Saturday, April 05, 2008
PHASE TRANSITION IN CHINA
A couple of days ago, a friend sent me a link to this article in National Geographic about life in the Wenzhou region of Zhejiang province. He asked for my reactions, and this is an excerpt from my reply:
... the "Wenzhou Phenomenon" is as the author describes -- even more than the Shenzhen economic zone near Guangdong that started the new industrial revolution in China, the Wenzhou region of Zhejiang is known for its dymanism and cut-throat, Dickensian capitalism. That's one weakness of the Wenzhou Model. Entrepreneurs produce goods that require little capital and low technology, which makes it easy for neighbors to jump in. This is one of the crucial factors in the current era in China. What's worked for the last 25 years just isn't going to work from now on, and everybody knows it. There's a feeling of unease settling in among both the "new capitalist" class and the Party about this. But there's not a very clear notion of how to bootstrap into the next stage.
From my own point of view, the biggest problem is the lack of a legal infrastructure and culture of legality to serve as a foundation for moving into the next stage. As the anecdotes in the article make clear, each enterprise succeeds in its own little world of personal relationships, and doesn't really depend on any protecting sheath of legal rights and duties for its survival and growth. That's fine for the crib-stage of industrial capitalism, but it can't possibly wok when you have to have a longer time horizon for investment and enterprise development than the next few days or weeks.
And speaking of the lack of legality and "The Wild, Wild East," this story very well illustrates just how fractured and extra-legal life in China has become:
One week, the Red Star Acrobatic and Artistic Troupe came to town. Their battered truck had side panels that unfolded to reveal a marquee with photographs of half-dressed women, along with bright slogans (Passion! Perfection!). The truck's body converted into a box office; they pitched a tent in back. Admission was 60 cents, and 160 people bought tickets—almost all men. Troupe members sang songs and performed skits; one man acted out the heartbreaking story of a migrant imprisoned for theft. Another man popped his shoulder out of its socket and writhed on stage while his brother took up a collection. At the end, a woman stripped.
It was all illegal. Nude shows are banned in China, and the troupe wasn't registered; no one even had a driver's license. They were an extended family from Henan Province, bouncing their way south—in succession, they'd been kicked out of Nanjing, Hangzhou, and Yongkang. When I asked Liu Changfu, the troupe leader, why they included nudity, he said, "Before people buy tickets, they often ask if we have some 'open entertainment.' We need to be able to say yes." The task of stripping fell to the wife of the most distant cousin. Liu told me they were profitable as long as they kept moving, and there was always another half-built development zone down the road. A phenomenon like this would have been unthinkable in the truly totalitarian days of the Maoist past, when everyone was attached to a work group under close, personal supervision of the Party hierarchy. This anecdote could have come right out of the China of the 1920s or 1930s, the so-called "Warlord Era." In such an environment, everybody gambles on growth. Most of the city's massive investment in infrastructure had been borrowed from state-owned banks, which also loaned money to the developers—Yintai had borrowed over 28 million dollars for its Jiangbin venture. If the real estate market went cold, the whole system was in trouble, and the central government had recently instituted new laws intended to slow down such expansions. But the money kept pouring in—during the past five years, the average price of a Lishui apartment had risen sixfold. And here returns the specific specter that was haunting "the Chinese miracle" a few years ago -- a banking melt-down. While in a sense, China just outgrew the particular issue that people were talking about back in the early '00s, the more general problem persists: China hasn't really experienced a real downturn in the general economy since the miracle began. The big question is whether the over-all social and economic fabric can withstand the shock when an inevitable downturn comes. And that downturn could be triggered by the issue mentioned above, the need to move beyond the initial stages of "personal factory" capitalism.
The problem, expressed in the kind of terms I usually use when thinking about the issues, is that China is still a "low-trust society" in the framework Fukuyama developed. An institutional and legal infrastructure has't developed to buffer the shock of economic contraction and social dislocation it will bring. Can the web of personal "guanxi" (literally, "relationships," but really the general network of personal obligations upon which Chinese society still operates) withstand a nation-wide economic contraction? That is the question.
After the hard times of the 20th century, the average citizen is willing to tolerate unfairness as long as his living standard improves. Bingo. This is fundamental formula upon which the CCP has been betting for going on 30 years now. Everything depends on it. Initially, the bosses had moved with remarkable speed, but now they paid for the lack of a system. Such institutional weaknesses are becoming more apparent in Chinese businesses because of the increasingly competitive environment. And the nation's next desired economic stage—innovative products and the creation of international brands—will require more creativity and logical organization. Which brings the matter full circle. "Creativity," yes. And, as I've written before, the basic timidity inherent in Confucian social conservatism, which is caught up with the way "face" ("miandz") and guanxi work, is problematic in encouraging creativity in large Chinese institutions, while the lack of a legal infrustructure and a culture of legality plague the world of the New Capitalists. Crunch-time for these problems is coming.
GB, THHotA
posted by Greg 5:37 AM
|
|
