Why China Won't Slow Down
Howard French, a senior writer for the New York Times has a great blog called A Glimpse of the World. The blog focuses mostly on Africa -- French formerly taught at the University of the Ivory Coast and he started his journalism career as an Africa writer -- but it also sometimes talks about other parts of the world as well.
I came upon French's blog (h/t to China Digital Times) because he just posted on an article on China by Albert Keidel, a senior associate at the Carnegie Endowment for International Peace, recently published in Foreign Policy Magazine (paid subscription required to see the full article). Keidel's article is called "Why China Won't Slow Down" and a long summary of it (written by Keidel himself) can be found here on the Glimpse of the World Blog.
Keidel positions his article as a rebuttal to Minxin Pei's Foreign Policy article, entitled "The Dark Side of China's Rise." I blogged on Pei's article previously, in a post entitled, "China Through Rose Colored Glasses, Darkly" and then again in "China Through Rose Colored Glasses -- Thank You For Listening." I questioned Pei's dark predictions and Keidel does the same. According to Keidel, China is doing just fine:
For China today, the questions on everybody's lips are: Can the People's Republic survive so much change? Can China's performance sustain its pace? What steps are needed next? Minxin Pei addresses the first two of these three questions, and his answers are not flattering. Actual conditions on the ground in China, however, suggest there is little reason to be so pessimistic.
Keidel notes that China's economy has averaged 10 percent a year growth over the last 15 years, exceeding even the best 15-year average performances for South Korea, Singapore, and Taiwan. He then lists five factors that lead him to believe China can sustain "this incredible pace.
First, China is good at investing in things that feed its growth. It gets roughly the same growth bang for its investment buck as India. But China's financial system mobilizes more money than India's, and it allocates a much larger share to private-sector-friendly infrastructure such as roads, ports, and sewage systems. Second, China has created incentives that reward hard work, knowledge, and risk-taking. Fifty million layoffs eased urban workers out of their cradle-to-grave jobs. Rural workers can now move to towns and compete for urban jobs. Compulsory education was extended to nine years, and China's high literacy rate underpins its increasing worker productivity. Third, China's daring openness to global commerce has enhanced its economic flexibility and financed new technologies, while judiciously managing key areas such as foreign investment. Japan and Korea never risked opening this fast. Fourth, foundations for a lasting middle class have emerged, thanks to land reforms, improvements in education, and new social safety nets. Lastly, China is a relatively low-crime society, where unthreatened physical safety enhances economic opportunities. Corruption exists, but at levels lower than those in India, Indonesia, and the Philippines and it is vigorously prosecuted.
I too see these five factors in place in China (at least now that they have been pointed out to me) and I find the fifth one particularly interesting as it is seldom mentioned, yet very important. A number of business people (mostly in the food business) have told me it is China's low crime rate and relative lack of corruption that is their reason for focusing on China instead of some of the other emerging market countries where they formerly did business. Let's face it, China is generally a nice place to visit and many other emerging market countries are not.
Keidel credits what he sees as an "agile" and "energetic" Chinese government for creating or nurturing these five factors:
China's "performance suggests that Chinese officials are leading an agile, energetic government. It is implementing a wide range of reforms and adjusting well to unexpected developments. Social unrest is a good example. Discontent is guaranteed in any country converting privilege to productivity as quickly as China. The issue is how to manage that unrest. China's approach is to compensate displaced people, discipline losers who cause trouble, and punish local governments' malfeasance. That process is hardly perfect. But freedom of speech and assembly, much of it critical of the Communist regime, are widespread and largely peaceful in China.
The regime does crack down harshly on political movements that threaten government authority, social stability, or continued reform. These are policies of a confident leadership implementing a sophisticated and balanced policy. Hardly frail, China's government has peacefully refreshed its ranks with younger, better- educated leaders who increasingly make decisions based on practical compromise.
Keidel sees China as "a hive of reform proposals, test projects, and nationwide rollouts. The expansion of local nongovernmental organizations, for instance, is being encouraged to help care for the needy. The government is also pursuing higher educational standards, new approaches to rural poverty, and the modernization of its tax system. Consumer credit for homes and cars is just one example of the new opportunities available to its citizens."
I am amazed at how often it is that I have become aware of a problem in China, only to see the government put in place an innovative solution within months in an effort to remedy it. China's government is not democratic, but it would be wrong to deny it is "agile" and "energetic."
Keidel concludes by noting that Pei calls China "a 'neo-Leninist state' and condemns it to frailty," but the "facts on the ground" "suggest a political system that is far more nimble and robust."
I share Keidel's view of China and I also share in what he implies regarding Pei. Pei and other political thinkers do not like China because it is most assuredly not a democracy nor is it a moral player on the world stage. I cannot disagree with that. But I part company from Pei and others who insist on viewing China entirely through a political lens. Whether we like it or not, bad politics does not equal social instability nor does it equal a economic bust waiting to happen. I blogged previously on these issues in a couple of posts subtly entitled, "Bad China. Bad. It's Simple. China Is All Bad. Bad. Bad. Bad. And Politics Demands We All Realize This" and "Good China. Good. It's Simple. China Is All Good. Good. Good. Good. And Business Demands We All Realize This." What it really comes down to is what my friend James Na said here about China Law Blog when we first started up about three months ago:
These guys are much more bullish on China than I am. But then again, those who engage primarily in civil/business side of China tend to be so while those who deal in security or human rights issues tend to be more cautious (I count myself in the latter category).
China is doing fine economically and Keidel does an excellent job in dispensing with the politics and just telling us why.
Comments (12)
Read through and enter the discussion by using the form at the endHoward Lee Harkness - May 4, 2006 6:19 AM
I found it interesting that Keidel stated that corruption in China was at a lower level than other countries (it wouldn't be hard to have a level of corruption lower than in the Phillipines!). I saw several red flags in emails between me and several Chinese vendors that indicated that the people I dealt with either were looking for ways to circumvent various laws (or were assuming that I wanted to do so).
In one case, I got a number of blank pages in the advance paperwork for a shipment that contained only the "official" stamp of the vendor. These were in addition to similarly-signed shipping manifests in the same packet. When I asked what they were for, he told me that they were so that I could prepare my own manifests and customs declarations.
Another item that I have run into (and been told is quite common) is a pattern where the first few small shipments are satisfactory, and then when I placed a larger order, it was screwed up with shortages and incorrect items. One such vendor (the one that had earlier sent the blank manifest forms) apologized and offered to "make it up" in the next order. I suspect that he realized that would be the last time I ordered anything from him. He shorted me over $650, which I would bet money that he found a way to route into his personal bank account. I have run into this scenario twice now. As a result, I have been very careful to keep my orders as simple as possible (to make them easier to inspect and detect errors), and never order much more than the minimum order from any one vendor to limit how badly I can get screwed.
China Law Blog - May 4, 2006 7:43 AM
Howard --
What you describe is not, technically anyway, really corruption. Corruption goes more to actions by a government, acting in its governmental capacity, than to actions by a company, even if government owned.
The problems you describe are, however, far too common with China businesses. The incident where you were given blank customs forms appears to have been done as a favor to you. Dishonest, yes, but perhaps done because so many other (non Chinese) shippers had previously requested it.
I cannot tell you how many times we get called regarding quality problems on the third to fifth shipment. The Chinese OEM company gains your confidence to where you increase your order and then ships bad product.
There are definitely contractual solutions that can both reduce the likelihood of these problems occurring and increase your chances of a fast and satisfactory recovery should it occur. However, the first and most important step to avoiding this problem is to conduct thorough due diligence on the company from whom you are buying the product.
I am aware of companies getting stiffed on millions of dollars in bad product by doing business with Chinese OEM companies without a written contract and without any real knowledge of the company itself. Not smart.
e.r. - May 4, 2006 7:48 AM
In other words: if we can make money, why worry about democracy, human rights and such trivial details?
Cynical blog would be a better name for this site.
Enjoy your wonderful promise land.
China Law Blog - May 4, 2006 8:28 AM
e.r.
Though I do appreciate your checking in, you are flat out wrong.
All I am saying is that we should not allow politics to blind us to the economic and social realities on the ground in China. The economy is good and no revolt is near. That is the truth and it should not be hidden for political, or any other reasons. I am most emphatically NOT saying we should ignore the political reality in China. You can disagree with me on this, but I resent your purporting to know how I feel about democracy and your accusing me of shoving it under the rug for profits.
I am actually anything but cynical. I am an optimist who believes China�s opening up to the world has already and will continue to push and pull it towards democracy.
This blog is geared toward business and my post (like many of my previous posts) was to note how political views cloud China�s business realities. Case in point: your own political views seem to have obscured even that.
e.r. - May 4, 2006 8:39 AM
I appreciate your explanation because your original post wasn't so clear. Instead of being offended you should admit that readers' comments sometimes can be useful.
Thanks.
e.r. - May 4, 2006 9:30 AM
It would be fair if you posted also my last comment (with you original answer).
Dezza - May 4, 2006 6:56 PM
I have read both Keidel and Minxin Pei's articles and have to side with Minxin Pei's stance, perhaps it may not be as dark as he says (I think it is!) but nevertheless, I get the strong feeling Pei knows more about what's really going on in China than Keidel (perhaps Pei has more guanxi-connections in the country?).
Perhaps it's not coincidental Pei is Chinese and Keidel isn't? Keidel doesn't give us many figures to back up what he says whereas Pei overloads us with stats backing his points.
I won't even comment on other emerging nations' conditions because I've neither been to any others nor will I pretend to know what's going on there, but the fact that there were 80,000+ officially reported (which means the real number is really much higher!) cases of social unrest in China last year brings cause for alarm. Perhaps a full fledged revolution is not in the cards in the near term, nevertheless many Chinese people are still very pissed off.
I find his quote, "Lastly, China is a relatively low-crime society, where unthreatened physical safety enhances economic opportunities," truly laughable. He hasn't spent much time walking around Shenzhen, Guangzhou or other high crime cities where you could get your purse/bags snatched along with your arm hacked off from motorcycle riding robbers? Even government officials hire thugs to beat up their enemies or evict farmers who want to stay on their land!
Re: the Chinese gov being "nimble and robust" check out these articles and you'll see a party in disarray:
http://www.iht.com/articles/2006/03/09/asia/web.0309china.php
http://www.howardwfrench.com/archives/2006/03/14/forget_riots_collusion_between_officials_and_triads_is_a_bigger_danger/
http://www.howardwfrench.com/archives/2006/03/07/china_reform_agenda_seen_under_ideological_cloud/
http://www.howardwfrench.com/archives/2006/03/09/letter_from_china_a_countryside_jaunt_to_the_reality_of_china/
With all due respect, I can't help but feel that most foreigners who write favourably about China and the party either haven't spent enough time in the country (outside of the glitzy big cities of course) or haven't talked to Chinese themselves (ordinary Chinese and party members) because if they did they probably wouldn't feel as positive.
China Law Blog - May 4, 2006 9:17 PM
Dezza --
You make some good points. I readily confess that my first hand view of China comes primarily from the wealthy cities and from those in China with wealth. I do have friends from the villages who talk about their hometowns, but they are all doing fine so their views will also be skewed.
I cannot dispute that China has massive problems with its rural population. I essentially see it as a race between growth and migration on the one hand, and peasant dissatisfaction on the other. I think growth will win, but I by know means claim certainty.
I have spent considerable time in other emerging countries and though what you say about the pickpockets and motorcyclists in China is true, the numbers (which are probably not accurate in any emerging market country) and my own sense tell me that China is far safer for foreigners than places like Mexico or Russia.
I read the articles to which you refer and I am aware of the fissures within China's Communist party, particularly on legal issues. I attended a lecture in China by one of the drafters of China's new company laws who talked a great deal about the fight to modernize Chinese corporate law. In the end, the reformers won out and China's new company law is really quite progressive. Yet, at the same time, China's proposed new property law has been stuck in session for years.
China today faces many difficult problems, some of which will no doubt get worse and some of which will be resolved. The balance is what is so tough to predict.
Joseph Wang - May 5, 2006 11:54 PM
There's no reason a priori to assume that someone with a Chinese name has a better view of "facts on the ground" in China than someone who doesn't. This may not be an issue with Pei, but it certainly is an issue with a lot of the Tiananmen dissidents who haven't been to China in over a decade compared to businessmen who go there once a month.
In the case of Minxin Pei, one can go through his statistics point by point, and show that it may not be as bad as he thinks things are. The basic problem with Minxin Pei's writings is that since the mid 1990's, his essays have been to take whatever the latest problem that China has and then argue that this dooms the Party, when in fact what happens is that the Party takes the latest problem (like the NPL's in banking system) and fixes it. His argument is that the fundamental "neo-Leninist" nature of the Party dooms it, but he has been making that argument since 1989, and he hasn't really updated it, or explained why the Party hasn't collapsed already and what it means for the future. If you look at Pei's writings over the last ten years, there is a very strong "cry wolf" sense that you get in them, and I've never heard Pei give an explanation to why he was wrong in 1996 and why we should believe him now in 2006.
The reason businessmen tend to be bullish on China is that they look at the people that work with both in government and industry, and see people that are basically frank, honest, and hard working. You see people are pretty open at admitting what China's problems are, and are trying very hard to fix them. So the portrayal of Chinese officials and managers as corrupt and out of touch just has no credibility among most businessmen, since it flatly contradicts what they see with their own eyes.
The other issue is that economic policy making tends to be technocratic and bureaucratic rather than democratic even in Western nations. So the difference in how economic decisions in China are made are not that much different from how those types of decisions are made in the United States. As far as things like corporate and securities law, you have legislative debates that are as intense and active as anything that you have in a Western nation.
Businessmen also tend to be less annoyed about restrictions on freedom of speech than do journalists and human rights activists. In any major corporation, there are things you can say and things you can't, and unwritten rules about what you can and can't do, and in the end you generally accept these restrictions and figure out ways around them. The cost of breaking those rules is to get fired, and possibly blacklisted from an industry if word gets around that you aren't a "team player."
The restrictions on freedom of speech in China "feel" a lot like those same restrictions in a large corporation, and that part of my brain that tries to figure out how to make a point without getting censored on a Chinese bulletin board is the very same part of my brain I've used when I needed to write a memo to make a point on a sensitive topic to upper management.
The curious thing is how similar those restrictions are. For example, you can get away with saying anything in private, but if you have a signed memo, there are huge restrictions on what you can say. Also, a good manager will welcome frank and open criticisms on company policy, as long as you don't challenge their authority or make them lose face.
So I think businessmen are not annoyed by restrictions on freedom of speech because they are used to it. Also Pei's argument that the Chinese economy is doomed because the Chinese economy and corporations are "neo-Leninist" doesn't hold much water with me since Western corporations are basically "neo-Leninist" by his definition.
China Law Blog - May 6, 2006 6:48 AM
Mr. Wang --
Thank you so much for your thoughtful comments.
I agree with you that there is no reason to assume that just because someone has a Chinese name has a better view of the facts on the ground in China than someone without such a name. I particularly like your point about those who have not been to China since 1989.
I like your comment on how the "basic problem with Minxin Pei's writings is that since the mid 1990's, his essays have been to take whatever the latest problem that China has and then argue that this dooms the Party, when in fact what happens is that the Party takes the latest problem (like the NPL's in banking system) and fixes it. This is what all predictors seem to do. They take a negative or a positive and assume the negative will only get worse and the positive will only get better, as though nothing will ever intervene. I always like to point out that just about everyone predicting Texas population growth and real estate prices in the 1980's was predicting phenomanal growth (using really nothing more than straight line upward predictions based on the past) until it crashed.
I also like your point about how none of the things that are supposed to doom China have yet doomed it. Of course, the doom and gloomers would counter by saying things are actually getting worse.
I also agree with your comment that businesspeople tend to be bullish based on their own experiences in and with China. I agree there is nothing wrong with extrapolating from that, but in the case of China, I think that doing so can be deceiving. I say this because there is obviously a huge difference in China in terms of what is going on in the countryside and what is going on in the cities and the businesspeople are generally pretty much confined to the cities.
I both agree and disagree with your point on how "economic policy making tends to be technocratic and bureaucratic rather than democratic even in Western nations" and therefore the differences between the West and China are not so great. The difference isn't so much who makes the decisions in various countries, it is what decisions are made. Economic policymakers in the U.S. make far fewer macro and microeconomic decisions than the economic policymakers in China. The big difference is that the Chinese government's role in economics (though shrinking) is still huge compared to countries like the United States or England. I have always been of the view that governments generally mess up much of what they touch, but at the same time, I have been impressed by the deftness of the Chinese government in responding to China's problems.
You are absolutely right to point out that on corporate and securities law matters China has vigorous legislative (and, I would add, media and academic) debates, but I would not go quite so far as to claim they are always "as intense and active as anything that you have in a Western nation." At the same time, I think too many Westerners are completely unaware of the wide range of views expressed on such issues before passage of laws.
I think it is a near tautology that "[b]usinessmen also tend to be less annoyed about restrictions on freedom of speech than do journalists and human rights activists and I like your explanation for that. I really like your comparison between corporate "speech codes" and Chinese "speech codes." I had never thought of it that way before and I think you are right. But, we still must not ignore the moral difference between a corporate speech code and a country speech code. One is a voluntary cost of doing business while the other is censorship.
Tim Lamb - May 6, 2006 9:56 AM
Having read both articles, Pei�s and Keidel�s, it is obvious that they are approaching the situation from two very different positions, but I am not convinced that Keidel�s article implies that he believes Pei does not like China. Regardless of his political leanings or his agenda, I have yet to really find an article that rebuts Pei�s assertion�s based on the facts that he delivers with his message.
Mr. Wang below mentions that you can go through Pei�s article point by point and show that it is not all that bad after all, but I have yet to see such a thorough undertaking. There are a slew of criticisms for Minxin Pei but few that I have read that didn�t rely upon Ad Hominen arguments or inductive reasoning instead of a critical analysis based on deductive logic.
There are loads of China pundits (someone has actually coined the term �Chundits�) that represent the entire spectrum of notions of China�s future. There are many with superb credentials who write insightful commentaries and disturbingly there are a growing number of �Chundits� who are riding the �China Wave� with dangerously superficial knowledge of China that are taken seriously by their international audience. Whether you like him or not, find him controversial or don�t agree with his opinions I would argue that Minxin Pei falls within the first category and his writings cannot be so easily dismissed.
China Law Blog - May 7, 2006 8:10 AM
Tim --
Thanks for checking in.
I like Thomas Barnett's rebuttal, which essentially says that Pei's piece is just a litany of problems that could be applied to countless countries, but no real analysis regarding how these problems will cause doom when they haven't so far. You can find Barnett's views here:
I completely agree with you that Pei's writings cannot be (nor should they be) easily dismissed. That people spend so much time criticizing them ought to be sufficient evidence of their insight and their power.