China dream alive and kicking

Tiawan: Taipei
TNA News with Commentary
No. 339, June 2002

A new book The China Dream: The Elusive Quest for the Greatest Untapped Market on Earth, provides an analysis of the unrealized hopes of foreign investors and businesses regarding the limitless scope of the mainland China market.

In his review of Joe Studwell’s book in the Far Eastern Economic Review, David Murphy comments that, “From the 19th-century English writer, who wistfully hoped that Lancashire's cotton mills would boom if every Chinese was persuaded to lengthen his shirt tail by an inch, to today’s car manufacturers, who hope that one in 10 Chinese will buy a car, businesses have dreamed of making it in the Middle Kingdom.” Still, the potential and promise of the mainland “El Dorado” is spell-binding, reinforced by official growth “statistics.” The statistics do not tell the whole story; the murky side is carefully hidden.

According to Nicholas Lardy, an expert on the mainland economy, “The official data overstate the pace of economic expansion ... if for no other reason than over the past decade there has been an extraordinary buildup of unsold and unsaleable inventories. While these inventories are counted as part of output and thus contribute to growth of gross domestic product, they are not utilized for either consumption or fixed investment. The real resources that have gone into the production of these goods has been largely wasted.”

Take one example. “On average from 1990 to 1998, annual additions to inventories absorbed 42 percent of incremental output,” much of it reflecting “the continued production of low-quality goods for which there is little or no demand.” Considering the mainland’s padded statistics, one must be very skeptical.

The economic rot, though, is much wider. The mainland banking system is crisis-ridden and corrupt. In an open political system, it would in all probability have collapsed by now, considering that half to two-thirds of all bank loans are nonperforming and growing.

High-level linkages between the perpetrators of such fraud, however, result in disinterested investigations. According to the Far Eastern Economic Review, “China Construction Bank has been involved in financing the information-technology business activities of President Jiang Zemin's eldest son.” Still, banks like these control US$900 billion in individual savings. If people knew what was going on, there would be an instant run on the banks, which would bring the Chinese economy to a halt.

In a broader sense, any discussion of the mainland economy without taking into consideration the social context is extremely misleading. As Alvin Toffler observed when interviewing Japanese Prime Minister Junichiro Koizumi, “The central risk for the world over the next 30 years will be the mainland. This is because the changes that the government in Beijing is trying to bring about are of such great magnitude. The population of the mainland is so big that these changes will naturally create domestic turbulence.”

In a meeting with the mainland’s State Development and Planning Commission, Toffler was told, “We have 900 million first-wave peasants involved in agriculture. We have a second-wave urban industrial population of 250 million to 300 million involved in manufacturing. Finally, we have 10 million third-wave people with computer and Internet access.” Even with the best scenario for economic development, the relative income mix of the vast population is not likely to change significantly.

In other words, the overwhelming majority of people will continue to live on the land. But land and jobs are shrinking in rural areas. According to Jiang Xueqin, “Across the mainland, people are losing their land to expanding cities and attempts to make tiny farm plots more efficient by merging them into large agribusinesses.” Land confiscation is a serious issue in the countryside, and has sparked large-scale riots. The worst culprits are almost always local officials.

Jiang quotes a local community leader to sum up the people’s feelings: “What's happening is land transfers to a few rich people. The government has had a long-standing policy of letting a few people get rich first.” One can only imagine the pervasive sense of helplessness and frustration among the peasant masses. This is because there are no effective channels for political or legal redress open to them. No wonder grain production is falling steadily. Last year, it reportedly decreased by 1.9 percent, following a 9-percent drop in 2000.

At the same time, unemployment is alarming. The state-run China Daily has put the number of jobless at 132 million — 120 million of them in rural areas. The real figure is obviously much higher. It is expected that this will only get worse following Beijing’s accession to the World Trade Organization.

Despite all the razzle dazzle of big coastal cities, there is widespread poverty. According to World Bank estimates, there are 200 million very poor people in central and western China living on the equivalent of less than one U.S. dollar a day.

If the poverty bracket were raised to include also those living on or below US$2 dollars a day, the number of poor would be much higher.