China, a country of the mind

Jun 22, 2022
Chinese flag
Yes, China doesn’t necessarily agree with NATO’s position or values. Image: Flickr / Philip Jagenstedt

China has always been a country of the mind, a big Rorschach test into which we pour all our dreams or hopes of good and evil. But it has rarely matched those dreams.

From 1949 it was the pit holding all evil then suddenly in 1972, with Nixon’s astonishing about face, we also had to change our way of looking at China. Yes, everybody just knew that it was a wondrous place where peace and harmony reigned, where crime had ceased to exist and where everybody had just enough but nom ambition for more. Hey, why does every ground floor flat have coiled barb wire round it? That doesn’t seem right. And as China changed, the gap between dreams and reality didn’t narrow. The Left started to distrust China because it wasn’t communist enough any more and the Right distrusted it because it still was. Both seemed distant from the truth.

Let’s look at some of the biggest misconceptions about China.

China is the world’s second biggest economy? If you count it the way that these things are usually counted, yes. But there’s a problem here. In 1997, the Yuan, which had strengthened 30% in the previous year, came under attack from Soros. The Chinese Government panicked and pegged the Yuan at eight to the Dollar. The Yuan ceased to strengthen. This situation continued for many years. It was allowed to strengthen a little until 2012 when it once again became policy to weaken the Yuan. The result is that the Yuan is grossly undervalued. If it were allowed to achieve something like its real value, the GDP figure would probably be the biggest in the world by a large margin. But in the meanwhile, just look at other measures of production. China produces three times as many cars as its closest rival. China is by far the world’s biggest producer of computers and other technical equipment. China produces ten times as much steel as its closest rival. China, at nearly 30% of world industrial capacity, has as much capacity as the next three rivals combined. China is the world’s biggest producer of rice and wheat, it has the world’s biggest sheep flock and the third biggest cattle herd. As measured by bank assets and stock market values, China is close to being the biggest financial market in the world. By any measure other than the undervalued money in which it is expressed, China is by far the world’s biggest economy.

China is a developing country? In your dreams. For the reasons why it might seem that way, see above. But when you drive along the world’s best roads, or travel in the best railways system in the world, or arrive and depart in some of the world’s biggest, most dazzling airports, you might start to think that things aren’t exactly as they seem. Try shopping in packed supermarkets with a range of brands that would be pure fantasy in Australia. See the mushrooming suburbs of leafy streets where people walk over-groomed dogs in the evening. Not the back streets of Kinshasa here. Many people reasonably point out that the benefits of economic growth haven’t trickled down to the countryside. I would respond that this is largely a matter of how statistics are recorded. For the past thirty to forty years, very few people on the small Chinese farms have been dependent on agriculture alone. Indeed, there are few people left on the farms between the ages of sixteen and sixty. Most have gone to the cities to work and left behind the elderly and their children who they support from their city wages. The ability to trade land, granted in 2008, has accelerated the process and Chinese farms have gradually achieved economic size. The former owners have converted this cash into new houses and stayed firmly in the cities. A trip through the broad acre farms of the North-East reveals a landscape that most people would not associate with China, mile after mile of corn, sorghum, soybeans and peanuts worked by enormous tractors pulling eighteen tine ploughs. Has a magic carpet whisked us to the American Mid-West?

China is a communist country? A socialist hell-hole? Well, yes, it’s run by an organization calling itself the Chinese Communist Party. And yes, if Marx suddenly resurrected, he would see a land of plenty and possibly think that true communism had arrived and the state was withering away. But on closer examination he would probably come to the conclusion that those scratches on his back had been caused by him turning in his grave at all the things that had been done in his name. You have to own your own house. You have to show your cash before a hospital will admit you. You have to pay to insure your life. Among the Chinese Government’s greatest fears are the possibility of a collapse in the stock market or the property market. Why? Because in twenty-first century China, that’s where most personal wealth lies. A fall in personal net worth would put the government under severe pressure. You can hunt through the works of Marx, Lenin, Engels, Stalin and Mao and I suggest that you would find little of this. A good indicator of what drives real economic and social policy in China is on display at the Shenzhen Museum’s list of factors which spurred reform. They include land reform allowing people to own their own properties, shareholding reform converting all state enterprises into shareholding entities, a stock market and the replacement of lifetime employment by a labour market. Sorry, Comrade Marx. We’ve got some of our best brains working on fitting this into socialism. We’ll get back to you.

China is run by behemoth state owned enterprises which do the bidding of the government? Once again, a highly qualified statement. A fundamental of Chinese economic reform in the mid-eighties was that all state enterprises achieved a measure of independence, of corporisation. Every holder of a business licence, and this included all state enterprises, became a legal person. As they gradually morphed into shareholding enterprises, this meant that state-owned enterprises could and often did buy shares in each other. State-owned enterprises often spawned new companies which were outside the state net altogether. Many-state owned enterprises joint ventured with their Hong Kong mirror companies which made them subject only to the Joint Venture Law (these were known as Imitation Foreign Devils). The arrival of the stock exchanges and the demand for capital meant that most big state-owned enterprises are now listed companies with large private and even foreign ownership. Once it was true that non-state participation was purely financial and the minorities were there only to be milked of their capital but an important reform in 2006 made all shares including state-owned shares tradable. This was a fundamental change which necessitated companies who made their state shares tradable paying compensation to non-state shareholders. Dancing to the state’s tune? I guess that if the Security visited a Chinese company and insisted that they put bugs in the world’s 5G systems, they probably would (incidentally the companies most likely to be involved in such a business are privately held, not state enterprises). But my observation over several decades is that big companies in China are very resistant to government direction, to the great chagrin of the government. In fact, privately owned Japanese companies in the seventies and eighties where much more likely to bow to the directives of MITI than State owned Chinese companies are to follow government directives.

These things are not trivial. They affect not just perceptions but potentially basic fundamentals of policy making. They deserve attention.

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