Tip of the Iceberg: Behind China’s Stunning Growth

Independent Study Report
April 2006

The multitude of the people will, with one heart, proceed to build the richest and happiest country in the world – a country of the people, by the people, and for the people. – Sun Yatsen, father of modern China, 1919

Soon after settling into my window seat for the Beijing to New York return flight I came across a small story in China Daily that pretty well summed up the state of the People’s Republic of China in early 2006:

“Sales of adult diapers are booming as residents prepare themselves for lengthy journeys home on crowded trains for Lunar New Year. Many supermarkets…have reported an increase in sales of about 50 percent.…The number of train seats for people returning home for family reunions are limited because of the huge demand in the period. It means large numbers of passengers have to buy standing-only tickets and have to jam into all corners of carriages, even in toilets. This often makes it almost impossible for passengers to pass through and reach the toilets and they are forced to go without relieving themselves for the whole journey, up to 24 hours.”

Apart from generating the unpleasant image of dozens of train travelers nonchalantly defecating while chatting with a nephew or glancing out the window, the piece touches on every major obstacle to China’s continued prosperity: the regular, increasing, and unprecedented rural to urban migration; a severe shortage of support services and infrastructure; the raw human and industrial waste and overcrowding problems that have contributed to China’s environmental havoc; and the divide between the multitudinous poor, who are forced to urinate on themselves to get home for the holidays, and the growing middle and upper classes, who are not. It is nice to know that these disadvantaged souls could afford both the train ticket home and extra-absorbent undergarments, and one assumes the Chinese rail business is pleased about the record 144 million journeys during the Festival period of January 14 to February 29. But for a nation beginning to assume world power status, this is a black spot. And the fact that the article is written matter-of-factly and buried in the lower left corner of Page 3 just below a piece on banks handing out brand new yuan bills for traditional holiday cash giving suggests the indifference of the well-off, well-educated populace, who might rather be shopping.

With annual gross domestic product growth rates hovering just below double digits since 1980, the economic boom reported in every news outlet from here to Hohhot has waved a magic wand of prosperity across much of China, giving the governing party and much of the populace reason to cheer. The neo-communist country is awash with young people enjoying new jobs, toys, partners, and homes, and its cities are rapidly industrializing, modernized, and well-oiled. Yet there is a dark side to this full moon of development, as the almost incomprehensible economic growth of the past fifteen years has wrought havoc for millions of Chinese and endangered the land they call home.

“The development has definitely been a double-edged sword, because there have been many thousands, even millions of people, whose lives have improved dramatically in many ways, but at the same time there are certain problems for China,” said Wei Wei Yang, 25, an economics student at Nanjing University’s Johns Hopkins Center for Chinese and American Studies. “There is more pollution than ten years ago, and many farmers and people from the countryside are still very poor and upset with the government.”

Indeed, the rural-urban and rich-poor divides have yawned into vast, angry maws that threaten to swallow China’s peaceful prosperity. The land is shrouded in smog, pocked with dry, unusable land, and crisscrossed by increasingly polluted waterways. A new, consumerist culture is overwhelming ancient traditions. Freedoms of speech and the press are more on the government’s radar than at anytime since the Cultural Revolution.

Perhaps most crucially, the citizens of the People’s Republic of China, one-fifth of humanity, are by market forces and government fiat attempting to overcome an old nemesis, the deep roots of collectivism. The ruling People’s Communist Party has placed its hope for the future in a buzzword—innovation—that goes against its very political foundation and millennia of Confucian philosophy. Can members of a populace trained to work and think collectively and to blindly trust undisputed leaders be made to think and act for themselves, as creative individuals, without also desiring democracy? Time will tell, but in early 2006 most signs suggest that the current generation is indifferent to grasping and wielding control.

The Great Expansion and a New Society

“To get rich is glorious.”
– Deng Xiaoping

China took center stage as an international economic success story in 2005 – surpassing Britain and France to become the world’s 4th largest economy, replacing the US as the world’s leading technology goods exporter, and becoming gloriously almost-rich. Its trade surplus tripled to a record $102 billion as its economy surged another 9.9 percent, slightly above par for the past quarter century. Shanghai became the world’s busiest port by volume, handling about 443 million tons of cargo, and, perhaps most importantly, the 170 commercial lending institutions of China’s much-derided banking sector achieved a non-performing loans percentage of 30, down from nearly 60 percent in 1999 – a sign that most Chinese now have enough to make good on their interest, debt and loan repayments.

The purchase of homes, cars, luxury goods, leisure items and other totems of materialism, primarily by the under-40 generation, are symptoms of a tectonic cultural and societal shift away from traditional values and strict morality towards a more selfish consumerist culture. No more the selfless droning comrade of socialism and labor nor the obedient, domesticated wife, today’s citizens of the People’s Republic want to purchase Western goods, own property, drive a car, have casual sex, and the booming economy is increasingly allowing them their hearts’ desire.

A stroller down Nanjing Xilu, HuaHai Lu or any Shanghai thoroughfare in 2006 will be greeted with six to eight story mega-malls plastered with digital billboards and flashing neon and fast-food restaurants of every imaginable sort, crowded with young adults emptying their pockets of disposable income. In Beijing, construction of malls and supermarkets grew so crowded by February that the government announced limits on retail construction within the Second and Third Ring Roads. Although there remains a notable absence of international print media, a Shanghai newsstand presents a tableau not uncommon to a New Yorker: Vogue, Elle, Mademoiselle, Men’s Health, FHM, and Maxim jostle each other for space and the attention of passersby, with images of bare midriffs and Seven Secret Sex Tips stark next to food stands offering skewered meats.
As they embrace the Western world’s pleasure, health, and shopping obsessed lifestyle, however, many Chinese twentysomethings see traditional Chinese life quietly fading away. “When I was young, nobody had a car; people rode their bike. But now everybody seems to have one, and they’re all moving so fast,” said Lydia Wang, 21, an English major at Changzhou Teacher’s College. She plans to work as an interpreter for an international business and said that cars had brought a faster pace.

“I think China is becoming more materialist and it’s definitely taking away from our culture,” said Wang, furrowing her brow. “It’s becoming a very different China. We’re not very used to this kind of life, so it is changing us, not always for the better.”
“It is much harder to find a decent teahouse now,” said accounts manager at insurance conglomerate Manulife-Sinochem and Shanghai resident Feng Wang, 28, tucking her long black hair into a light blue knit cap as she prepared to head out into a wintry January Wednesday. “Much more difficult than even five years ago, because everybody wants Starbucks and American coffee. I hate coffee!”

She is clearly in the minority, as crowded Starbucks and other coffee shops and fast food joints have elbowed aside teahouses and traditional Chinese noodle shops in Shanghai and across much of China. The country had 1,200 KFC’s and almost 800 McDonald’s restaurants as of early 2006, both of which have presumably had a hand in the doubling of China’s obesity rate in the past decade.

“And Christmas and Valentine’s Day are like real holidays– these are occasions to go out and buy gifts now, but they weren’t when I was little,” added Wang. “Now all of the people are buying things and the shops are offering big discounts.”

Flaunting wealth as shiny status symbol, China’s newly minted millionaires need no such discounts. Strutting into Louis Vuitton and Mercedes dealerships, booking designer vacations, buying yachts, fancy cars, and expensive jewelry; this high-end group is being catered to like never before. Their $2 billion 2005 luxury spending represented 12 percent of global sales for such items, third behind the US and Japan. British expat Rupert Hoogewerf founded the Hurun Report in 1999 expressly for China’s wealthy –there are now over 400,000 US$ millionaires – and its annual best products issue listed over 400 high-end Chinese products. Hoogewerf says the wealthy in China are predominantly new money, as opposed to Europe, where there is a great deal of inherited wealth. As a result, “the Chinese are more willing to spend,” he told Shanghai Daily.

And they want other people to know they are spending, almost to the point of tackiness. “At this point I would say that the new wealthy can be voracious and are attracted to the more ostentatious products, definitely,” said Yonggui Wang, 46, Professor of Marketing and Strategy at Nanjing University. “They want everything, and they want it now. So it’s basically a field day for Chinese and Western producers.” Speaking of field days, the playing of golf has spread like wildfire, but not because the Chinese have any particular talent for it, according to Shanghai businessman Chow Wei: “People play because they think they're rich, or because they want you to think it." Finally, The New York Times recently reported a new trend that has wealthy Chinese men retaining lawyers and placing newspaper and magazine ads to buy themselves a bride, preferably a beautiful virgin, for up to a million dollars.

“I do see more malls and more people buying expensive things,” said Hopkins Center grad student Yang. “I don’t know whether it’s definitely good or definitely bad for Chinese culture, but it’s definitely something different. We will see if lasts and marks a long-term change for our culture.”

One thing that has lasted is demand for new buildings. In laying down an astounding 4.7 billion square feet in new construction in 2005, China’s urban centers required armies of migrant laborers. Shanghai built more living and working space than there is in all of New York’s office buildings, and its 4000 skyscrapers nearly double that of New York. To fill jobs in construction and other labor sectors, China experienced an urban migration the equal of which has never been seen in human history. Some 150 million Chinese have flocked to the cities as the rural-urban population ratio went from 82-18 in 1978 to 35-65 in 2004, leading to an explosion of new construction. (China has four times the population of the US, but consider that while the United States has a grand total of nine cities with a population over 1 million, the PRC has 170. ) Many of these workers, skipped over by China’s economic growth and easy riches, must periodically return home, to their families, to the reality of their neglected way of life.

“They are constructing buildings that are way up here,” said Feng Wang, 28, raising her hand high over her head, “but meanwhile most of the people are still down here,” putting her hand down at her ankles.

Asymmetric Development

Many migrant laborers have taken up residence in their adopted cities, creating an urban underclass left behind by the asymmetric economic development. Urban ghettoes have sprung up in the shadows of wondrous new skyscrapers and retail complexes. China Daily columnist Raymond Zhou recently made note of the trend, with a story on the rise of poor and neglected neighborhoods he dubbed “urban villages:”

“The majority of residents are migrant workers. The streets, if they can be called that, are narrow, dirty, and lined with all kinds of small shops selling fake or shoddy merchandise. It’s the birthplace of much of a city’s sweatshops and crime cases.”

Common to much of the developing world, a vast rural-urban divide and dangerous, poverty-stricken ghettoes may not seem a reason for concern, but in China in 2006 their breadth and depth highlight a broader trend: the cleavage of two Chinas.
In August 2005, the United Nations Department of Economic and Social Affairs released their annual Report on the World’s Social Situation, entitled “The Inequality Predicament.” The 158-page study argues that greater economic globalization is often accompanied by increased inequality between and within countries. “High migration streams engender and exacerbate inequalitites,” the authors state. “Many migrants encounter circumstances that leave them vulnerable to exploitation…inequalities between migrants and resident populations are even wider when migrants constitute a source of cheap labor.” Further negative consequences in many areas, including employment, job security and wages, create dangerous tensions. “Ignoring inequality in the pursuit of development is perilous,” the report warns. “Focusing exclusively on economic growth and income generation as a development strategy is ineffective, as it leads to the accumulation of wealth by a few and deepens the poverty of many.” Perhaps most importantly, the UN report goes on to document how inequality creates divergences in regards to health, life expectancy, birth rates, disease contraction, and education, and describes the lingering intergenerational dimensions that make it more and more difficult to overcome over time.

The post-boom People’s Republic is a textbook example. The consumption and literacy maps of the 2005 State of China Atlas suggest that a journey beyond an invisible DMZ about 150 miles inland from China’s developed eastern coastline will increasingly turn up illiterate locals with inadequate health services and no disposable income. In 2001, two scholars confirmed that China’s educational inequality “has created occupational and income gaps between the coastal urban business elites and the farmers of remote areas and inland provinces.” Today, the majority Han people, who dominate the developed southeast and coastal regions, have literacy rates almost double that of minorities. The latest statistics show that the wealthiest 10 percent—all urban—earn 45 percent of China’s income, with the bottom 10—predominantly rural—a slightly more modest 1.4 percent. Furthermore, in 1978 about 85 percent of China’s rural population was provided collective health care via the “barefoot doctor” system. Today, it is less than 20 percent. In the most recent World Health Organization survey measuring the equality of medical treatment, China–the world’s fourth largest economy, remember—placed 187th out of 191 countries. According the New York Times, “the collapse of socialized medicine and staggering cost increases have opened a yawning gap between health care in the cities and the rural areas, where the former system of free clinics has disintegrated.” Recent reform measures have failed, with peasants overburdened by annual payments, hepatitis and tuberculosis spreading, vulnerability to SARS and bird flu epidemics increasing, and resentment festering. And, after a small bump during the 1980’s, the economic fortunes of rural farmers have declined; with China’s WTO entry in 2001, cheap, highly subsidized agricultural goods from developed nations undermined their livelihood, leading to income declines for almost half of rural households.

After working 12-hour days six days a week on construction projects, Zhang Xiao, 28, from Guizhou Province in the southwest, waited in line for 7 hours at Beijing Railway Station in late January before finally getting a ticket home. This will be his first time back since he migrated to Beijing shortly after the 2005 Spring Festival, and he is lugging three bags, one with new clothes for his wife and another holding food and toys for his son.

“I’m going home to spend the festival with my family,” he said, smiling. “My hometown is very poor and most of the young male villagers go to big cities for work all year round to earn a living. So the short period during Spring Festival is very valuable for us to reunite with our families.”

Zhang was at first shocked by what he found in Beijing, how different people’s lives were—how much they owned, how much time they had to enjoy themselves. But he quickly came to appreciate their lifestyle and said it was almost like they lived in a different, better country.

“To be honest with you, I’m very envious of the city dwellers’ life.” Zhang told me. “They have a decent job and can entertain themselves as they wish after work. I hope my son can lead such a life.”

Zhang is not alone in his envy, with good reason. The economic boom changing Chinese culture and society has passed him and hundreds of millions like him by, leaving them struggling for survival. From a plateau of about 58 percent in 1985, average rural incomes have fallen to less than a third of urban incomes, and tens of millions have lost some or all of their land due to urban and suburban sprawl.

Such problems are especially acute for a nation with a deep and abiding connection to the land and over two-thirds of its population—almost 900 million people— still living outside urban areas. In 1919, Li Dizhao, former long-time head librarian at Peking University and respected communist thinker whose influential study group included Mao Zedong, wrote:

“Our China is a rural nation and most of the laboring class is made up of peasants. If they are not liberated, then our whole nation will not be liberated; their sufferings are the sufferings of our whole nation; their ignorance is the ignorance of our whole nation; the advantages and defects of their lives are the advantages and defects of all of our politics. Go out and develop them and cause them to know that they should demand liberation, speak out about their sufferings, throw off their ignorance and be people who will themselves plan their own lives.”

How rural China has responded to its perceived slight, then, has been no surprise. From 10,000 incidents of rural protest in 1993, China’s Public Security Ministry estimated 74,000 riots and demonstrations in 2004 and 87,000 in 2005, a boom of political uprisings some are calling the Latin Americanization of China, in reference to that region’s political instability. In recent months a string of rural protests turned violent, including one in Dongzhou, 125 miles northeast of Hong Kong, at which authorities killed at least six locals, and another in Panlong, in Guandong Province, where over 60 residents were injured and a young girl killed by baton-wielding officers.

Both incidents were a reaction to illegal land grabs by local officials, a practice that has become increasingly common as China’s real estate and development boom moves beyond urban centers. The de facto privatization of agriculture was a key part of late-1970’s rural reform, in which rural collectives were disbanded and land ownership, although officially belonging to the village, was essentially handed to individual households through usage rights. The backlash in recent years has come as city, council, and village officials have seized and purchased the land at cut-rate prices—often paying agricultural as opposed to market value—illegally separating farmers from their livelihoods. Peasants and rural villagers that have begun to fight back could even use the revered Chairman Mao as inspiration: “We should struggle against society in order to regain the hope that we have lost,” he wrote in 1919. “We should die fighting.”

Clearly concerned, the ruling party has taken notice. President Hu Jintao and Premier Wen Jiabao both celebrated Chinese New Year with farmers’ families in rural areas – for the third straight year – announcing that improving the lot of farmers and curbing the encroachment of development would be the focus of the newest five-year plan, which seeks “to build a new socialist countryside” and went into effect early this year. Wen highlighted the land grab problems in a late January speech, blaming rural unrest on “illegal seizures of farmland without reasonable compensation” and warning rural bureaucrats against making “a historical mistake” by failing to protect farmers and their lands, which he predicted would lead to more violence. He cautioned against towns seizing land or selling confiscated fields to developers as a way to raise public funds: “This is a key issue that affects the stability of the countryside and the society, and it must be clearly recognized by all levels of government and party committees.” Days later President Hu Jintao gave a similar message to the Politburo: “If we cannot succeed in developing agriculture and rural areas while helping farmers improve their lives markedly, we will fail to reach the goal of building a comparatively prosperous society.”

The reforms have begun to take shape. Late last year they repealed a 2,600-year-old farm tax and instituted free public schooling for rural children. New legislation is intended to bring rural health care and education back to 1970’s era levels, and a long-discussed property rights law is closing in on passage, but still being intensely debated. Perhaps the most impressive instance of increased government vigilance was the news that He Feng, the official who hired thugs to attack protesting villagers in the Dongzhou incident, was recently and swiftly sentenced to life in prison.
But these improvements do not an equal society make. Corruption is still rampant throughout the countryside, and most officials involved in crackdowns are being neither fired, as the latest reforms recommend they should, nor disciplined. Even though government prosecutions against corrupt party officials doubled in 2002, both the frequency and sums involved are increasing. Additionally, the repealed farm tax represented only .01 of China’s GDP, or $2.86 billion. That number breaks down to about $3.50 per rural resident, and reveals more about the way China’s economy has industrialized in recent decades than any legitimate concern for farmers. In fact, 28 of China’s 42 provinces had already scratched the tax the previous year. Discriminatory laws make life more difficult for rural to urban migrants. Health care and education still lag drastically. And then there is most worrisome problem: environmental deterioration.

The Environmental Fallout of Expansion

When the wealthy vie with each other in splendor and display while the poor squeeze each other to death; when the poor do not enjoy a moment’s rest while the rich are comfortable; when the poor lose more and more while the rich keep piling up treasures; when in some more extravagant desires awaken, and in others an ever more burning hatred; when some become more and more arrogant and overbearing in their conduct, and others ever more miserable and pitiful until gradually the most perverse and curious customs arise, bursting forth as though from a hundred springs and impossible to stop, all of this will finally congeal in an ominous vapor which will fill the space between heaven and earth with its darkness.
– Chinese scholar Gong Zizhen.

Moving through China in January 2006, I am astounded by the Nostradamic accuracy of Zizhen’s Gothic 1830 prophecy. Everywhere one looks decadence is contrasted with destitution and the ominous vapor – permasmog – is pea-soup thick and getting worse. In the Shanghai area, the smog was so bad during the Lunar New Year peak travel season that highway accidents surged 50 percent as drivers had barely 20 feet of visibility. Although the Chinese media played up a two-point downward tic in oil imports in 2005, behind the statistic was the country’s increasing reliance on coal. In releasing sixteen percent of the world’s carbon dioxide and becoming the world’s 2nd biggest producer of greenhouse gas emissions behind the US, China very nearly crossed 2 billion tons of coal burnt in 2005. (Only South Africa generates a greater percentage of its electricity via burning coal.) Compounding the problem is China’s new must have item: the automobile. With almost 6 million units sold in 2005, China became the world’s 2nd-largest auto market after the US, and one of its most prolific emissions polluters. With very little warning, China has reached what many are calling an environmental tipping point; where there was once air, there is now a great deal more, and none of it is good. With pollution levels estimated to triple or even quadruple over the next 15 years, the problem is neither limited to China nor something that will just go away.

The awe-inspiring development boom has over the past 50 years cut the habitable and usable land in half and degraded 40% of arable land. Part of 60 percent of China’s major rivers are classified as unsuitable for human contact, and seven of the world’s ten most polluted cities are in China. Approximately one third of the country receives acid rain and round 400,000 premature deaths each year can be attributed to pollution. China has 339 million goats and sheep, compared to 7 million in the U.S., and feeding them takes entire swaths of countryside. Without roots to hold the soil, much of North China’s open land has turned to sand as deserts advanced hundreds of miles each year, and dust storm season has become an annual occurrence in Beijing. A major chemical spill that poisoned the water supply of the city of Harbin, in Northeast China, leaving 10 million area residents without water for a week, was symptomatic of a larger potable water crisis. And, perhaps most worrisome to the rest of the world, pollution does not respect national borders; the United States Environmental Protection Agency recently reported that 25 percent of Los Angeles’ pollution can, on any given day, be of Chinese origin. Acknowledging the crisis, China’s Deputy Environment Minister Pan Yue showed some rare candor in a summer 2005 interview for Der Spiegel, saying China’s economic “miracle will end soon because the environment can no longer keep pace.”

Zhuzhou in Hunan Province could serve as exhibit A for the problems of China’s newly industrialized cities. The Xianjing River links three cities totaling 10 million in population – Zhuzhou, Xiangtan, Changsha – and carries dangerously high levels of mercury and cadmium. In Zhuzhou’s industrial northern zone are over 200 glass-production, paper-making, melting and pesticide factories, and with all the pollutants released daily the air has gotten so toxic that taxi drivers refuse to go there. Yet with no means to move, the poor are forced to stay, and suffer.

“Some residents have moved out of the region, but for those poor and laid-off worker families, they have no choice but to suffer,” said Xu Wei, a recently laid-off driver. Peng Hualin, 95, grew up in Zhuzhou and does not like what he sees today. “What we breathe in every day is smog, not clean air.”

As China eyes a great and complex problem, words of change have been spreading like wildfire. “The biggest threat to China's growth is now the environment,” wrote Pulitzer Prize-winning New York Times columnist Thomas Friedman. “That is the economic, environmental and national security issue of our day. Nothing else is even close.” In an October 2005 China Daily editorial, Zou Hanru urged the Chinese people to give up their beloved wood chopsticks as a means to save their forests, and thus, their country. Three months later in that same paper, columnist Gong Li insisted:
“the country has to face squarely the matter of handling contradictions between economic growth and pressures exerted by the huge population, limited resources (especially energy) and worsening environment. This calls for the promotion of a cyclical economy, energy-saving economy and environmentally friendly economy. A new road of industrialization ought to be exploited, characterized by high science and technology content, energy efficiency, low pollution, and optimized use of human resources.”

As with growing rural unrest, the ruling PCP has taken note, with a series of anti-pollution and green projects focused on what President Hu Jintao calls “sustainable development.” China’s first major project will be a PCB management and disposal project in Northeast China’s Zhejiang and Liaoning provinces over the next four years. As part of its commitment to 2001’s Stockholm Convention, the Sino-Envirnmental Protection Agency said it will spend over $32 million in the period to reduce 6 to 8 tons of serious PCB’s in the region and prevent further problems. Even though a recent PCP-sponsored poll declared 87 percent of Shanghai residents satisfied with governmental response to their urban environment, Shanghai recently made pubic a $4.9 billion, three-year environmental clean-up blueprint. Although it will include 260 projects, the plan zeroes in the city’s water treatment facilities, which, for a major metropolis in which residents cannot drink the water, is not a bad idea. In Qingdao, eastern Shandong province, the Party announced plans to build a wind power farm that will include five of Asia’s largest turbines. With a funding assist from Germany, the farm is to be completed in time to provide power for maritime events in the 2008 Beijing Olympics. And in the area of green technologies China has shown some leadership. Work recently began near Beijing on suburban Tangye New Town, which in about three years’ time will be a seven-square mile city with housing for 180,000 that can “convert its waste into fuel, draw its energy from the sun, and return its water to the ground through natural drainage and irrigation.” The compound will save up to 18 million liters of water per day. Additionally, China’s Ministry of Science and Technology in Beijing is one of only about 60 gold-standard green buildings in the world, which means it is optimized to reduce waste, emissions, and energy use.
Beyond the worry that it may be too little too late, the major concern with all of these grand projects is expense. For example, after adding 50 gigawatts of generating capacity in 2004 and 65 in 2005—equivalent to adding the electrical grid of Brazil in a single year —the State Grid Corp of China will spend nearly US $100b to upgrade the country electricity transmission network over the next five years. And while China’s cleanup of the Songua River spill was praised by United Nations Environment Program officials in January, it is likely to cost $3 billion when all is said and done. Cleaning up their ecological dirty laundry will take all the money, innovation, and determination the PCP can muster.

The Dream of Innovation

Acknowledging its dire straits, the ruling party has turned to its people for answers. Twenty-eight years after Deng Xiaoping first touted the importance of scientific progress, the focus at the 4th National Science and Technology Conference held January in Beijing was on making China an “innovation-oriented country.” During his keynote speech, Premier Wen Jiabao called for a progression from a resource-reliant to an innovation-driven economy: “Innovation is the soul of scientific and technological development and the engine behind national development.” President Hu Jintao, too, has invoked the word several times, and both were behind a much-hyped fifteen-year plan for doubling research and development investment and overhauling the science and technology sectors to foster increased patent filings and strengthen copyrights.
But is China capable?

“Of course we can innovate – we have very intelligent scientists and technology experts, good instruction, adequate funding,” said Yonggui Wang, the marketing professor. “The question is when, and how? Innovation will give our country recognition, but it hasn’t happened yet.” Yet even as revered a personage as Mao has admitted China’s shortcomings in regards to creativity and valuable innovations. “China ought to make a greater contribution to humanity. But for a long time in the past its contribution was far too small.” A People’s Daily editorial that ran shortly after the National Science Conference this January, echoed these sentiments and went further:

“We have to admit that China faces a weak basis for its economic and social development with poor independent innovation performance and will have to face various pressures over the course of its development. However, that should never be an excuse for backwardness. Instead, it should be the motivation to catch up.”

To that end, ideas to foster innovation have ranged far and wide. There is the new government plan to invest in R & D and new sciences and technologies over the next couple decades. A People’s Daily editorial recommended major international scientific programs and competitions to foster greater technological energy and commitment within China, and China Daily suggested incentives to retain and incubate Chinese talent. “Innovation is not so widely embraced as a lifeline by Chinese enterprises. Excessive reliance on low-cost labor has prevented many [Chinese businesses] from investing in self-owned technologies, their real core competitive edges.” One movement has recommended harnessing the vast, untapped potential of the rural population while another has centered on the creation of a definitive brand name. “I find it very interesting and somewhat troubling that China does not yet have a major international brand,” said Wang, the marketing professor. “Korea has Samsung and Hyundai, Japan has Sony and Toyota, even tiny Finland has Nokia, but China has none.”

All are worthy ideas, undoubtedly, and a great brand might put Chinese creativity on the map. But like Band-Aids for interior bleeding, they are superficial cures for a deeper problem, the result of a unique beast in world history: a liberal socialist state. And to get a better idea of its potential future success, a look at China’s centuries-long debate between individualism and collectivity, its history of working for the greater good and struggling for selfish advancement and creativity, is instructive.

Much of Chinese culture over the past two and a half millennia has centered on the Confucian ideal of datong, or Grand Harmony, which does not appear conducive to individualistic creativity:

“When the Grand Harmony was pursued, a public and common spirit ruled all under the sky….words were sincere and they cultivated harmony…possessions were used, but not hoarded for selfish reasons. Work was encouraged but not for selfish advantage. In this way, selfish schemings were repressed.”

Thus all proposed social advancements have had to first address this common foundation. As a result, Chinese economy and society, although generally smoothly run over centuries of dynastic rule, advanced in fits and starts, if at all. As early as the mid-18th century, Western visitors were struck by a China unable to progress, perhaps heading inexorably towards nothingness. In 1763, Nicolas Boulanger noted a lack of creativity and, in taking a severely pessimistic view, predicted the Cultural Revolution in all but name:

“All the remains of her ancient institutions, which China now possesses, will necessarily be lost; they will disappear in the future revolutions; as what she hath already lost of them vanished in former ones; and finally, as she acquires nothing new, she will always be on the losing side.”

Their best hope, many believed, was in reaching beyond its borders and joining the stream of the global marketplace, which was formally undertaken when the Qing Dynasty ruler signed the Treaty of Nanjing with Britain in 1842. Yet Communism triumphed about a century later, and as the Cultural Revolution peaked in the mid-70’s, many saw the socialist educational system and increasingly open economy undermining Chinese ambition and advantage.

“If we do not rely mainly on our own efforts but, as Deng Xiaoping advocated, rely solely on importing foreign techniques, copying foreign designs and technological processes and patterning our equipment on foreign models, we will forever trail behind foreigners…China would be reduced step by step to a raw materials supplying base for imperialism and social-imperialism, a market for their commodities, and an outlet for their investment.If the new-type socialist universities train nothing but plain, ordinary workers, then we can proudly say that they have completely destroyed the ladder for climbing to higher positions.”

A major goal of Chairman Mao’s Great Leap Forward program of the early 1950’s, in fact, was to narrow the “’three great differences’ – between industry and agriculture, town and country, and manual and mental labour.” Efforts towards bridging the first two differences have failed miserably in the proceeding half century, and in fact have widened significantly, as described above. Closing the third, meanwhile, is not only a 21st century impossibility, but for a China seeking to innovate and assume a leadership role on the global economics stage, undesirable. In recently adding capacity to its exploding auto industry, China did not attempt to design a sleek, super-modern facility that would save both money and the environment, or copy a successful foreign model. Instead, they bought one already functioning in Brazil and began to move it, piece by piece, halfway around the world. A recent baby step offered a degree of measured optimism: After China announced in March that the new speed rail lines connecting Shanghai to Beijing and Hangzhou will not use any foreign technology, railways minister Zhijun Liu qualified the statement: “Our technology is a re-innovation on the basis of assimilating advanced technologies of foreign countries.”

Making unfettered private innovation more difficult, the state machinery is still deeply embedded in the economy. The state employs one third of the urban workforce and controls 38 percent of GDP, 56 percent of the country’s fixed industrial assets, the financing, banking, telecom, energy, autos, and natural resources sectors and the majority of investment projects, credit, and land-use rights. Only 40 of the 1520 Chinese companies listed on the world’s stock exchanges are private firms. Moreover, even though one official was recently sentenced to 15 years in prison for taking bribes, a three-year-old, major anti-corruption drive has proven more difficult than originally hoped. “China’s government bureaucracies are rife with corruption and the eradication will take years if not decades,” said President Hu. So at the same time China is telling its countrymen to innovate, it maintains illegally tight control on the reins of free enterprise across industries.

Yet many informed voices, including Booker Prize-winning novelist and Chinese national Ha Jin, see the increased protests and cultural shift away from traditional moral values as a sign of impending individualism and democracy, the budding of a new China.

“Young people have become cynical about all the old rules, and their sense of personal self-worth is stronger. People think about how much money they can make, and what kind of life they want to live. All these are Western influences. Individualism is not a bad thing anymore. That is a big step forward.”

A raging debate on the power and import of socialism has been raging through Chinese parliament, however, suggesting such voices may have “underestimated the continued appeal of socialist ideas in a country where glaring disparities between rich and poor, rampant corruption, labor abuses and land seizures offer daily reminders of how far China has strayed from its official ideology.” Gao Xudong, highly-respected Technology Professor at Tsinhua University, one of China’s finest academies, saw another, more systemic obstacle to innovation.

“There is no sense of urgency among Chinese technology companies to innovate and develop their own technologies. Mostly I think it’s an issue of confidence. There is a lack of risk-taking in terms of testing new ideas. Many important people – government and business leaders – still don’t understand the importance of developing our own technology. If China cannot innovate, its economy will inevitably plateau, even wither.”

In the 1820’s, German philosopher George Wilhelm Friedrich Hegel touched a similar nerve, blaming China’s dearth of progress on what he perceived as a lack of boldness and self-esteem in its people, who:

“’cherish the meanest opinion of themselves, and believe that men are born only to drag the car of Imperial Power…the burden which presses them to the ground, seems to them to be their inevitable destiny: and it appears nothing terrible to them to sell themselves as slaves, and to eat the bitter bread of slavery.’”

A further parsing of Hegel’s reflections on the nature of human beings and their proclivities for recognition, individuality and innovation, crossed with Francis Fukuyama’s assertion regarding the progress of history will shed light on China today. What separates man from the animals, Hegel argued, is his desire for the attentions of other members of his species, his desire to be recognized as a being of particular worth or dignity. Hegel believed that this drive for recognition, and accompanying emotions like anger and pride, incited the American and French Revolutions and drove the historical political process. The establishment of liberal democracy, therefore, expressed the end goal of the human urge for recognition – equal rights, dignity, and political worth for all. Fukuyama went a step further, employing this concept, what Aristotle called the thymotic urge, in his classic book The End of History and the Last Man, as the missing link between liberal democracy and liberal economics, and asserting that desire and reason could explain industrialization but only the urge for recognition explained the self-determinative desire often concomitant with economic development:

The social changes that accompany advanced industrialization, in particular universal education, appear to liberate a certain demand for recognition that did not exist among poorer and less educated people. As standards of living increase, as populations become more cosmopolitan and better educated, and as society as a whole achieves a greater equality of condition, people begin to demand not simply more wealth but recognition of their status. If people were nothing more than desire and reason, they would be content to live in market-oriented authoritarian states like Franco’s Spain, or a South Korea or Brazil under military rule.

Or Red China, apparently, for in 2006 that country seems to have put Fukuyama’s assertion on its head. If Fukuyama were right, China’s new urbane sophisticates – educated, well-off – would be demanding democracy now. Yet the great masses of struggling, 19th-century-living rural residents are fighting almost daily for change and recognition while the cosmopolitans are seeking recognition of a baser sort, blissfully buying beautiful virgins to marry, golfing for show, and snapping up bling. Does China, then, lack a thymotic urge, which might bring about not only liberal democracy, but creativity and innovation as well? Impossible to say for sure, but there some signs. A well-circulated People’s Daily editorial acknowledged a certain shortcoming in this regard:

“The whole society should be educated to be more scientifically minded and wipe off the negative elements in the traditional culture which discourage the mentality of independent innovation. Our society needs an active and democratic atmosphere for innovation.”

The People’s Communist Party has not been fostering a democratic atmosphere of late. In March 2005, the party asserted its authority over rural elections after locals’ attempts to replace the director of a village committee led to a police raid in which farmers were blasted with water hoses. China, with 150 million users and over 700,000 websites, is the world’s second largest Internet market; yet closer monitoring of online news and commentary postings has led to the imprisonment of over 60 Chinese nationals and recently prodded Reporters Without Borders to dub China “The World Champion” of Internet censorship. The Party announced recently that it had shutdown 76 websites since September 2005, and this is in addition to a media crackdown that included replacing three prominent newspaper and magazine editors. On the same day that Google announced that its China edition would not offer email or blogging, China’s Propaganda Department ordered the closing of China Youth Daily supplement Bing Dian (Freezing Point), a weekly newspaper that often addressed touchy political and social subjects. And when Bush and Chinese President Hu Jintao met in Beijing last November, Hu had resolved none of the twenty-five human rights cases on a list Bush had given him two months prior.

Yet the problems don’t end there. Consider this rebuff from the opening lines of China’s first white paper on democracy, released last October:

“Democracy is an outcome of the development of political civilization of mankind. It is also the common desire of people all over the world. Democracy of a country is generated internally, not imposed by external forces.”

And then stir in the findings of Bruce Bueno de Mesquita and George W. Downs, who in the September/October Foreign Affairs smartly detail how “economic growth, rather than being a force for democratic change in tyrannical states, can sometimes be used to strengthen oppressive regimes.”

In light of the proliferation of politically-oriented blogs, open-minded shops and malls, and the availability of modern Western goods, most college students I interviewed over several weeks in January considered China if not a full-fledged democracy, then at least free enough. “As for democracy, our government tells us it is coming, but we don’t know when,” said Yang, whose view was typical. “Personally, I feel free to do almost whatever I like, but I guess some people don’t. It’s all about what you want to do or say, and how you want to say it.” Most expressed a desire for what might be considered the American Dream: a good, solid job, a car, a house, financial security. Very few of them noted any problems along the periphery, from the poor, or the environment, or felt the need to demand greater freedom of expression. A an April 2006 New York Times article about Google in China quoted Kai-Fu Lee, head of Google in China and something of a celebrity there, as saying: “I don’t think they care that much (about democracy and human rights in China). I think people would say: ‘Hey, US democracy, that’s a good form of government. Chinese government, good and stable, that’s a good form of government. Whatever, as long as I get to go to my favorite Web site, see my friends, live happily.’”

Has the combination of its unique, collectivist history and liberal economics and open markets remade China in the image of the West sans the urge for recognition, for self-determination? Like a human clone without a soul, China’s new middle class seems to want whatever luxuries and decadence the state is offering, and little more. One begins to see how Fukuyama and Hegel have been put on their head.

“They also have a thymotic pride in their own self-worth, and this leads them to demand democratic governments that treat them like adults rather than children, recognising their autonomy as free individuals. Communism is being superseded by liberal democracy in our time because of the realisation that the former provides a gravely defective form of recognition.”

I’d like to believe that Fukuyama’s famous “end of history” conclusions are valid today, but, as impossible as it might seem, 2500 years of collectivist thinking plus a half century of harshly imposed communism, abetted quite suddenly and surprisingly by the ability to own whatever your heart desires, may have bred the democratic urge out of a populace. The key question might be whether the cultural sea change I detailed above will also include a need for greater freedom, for self-determination, and a true liberal democracy.

Regardless, the destinies of China’s economy, resources, and environment are directly linked to that of its politics. In a nation where two-thirds of its residents aggressively push their noses against the windows of the decadent lives of the newly rich and the national mindset has long been one of anti-individualism, social unrest is likely to grow in the coming years as innovation lags. This is no recipe for a world power. If the PCP evolves into a multi-party democratic system, innovation will be more likely. If not, the boom will wilt and die.


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