Thursday, September 13, 2012

Can China Capsize?






This is a must read.  A lot of valuable insight is here and a fairly pessimistic prognosis.  Everybody knows that significant changes are demanded and any form of leadership has been actually neutralized.  The presumption that top down command and control is possible is wrong.  We literally have millions of place holders taking what advantage that they can while not actually disturbing each other.

The only mandate truly understood is that any proposition must be plausibly profitable to the nation first.  This not a bad scenario but it also explains some of the insane misallocation of financial resources.

In this world, it is no matter to build a thousand high rises that never get properly occupied so long as you can do the same thing next year.    And it is no matter because what has to change and change fast is that democratic multi party political decision making has to now be devolved into the community level.  There will continue to be plenty of cash washing around, but the people need to be able to manage and discipline this now.

As this article makes extremely clear, the so called leadership has long ago abrogated that role and simply releases that decision making downward on a ‘ do as you think fit’ basis.  Thus quite correctly that role has to arise from the people themselves.

Why I’m leaving the country I loved


AUGUST 8, 2012 


Death and taxes. You know how the saying goes. I’d like to add a third certainty: you’ll never become Chinese, no matter how hard you try, or want to, or think you ought to. I wanted to be Chinese, once. I don’t mean I wanted to wear a silk jacket and cotton slippers, or a Mao suit and cap and dye my hair black and proclaim that blowing your nose in a handkerchief is disgusting. I wanted China to be the place where I made a career and lived my life. For the past 16 years it has been precisely that. But now I will be leaving.

I won’t be rushing back either. I have fallen out of love, woken from my China Dream. “But China is an economic miracle: record number of people lifted out of poverty in record time… year on year ten per cent growth… exports… imports… infrastructure… investment…saved the world during the 2008 financial crisis…” The superlatives roll on. We all know them, roughly.

Don’t you think, with all the growth and infrastructure, the material wealth, let alone saving the world like some kind of financial whizz James Bond, that China would be a happier and healthier country? At least better than the country emerging from decades of stultifying state control that I met and fell in love with in 1986 when I first came here as a student? I don’t think it is.

When I arrived in Beijing for the second year of my Chinese degree course, from London University’s School of Oriental and African Studies (SOAS), China was communist. Compared to the west, it was backward. There were few cars on the streets, thousands of bicycles, scant streetlights, and countless donkey carts that moved at the ideal speed for students to clamber on board for a ride back to our dormitories. My “responsible teacher” (a cross between a housemistress and a parole officer) was a fearsome former Red Guard nicknamed Dragon Hou. The basic necessities of daily life: food, drink, clothes and a bicycle, cost peanuts. We lived like kings—or we would have if there had been anything regal to spend our money on. But there wasn’t. One shop, the downtown Friendship Store, sold coffee in tins.

We had the time of our lives, as students do, but it isn’t the pranks and adventures I remember most fondly, not from my current viewpoint, the top of a mountain called Moganshan, 100 miles west of Shanghai, where I have lived for the past seven years.

If I had to choose one word to describe China in the mid-1980s it would be optimistic. A free market of sorts was in its early stages. With it came the first inflation China had experienced in 35 years. People were actually excited by that. It was a sign of progress, and a promise of more to come. Underscoring the optimism was a sense of social obligation for which communism was at least in part responsible, generating either the fantasy that one really could be a selfless socialist, or unity in the face of the reality that there was no such thing.
In 1949 Mao had declared from the top of Tiananmen gate in Beijing: “The Chinese people have stood up.” In the mid-1980s, at long last, they were learning to walk and talk.

One night in January 1987 I watched them, chanting and singing as they marched along snow-covered streets from the university quarter towards Tiananmen Square. It was the first of many student demonstrations that would lead to the infamous “incident” in June 1989.

One man was largely responsible for the optimism of those heady days: Deng Xiaoping, rightly known as the architect of modern China. Deng made China what it is today. He also ordered the tanks into Beijing in 1989, of course, and there left a legacy that will haunt the Chinese Communist Party to its dying day. That “incident,” as the Chinese call it—when they have to, which is seldom since the Party has done such a thorough job of deleting it from public memory—coincided with my final exams. My classmates and I wondered if we had spent four years of our lives learning a language for nothing.

It did not take long for Deng to put his country back on the road he had chosen. He persuaded the world that it would be beneficial to forgive him for the Tiananmen “incident” and engage with China, rather than treating her like a pariah. He also came up with a plan to ensure nothing similar happened again, at least on his watch. The world obliged and the Chinese people took what he offered. Both have benefited financially.

When I returned to China in 1996, to begin the life and career I had long dreamed about, I found the familiar air of optimism, but there was a subtle difference: a distinct whiff of commerce in place of community. The excitement was more like the  eager anticipation I felt once I had signed a deal (I began my China career as a metals trader), sure that I was going to bank a profit, rather than the thrill that something truly big was about to happen.

A deal had been struck. Deng had promised the Chinese people material wealth they hadn’t known for centuries on the condition that they never again asked for political change. The Party said: “Trust us and everything will be all right.”

Twenty years later, everything is not all right.

I must stress that this indictment has nothing to do with the trajectory of my own China career, which went from metal trading to building a multi-million dollar magazine publishing business that was seized by the government in 2004, followed by retreat to this mountain hideaway of Moganshan where my Chinese wife and I have built a small business centred on a coffee shop and three guesthouses, which in turn has given me enough anecdotes and gossip to fill half a page of Prospect every month for several years. That our current business could suffer the same fate as my magazines if the local government decides not to renew our short-term leases (for which we have to beg every three years) does, however, contribute to my decision not to remain in China.

During the course of my magazine business, my state-owned competitor (enemy is more accurate) told me in private that they studied every issue I produced so they could learn from me. They appreciated my contribution to Chinese media. They proceeded to do everything in their power to destroy me. In Moganshan our local government masters send messages of private thanks for my contribution to the resurrection of the village as a tourist destination, but also clearly state that I am an exception to their unwritten rule that foreigners (who originally built the village in the early 1900s) are not welcome back to live in it, and are only allowed to stay for weekends.

But this article is not personal. I want to give you my opinion of the state of China, based on my time living here, in the three biggest cities and one tiny rural community, and explain why I am leaving it.

* * *

Modern day mainland Chinese society is focused on one object: money and the acquisition thereof. The politically correct term in China is “economic benefit.” The country and its people, on average, are far wealthier than they were 25 years ago. Traditional family culture, thanks to 60 years of self-serving socialism followed by another 30 of the “one child policy,” has become a “me” culture. Except where there is economic benefit to be had, communities do not act together, and when they do it is only to ensure equal financial compensation for the pollution, or the government-sponsored illegal land grab, or the poisoned children. Social status, so important in Chinese culture and more so thanks to those 60 years of communism, is defined by the display of wealth. Cars, apartments, personal jewellery, clothing, pets: all must be new and shiny, and carry a famous foreign brand name. In the small rural village where we live I am not asked about my health or that of my family, I am asked how much money our small business is making, how much our car cost, our dog.

The trouble with money of course, and showing off how much you have, is that you upset the people who have very little. Hence the Party’s campaign to promote a “harmonious society,” its vast spending on urban and rural beautification projects, and reliance on the sale of “land rights” more than personal taxes.

Once you’ve purchased the necessary baubles, you’ll want to invest the rest somewhere safe, preferably with a decent return—all the more important because one day you will have to pay your own medical bills and pension, besides overseas school and college fees. But there is nowhere to put it except into property or under the mattress. The stock markets are rigged, the banks operate in a way that is non-commercial, and the yuan is still strictly non-convertible. While the privileged, powerful and well-connected transfer their wealth overseas via legally questionable channels, the remainder can only buy yet more apartments or thicker mattresses. The result is the biggest property bubble in history, which when it pops will sound like a thousand firework accidents.

In brief, Chinese property prices have rocketed; owning a home has become unaffordable for the young urban workers; and vast residential developments continue to be built across the country whose units are primarily sold as investments, not homes. If you own a property you are more than likely to own at least three. Many of our friends do. If you don’t own a property, you are stuck.

When the bubble pops, or in the remote chance that it deflates gradually, the wealth the Party gave the people will deflate too. The promise will have been broken. And there’ll still be the medical bills, pensions and school fees. The people will want their money back, or a say in their future, which amounts to a political voice. If they are denied, they will cease to be harmonious.

Meanwhile, what of the ethnic minorities and the factory workers, the people on whom it is more convenient for the government to dispense overwhelming force rather than largesse? If an outburst of ethnic or labour discontent coincides with the collapse of the property market, and you throw in a scandal like the melamine tainted milk of 2008, or a fatal train crash that shows up massive, high level corruption, as in Wenzhou in 2011, and suddenly the harmonious society is likely to become a chorus of discontent.

How will the Party deal with that? How will it lead?

Unfortunately it has forgotten. The government is so scared of the people it prefers not to lead them.

In rural China, village level decisions that require higher authorisation are passed up the chain of command, sometimes all the way to Beijing, and returned with the note attached: “You decide.” The Party only steps to the fore where its power or personal wealth is under direct threat. The country is ruled from behind closed doors, a building without an address or a telephone number. The people in that building do not allow the leaders they appoint to actually lead. Witness Grandpa Wen, the nickname for the current, soon to be outgoing, prime minister. He is either a puppet and a clever bluff, or a man who genuinely wants to do the right thing. His proposals for reform (aired in a 2010 interview on CNN, censored within China) are good, but he will never be able to enact them, and he knows it.

To rise to the top you must be grey, with no strong views or ideas. Leadership contenders might think, and here I hypothesise, that once they are in position they can show their “true colours.” Too late they realise that will never be possible. As a publisher I used to deal with officials who listened to the people in one of the wings of that building. They always spoke as if there was a monster in the next room, one that cannot be named. It was “them” or “our leaders.” Once or twice they called it the “China Publishing Group.” No such thing exists. I searched hard for it. It is a chimera.

In that building are the people who, according to pundits, will be in charge of what they call the Chinese Century. “China is the next superpower,” we’re told. “Accept it. Deal with it.” How do you deal with a faceless leader, who when called upon to adjudicate in an international dispute sends the message: “You decide”?

It is often argued that China led the world once before, so we have nothing to fear. As the Chinese like to say, they only want to “regain their rightful position.” While there is no dispute that China was once the major world superpower, there are two fundamental problems with the idea that it should therefore regain that “rightful position.”

A key reason China achieved primacy was its size. As it is today, China was, and always will be, big. (China loves “big.” “Big” is good. If a Chinese person ever asks you what you think of China, just say “It’s big,” and they will be delighted.) If you are the biggest, and physical size matters as it did in the days before microchips, you tend to dominate. Once in charge the Chinese sat back and accepted tribute from their suzerain and vassal states, such as Tibet. If trouble was brewing beyond its borders that might threaten the security or interests of China itself, the troublemakers were set against each other or paid off.

The second reason the rightful position idea is misguided is that the world in which China was the superpower did not include the Americas, an enlightened Europe or a modern Africa. The world does not want to live in a Chinese century, just as much of it doesn’t like living in an American one. China, politically, culturally and as a society, is inward looking. It does not welcome intruders—unless they happen to be militarily superior and invade from the north, as did two imperial dynasties, the Yuan (1271-1368) and the Qing (1644-1911), who became more Chinese than the Chinese themselves. Moreover, the fates of the Mongols, who became the Yuan, and Manchu, who became the Qing, provide the ultimate deterrent: “Invade us and be consumed from the inside,” rather like the movie Alien. All non-Chinese are, to the Chinese, aliens, in a mildly derogatory sense. The polite word is “Outsider.” The Chinese are on “The Inside.” Like anyone who does not like what is going on outside—the weather, a loud argument, a natural disaster—the Chinese can shut the door on it. Maybe they’ll stick up a note: “Knock when you’ve decided how to deal with it.”

Leadership requires empathy, an ability to put yourself in your subordinate’s shoes. It also requires decisiveness and a willingness to accept responsibility. Believing themselves to be unique, the Chinese find it almost impossible to empathise. Controlled by people with conflicting interests, China’s government struggles to be decisive in domestic issues, let alone foreign ones. Witness the postponement of the leadership handover thanks to the Bo Xilai scandal. And the system is designed to make avoidance of responsibility a prerequisite before any major decision is taken. (I know that sounds crazy. It is meant to. It is true.)

A leader must also offer something more than supremacy. The current “world leader” offers the world the chance to be American and democratic, usually if they want to be, sometimes by force. The British empire offered freedom from slavery and a legal system, amongst other things. The Romans took grain from Egypt and redistributed it across Europe.

A China that leads the world will not offer the chance to be Chinese, because it is impossible to become Chinese. Nor is the Chinese Communist Party entirely averse to condoning slavery. It has encouraged its own people to work like slaves to produce goods for western companies, to earn the foreign currency that has fed its economic boom. (How ironic that the Party manifesto promised to kick the slave-driving foreigners out of China.) And the Party wouldn’t know a legal system if you swung the scales of justice under its metaphorical nose. (I was once a plaintiff in the Beijing High Court. I was told, off the record, that I had won my case. While my lawyer was on his way to collect the decision the judge received a telephone call. The decision was reversed.) As for resources extracted from Africa, they go to China.

There is one final reason why the world does not want to be led by China in the 21st century. The Communist Party of China has, from its very inception, encouraged strong anti-foreign sentiment. Fevered nationalism is one of its cornerstones. The Party’s propaganda arm created the term “one hundred years of humiliation” to define the period from the Opium Wars to the Liberation, when foreign powers did indeed abuse and coerce a weak imperial Qing government. The second world war is called the War of Resistance Against Japan. To speak ill of China in public, to award a Nobel prize to a Chinese intellectual, or for a public figure to have tea with the Dalai Lama, is to “interfere in China’s internal affairs” and “hurt the feelings of the Chinese people.” The Chinese are told on a regular basis to feel aggrieved at what foreigners have done to them, and the Party vows to exact vengeance on their behalf.

The alternative scenario to a world dominated by an aggrieved China is hardly less bleak and illustrates how China already dominates the world and its economy. That is the increasing likelihood that there will be upheaval in China within the next few years, sparked by that property crash. When it happens it will be sudden, like all such events. Sun Yat Sen’s 1911 revolution began when someone set off a bomb by accident. Some commentators say it will lead to revolution, or a collapse of the state. There are good grounds. Everything the Party does to fix things in the short term only makes matters worse in the long term by setting off property prices again. Take the recent cut in interest rates, which was done to boost domestic consumption, which won’t boost itself until the Party sorts out the healthcare system, which it hasn’t the money for because it has been invested in American debt, which it can’t sell without hurting the dollar, which would raise the value of the yuan and harm exports, which will shut factories and put people out of work and threaten social stability.

I hope the upheaval, when it comes, is peaceful, that the Party does not try to distract people by launching an attack on Taiwan or the Philippines. Whatever form it takes, it will bring to an end China’s record-breaking run of economic growth that has supposedly driven the world’s economy and today is seen as our only hope of salvation from recession.

* * *
Fear of violent revolution or domestic upheaval, with a significant proportion of that violence sure to be directed at foreigners, is not the main reason I am leaving China, though I shan’t deny it is one of them.

Apart from what I hope is a justifiable human desire to be part of a community and no longer be treated as an outsider, to run my own business in a regulated environment and not live in fear of it being taken away from me, and not to concern myself unduly that the air my family breathes and the food we eat is doing us physical harm, there is one overriding reason I must leave China. I want to give my children a decent education.

The domestic Chinese lower education system does not educate. It is a test centre. The curriculum is designed to teach children how to pass them. In rural China, where we have lived for seven years, it is also an elevation system. Success in exams offers a passport to a better life in the big city. Schools do not produce well-rounded, sociable, self-reliant young people with inquiring minds. They produce winners and losers. Winners go on to college or university to take “business studies.” Losers go back to the farm or the local factory their parents were hoping they could escape.

There is little if any sport or extracurricular activity. Sporty children are extracted and sent to special schools to learn how to win Olympic gold medals. Musically gifted children are rammed into the conservatories and have all enthusiasm and joy in their talent drilled out of them. (My wife was one of the latter.)

And then there is the propaganda. Our daughter’s very first day at school was spent watching a movie called, roughly, “How the Chinese people, under the firm and correct leadership of the Party and with the help of the heroic People’s Liberation Army, successfully defeated the Beichuan Earthquake.” Moral guidance is provided by mythical heroes from communist China’s recent past, such as Lei Feng, the selfless soldier who achieved more in his short lifetime than humanly possible, and managed to write it all down in a diary that was miraculously “discovered” on his death.

The pressure makes children sick. I speak from personal experience. To score under 95 per cent is considered failure. Bad performance is punished. Homework, which consists mostly of practice test papers, takes up at least one day of every weekend. Many children go to school to do it in the classroom. I have seen them trooping in at 6am on Sundays. In the holidays they attend special schools for extra tuition, and must do their own school’s homework for at least a couple of hours every day to complete it before term starts again. Many of my local friends abhor the system as much as I do, but they have no choice. I do. I am lucky.

An option is to move back to a major Chinese city and send our children to an expensive international school—none of which offer boarding—but I would be worried about pollution, and have to get a proper job, most likely something to do with foreign business to China, which my conscience would find hard.

I pity the youth of China that cannot attend the international schools in the cities (which have to set limits on how many Chinese children they accept) and whose parents cannot afford to send them to school overseas, or do not have access to the special schools for the Party privileged. China does not nurture and educate its youth in a way that will allow them to become the leaders, inventors and innovators of tomorrow, but that is the intention. The Party does not want free thinkers who can solve its problems. It still believes it can solve them itself, if it ever admits it has a problem in the first place. The only one it openly acknowledges, ironically, is its corruption. To deny that would be impossible.

The Party does include millions of enlightened officials who understand that something must be done to avert a crisis. I have met some of them. If China is to avoid upheaval then it is up to them to change the Party from within, but they face a long uphill struggle, and time is short.

I have also encountered hundreds of well-rounded, wise Chinese people with a modern world view, people who could, and would willingly, help their motherland face the issues that are growing into state-shaking problems. It is unlikely they will be given the chance. I fear for some of them who might ask for it, just as my classmates and I feared for our Chinese friends while we took our final exams at SOAS in 1989.

I read about Ai Weiwei, Chen Guangchen and Liu Xiaobo on Weibo, the closely monitored Chinese equivalent of Twitter and Facebook, where a post only has to be up for a few minutes to go viral. My wife had never heard of them until she started using the site. The censors will never completely master it. (The day my wife began reading Weibo was also the day she told me she had overcome her concerns about leaving China for the UK.) There are tens, maybe hundreds, of thousands of mainland Chinese who “follow” such people too, and there must be countless more like them in person, trying in their small way to make China a better place. One day they will prevail. That’ll be a good time to become Chinese. It might even be possible.

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