xiaopeng came out of retirement in 1992 to deal Maoism a death blow. At that point the Party dismantled most of
the Maoist edifice, engaged in some land reform, attracted huge amounts of foreign capital, and most of all, encouraged private
enterprise. Today's posters suggesting that 30 years ago Deng put out a crisp and simple call for reform are misleading. It did not happen that way.

Regardless, the Chinese have richly earned the right to celebrate. They have achieved the most astonishing economic transformation in
human history and you see it everywhere. China has lifted 200m out of poverty (some of them way out). The major cities feature amazing architecture. Schools are vastly improved, as is air quality in Beijing. Beijing and Shanghai feature beautiful new freeways and subways. A high-ranking city planner told me that Shanghai has begun construction on 500km of new subway line — that's 300 miles! The London subway system is the longest in the world. It is 250 miles long — and it took 75 years to get that way.

January 26th is the start of the Chinese New Year. This year however, a zillion migrants from the countryside will be hanging around in the cities (Beijing less — they scooted the hoi polloi out of town for the Olympics). Unlike in years past, many of these migrants are now unemployed as Chinese construction work and factory work has slowed dramatically. Fireworks are a certainty — and demonstrations a distinct possibility.

March 14 is the anniversary of the riots in Lhasa, Tibet. June 4th, is the the twentieth anniversary of the suppression of democracy Tienanmen demonstrations, June 22nd the tenth anniversary of the ban on the Falun Gong (credit these dates to The Economist).
Every leader in China knows that demonstrations are common in China and, as Maoist doctrine insists, "A single spark can start a prairie fire." We'll see.

October 1st is the 60th anniversary of founding of China. In Confucian tradition, 60th birthdays are particularly significant. The government will be tempted to put on a large celebration. Depending on the state of the economy and human rights, this may not be wise.

2, The Money
China enacted a massive $586 billion stimulus in November — a huge number relative to the size of their consumer economy. Even so, growth is widely expected to be 5% in 2009 — half of normal. The social consequences of this will be significant unless the recession is very brief. As in the US however, the stimulus the government provides may not be the stimulus the economy needs. If the government wants to convince rural Chinese to spend more and save less, it should improve land rights and provide a better health care safety net. No sign of this yet.

China used to overstate its national income accounts, but appears to have understated them in recent years due in part to trouble counting service sector output. Safe to assume that the next few years will see healthy growth reported from the government — so we need to watch trade, savings, and consumer data reported by companies and banks.

For example, power generation, tells a lot, and this is a generally more reliable number, It fell

by 7% in November vs a year ago. Trade figures showed China's exports 2% lower and imports 18% lower than a year ago. This shocks senior officials — if they even know about it.

3. The countryside. Improving the living standards of China or any other agrarian economy requires urbanization — the massive migration of peasants to cities. The Chinese Communist Party knows this and is terrified of it. The prospect of a rush of millions of peasants into the cities that are already struggling with social services is what keeps party functionaries awake at night. They want to manage the process carefully. If it starts looking unmanaged, watch out.

If peasants don't head for the city, they may become restive anyway. The economic contraction will hit them hard and Chinese farmers are unusually vulnerable to the corruption of local party leaders and to environmental degradation. China's one child policy (which is a two child policy in the countryside) has made this problem worse, since many peasants now have less economic security due to smaller families.

4. The military.
During my visit, China sent naval forces outside the China Sea for the first time in modern history. The Chinese navy dispatched ships to deal with Somali pirates after Chinese merchant vessels came under attack. How ironic if Islamic pirates lead to a strengthening of the Chinese Navy, since they led to the creation of the US Navy and the US Marines (who sailed "..to the shores of Tripoli.." once millions of Europeans had been enslaved and bribes to Moorish pirates reached 20% of US tax receipts). If we are lucky, the Chinese will seize some pirate boats, execute their crews, and sink their ships. No law appears to prohibit this and it is the one remedy for piracy on the high seas that has proven historically effective.

The other reason that the military matters is that it is likely to grow in a recession (also true in the US). In China however, there is another force: demographics. China introduced its one child policy in 1979 and promptly experienced a significant gender imbalance as families preferred sons. This policy is complex and administered differently in different places (good discussion here) but according to a report by the State Population and Family Planning
Commission, there will be 30 million more men than women in 2020,
"potentially leading to social instability". One solution: a much larger permanent military. Which will, of course, look for things to do….

5. The young.
Youth culture in China is starting to take off in the arts, in poetry, and in a rising urban counterculture. Beijing and Shanghai have jazz, punk rock, and a few openly gay and lesbian bars.

Young people in China are as technology and internet saturated as their peers in the west (actually the Chinese now adopt technology faster than Americans. The largest Apple store on the planet is reportedly in Beijing — where iPhones are ubiquitous, if still not authorized). Young people in China are different in one key respect however: they never go to movie theaters. Pirated DVDs sell everywhere for less than a dollar — why bother?

Young urban residence often speak good English. Urban China feels like Europe twenty years ago in this respect. Some have been educated overseas and have worked for US or Taiwanese companies. They understand deeply how western democracy, courts, and markets work. Many work for European or American companies and travel regularly. We visited a professional couple in Shanghai who we had not seen since they left California six years ago. Both spoke better English than when they left the US — because both need English in their jobs. This is not a huge group of people, but it is a very influential one.

6. The watchers
Not all change in China will come from the top — but a lot of it will. Government still manages media (most print and broadcast media these days are self-censored. Oddly, much of the actual censorship is now local, with the weird effect that journalists have a much easier time exposing corruption in other parts of China — censors only protect local officials. Great radio piece on this here.)

Government remains a huge economic player. As the Economist notes "State owned businesses dominate key sectors such as banking, telecoms, energy and the
media. Between 2001 and 2006 the number of these companies fell from 370,000 to
120,000, but this still left assets worth $1.3 trillion in state
control." Worse, many "private" businesses give Party and Army officials a piece of the ownership.This is bribery plain and simple — but it helps companies cut through a lot of truly red tape.

Chinese censorship remains a constant dance. While I visited, the New York Times was inexplicably blocked for a few days. The Huffington Post is always blocked — but the Economist rarely is. But if you use the cellular network for internet access, nothing is blocked (but it is expensive). As China grows an educated, globally forward looking, technically sophisticated middle class, this censorship will create more and more friction — bet on it.

7. Obama
The relationship between US and China is arguably the world's most important bilateral strategic relationship. China is a superpower in training. It holds two trillion dollars of US debt. Were China and the US to cooperate fully on Iran, North Korea, or Darfur, we could make massive, positive, and rapid changes. Without such cooperation, these sores will continue to fester.

The creation of bilateral economic incentives to promote conservation, curb pollution, and reduce habitat destruction also requires US-China cooperation. Europe and Japan are increasingly green. The rest of the planet will either follow US-Chinese examples (south Asia, India, parts of the Middle East, South America, and Africa) or is too poor or poorly governed to contribute to environmental improvement.

Obama's first overseas trip will likely be to an Islamic country — ideally Indonesia (earth's largest Muslim population, a place Obama lived as a boy, politically open if not fully democratic). But once he is in the neighborhood, he should make a stop in Beijing. China may be an ox in a box, but it is a big ox and it is not in the box alone. Ours is a critical relationship and it would be smart to get it off to a good start.

photo credits: Jamie