11/27/2008 Update Notice:
China Comment plans to return to its regular schedule of 1-2 articles a week in mid-December. Currently, in my free time, I am catching up on some China-related academic reading material. If you have suggestions of particularly insightful recently published Journal articles to peruse, I would much appreciate the advice. Thank you for reading.
I agree China will only see 8-9% growth in 2009, which is less than its previous trend of double-digit economic growth; however, this slowdown will not be disastrous- in fact, it may be beneficial. Only a few months ago analysts complained how China was growing too fast, how inflation was hurting the economy, and how high commodity prices were thrashing China’s consumers, and how the government’s artificially cheap energy market was crippling China’s energy industry.
Now, commodity prices have descended, along with $65 and lower/barrel oil. And that is highly beneficial for China. If prices for steel, coal, and other commodities remained at their Summer levels, China’s prospects for stability and growth would greatly diminish. However, if in June China could be projected to grow nearly 10% y/oy despite $100+/barrel oil, it makes sense that the country- which is rapidly developing its domestic market, can readily afford domestic investments such as those included in China’s $586 billion “stimulus” plan.
China needed this decline in commodity prices, and easing demand to allow its infrastructure to catch up to its growth. On November 14th, State Grid Corp. said “it will invest an extra 2.7 billion yuan ($400 million) to expand power grids,” (IHT), which is a welcome upgrade since over the Summer, China experienced troubling shortfalls in power distribution and production. And when the infrastructure is there to improve transportation efficiency, China’s economy will be humming again with double digit growth.
In 2006, Business Week laid out the case that “An economy growing in the 8 percent to 9 percent range would be ideal,” and China’s 2008 growth target was 8 percent, “following last year’s sizzling 11.9 percent expansion.” (China Daily, June 19, 2008). Growth at that range is more sustainable for China and can prevent the country from building out too much over-capacity. In fact, the world-wide economic downturn may ultimately benefit China. If the country’s weakest-managed companies consolidate, and if the over-capacity is not too enormous (Which it very well may be in the shipping industry.) there is a chance that Chinese companies will emerge from the downturn better managed and better equipped to compete on a global scale, like Haier and Galanz did before and emerged as national champions (also; Made In China, Donald Sull).
Larger Companies… But Many Are Larger “State”-Owned Companies. (Perhaps A Problem)
An alternative view points out that the downturn has led to larger, and perhaps stronger state owned corporations at the expense of privately held ones.
Some larger state mergers, both first announced in June but only recently completed, include:
(1) Sinotrans CSC Group, combining China’s largest logistics (state-owned) and largest river shipping company (state-owned) [so much for the anti-monopoly law.] Apparently, “The merger of the two state-owned groups is a move to consolidate fragmented state-owned groups into fewer, more efficient and focused entities which can deploy their resources for developing identified business areas.” After the merger, Sinotrans CSC will become “the country’s second largest shipping and logistics conglomerate, just trailing COSCO Group.”* (See Below)
(2) Two state aircraft makers also merged.
(3) On October 27, “China Huaneng Group, one of the country’s largest power generating firms, bought a 40 percent stake in Huating Coal Group, the top coal mining company in the northwestern province of Gansu.” Laiwu Steel Corp. and Jinan Iron and Steel Co. agreed to merge to form China’s second largest iron and steel group in February (Reuters and China Daily)
(4) On November 6th Rizhao Iron and Steel, one of China’s largest private-sector steel mills, “signed an agreement to consolidate with a state-owned rival.” (Reuters). Rizhao’s yearly output is 8 million tons of steel (CER); comparatively, the state giant Baosteel, which is being strengthened by the Central Government and is aggressively merging and acquiring assets, produced “28 million tons” in 2007 and hopes to raise its capacity to 80m tons by 2012 (FT, Nov 6, 2008). In consideration of the Laiwu and Baosteel mergers, it will be difficult for private manufacturers to grow fast enough to compete.
Jobs? Production? Trade?
The Canton trade fair was sparsely attended; and some workers’ wages have been cut in half, which will at best constrain spending and prevent China’s domestic economy from picking up the slack in growth from its export sector. At worst, this could lead to stability challenges and tax revolts as workers are laid off, then return to the provinces after find it increasingly difficult to gain and hold jobs.
Conclusion: A Strong China
Although China faces some challenges, the ameliorating effects of lower commodity prices, slowing inflation, economic reform, slash of lending rates from 6.93% to 6.66%, and some pro-export government growth policies such as “increasing tax rebates “on 3,770 export items, or 27.9 percent of all products shipped by China. [by December]” will continue to sustain China’s growing success.
Side Note on Western Manufacturing:
China’s tax rebates on export items, which were recently phased out, but which have now returned, may become a challenging issue in Europe and America, since the rebates will, along with alleged “currency manipulation,” undercut Western manufacturers’ prices. Coupled with cheaper oil and transportation costs, this will lead to a big discount and growth opportunity for Chinese exporters.
In response, Western countries may turn more protectionist, or else (barring a rise in energy or transportation costs from China), there will be another round of Western manufacturing demise.
* “Sinotrans posted operating revenue of RMB 57.7 billion in 2007, and aims to boost the figure to somewhere between RMB 80 billion and RMB 100 billion by 2010. Changjiang National Shipping focuses on river shipping. It has total assets of RMB 41.2 billion and a staff of 70,000, as of end 2007.” (SeaTrade Asia Online).
If you were inspired by China Comment’s article, ”Pipelines to Partnerships,” I am interested in hearing your opinions of the feasibility of future international Chinese oil and natural gas pipelines. To help facilitate the discussion and feedback, I have a little poll here:
I am looking forward to reading the reasoning behind your choices.
Feel free to write in the comments section. Registration is not required, however, it may take a few hours for your first comment to appear, I must manually approve all first-time posters.
Thank you for taking the time to read, participate, and comment on China Comment!
Note: Update on the Russia-China pipeline. There are hopes it will be completed by 4Q 2009, but that early a date for completion seems increasingly unlikely.
Although China has some challenges to address regarding its aging population, aging alone will not be a significant drag on China’s GDP growth rate. Here, I examine some common fears about China’s aging populace, then I rebut the dire predictions.
Elder Population Explosion
Warnings about China’s aging population often start with the China National Committee on Aging’s claim that “[b]y 2020, China will have 400 million people age 60 and older, and 100 million older than 80. By 2050, a third of the 1.4 billion Chinese will be at least 60.”
This is a lot of elderly, and some commentators believe China may grow old before it grows rich. But a population of 400 million elderly still leaves nearly 900 million younger folk ready to work and contribute to increased productivity.
When the support ratio of young to the elderly dwindles from 5-1 to 3-1 or 2-1 that could feasibly cripple sustained economic growth in most economies. However, China is not a typical developed country that has fully exploited the human capital of its workers– China’s workforce is still developing.
Productivity and Economic Potential
Beijing is pushing energy efficiency, development of rural regions, and policies that will help move millions of Chinese out of the rural sector and into the urban. Amazingly, some “98 million to 128 million Chinese agricultural workers are surplus.” In “A Weak China?” I discussed how 30-45% of China’s population is still rural, whereas South Korea and the United States have less than 7%!
Economic growth comes when productivity, education, infrastructure, and efficiency are present. Even though China has been underdeveloped in all those sectors, it has posted remarkable 10%+ GDP growth for years. Ultimately, China still has a long way to grow.
Caring for the Elderly
China’s economic growth could slow if society is required to care for the elderly through imposition of social programs. However, unlike in the West, Beijing simply has not made the same massive social welfare program commitments. Although Beijing recently made some commitments, the Party’s pocketbook does not grant the same level of government-sponsored elder-care expected by Westerners. Instead, “66 percent of interviewed rural residents said they would rely on their children when they were old” (People’s Daily).
Because Chinese people know they must depend on themselves and not the government for elder care, they have traditionally saved a great deal of cash that could otherwise have been used to promote even faster Chinese GDP growth.
The Dallas Morning News, citing Cai Fang, “director of the Institute of Population and Labor Economics with the Chinese Academy of Social Sciences,” attempts to indicate that 1/4th of China’s economic growth came “from the productivity of a workforce with few dependents younger than 15 or older than 65… [and that] In “five years, that advantage will start disappearing, and a rising number of the elderly will slow down China’s economic growth,” according to Dr. Cai.
Although there may have been “few dependents” during China’s growth period, China’s savings rate has been one of the world’s highest, “totaling nearly 40% of the gross domestic product” as of 2004 (as noted by the McKinsey Quarterly). This could be because the Chinese traditionally plan ahead to their own elderly futures, expecting to use their own money instead of government subsidies.
The Chinese already have a good deal of cash saved, therefore it is odd to assume that those expecting to become elderly will divert significant additional money from the economy to retirement savings accounts. Individual Chinese are, in general, already prepared for financial disaster.
Demands of elder-care seem unlikely to directly affect Chinese consumer spending any more than their current 40% savings rate already has allegedly “depressed” consumer spending.
Alarmist stories about China’s aging problems often cite how China’s elderly are compelled to work longer to ensure they will have enough money available for when they retire. This, however, seems to be an argument for continued Chinese growth rather than economic contraction. Assuming the elderly remain relatively healthy, they will have a longer time to contribute to China’s GDP.
Where There Will Be Problems
Admittedly, Chinese aging will create some problems. Those problems are, however, addressable.
* Rural Rust Belts. In Japan, which currently has nearly 21% of its population aged 65+, rural cities have been hollowed out. Aging will press hard against rural areas which may need to attract polluting industries in order to gain money that can be used to subsidize elderly populations. The young have moved to the coasts where economic opportunities exist. However, the young may return. The future of China appears to be in development of its internal market. It seems likely that for various reasons, the center of the country will experience significant investment growth from 2011-onwards. (A future article will examine this theory.)
* Older people will be alone, without anyone to support them, or to give comfort. This could lead to psychological problems, crime problems of people preying on the elderly, public health hazard problems, and stability problems (the banned F-G belief system was remarkably popular among the elderly.)
* Health concerns. It can be quite costly to pay for elder care and if the Chinese society ages poorly and develops chronic conditions that are expensive to treat, even the massive amounts they saved may not be enough to ensure fiscal security.
* Rising expectations for public health care could tie down government investment in productivity-creating enterprises. Although on average “retired Chinese [currently] get government help of little more than $50 a month,” there are demands for more government assistance.
According to the Dallas Morning News article, “[some] polls [they do not cite which polls or who conducted them] show 87 percent of Chinese now expect the government to take care of retirement income and health care… A startling share of Chinese now believe the primary responsibility for caring for the elderly should be with society as a whole – the state… And if the state fails to deliver on that expectation, it could be a real social and political crisis.”
China is aging and with age will come new challenges. However, China is well-situated to confront its challenges. Although the net size of China’s workforce will decline, the net productive urban manufacturing core will remain steady as over 120 million rural agricultural workers transition to other industries. China can improve its infrastructure, logistics supply chains and, energy efficiency. Even improvement to US-levels will result in millions worth of savings that will directly transition toward GDP growth.
In China, wisdom (infrastructure improvement, energy efficiency growth) certainly will accompany age.
* On Energy Efficiency: “In 2005, China’s energy consumption per unit of GDP was… more than three times the level of the United States, more than five times that of Germany and eight times that of Japan” (Xinhua); specifically, “the energy intensity of China in 2005… was 35,766 British thermal units per U.S. dollar. In the U.S., the Btu/dollar ratio was 9,113. In the U.K. and Japan, the figures were even lower, 6,145 and 4,519 respectively” (Forbes).
* In General: I realize there are almost limitless factors to consider regarding the future of China’s aging, so if you would like to discuss China’s aging, feel free to communicate in the Comments section.
Stability, modernization, and success as a globalized 21st Century state are goals for which the Chinese government is reaching.
However, a culture of weak intellectual property rights and ”Rule by Law“ rather than the “Rule of Law” present unique challenges. In China, modernization means more choices for the common people. As choices become attainable, common people often clash with established authority.
Inspired by the Shanghai police officer stabbing case, I examine approaches China might take to deal with lawlessness and to craft “pressure valves” to permit its system to adapt and to address emerging challenges. (Note: The NYT had an excellent series on “Rule by Law.”)
The Pressure Builds
When people feel powerless, they can take out their aggression against public authority figures. In Shanghai, one man sought ”revenge after officers from the station interrogated him last year for riding an unlicensed bicycle.” He “sued the officers who had interrogated him for psychological damage, but the claim was rejected,” and ultimately he attacked a police station and stabbed six officers to death.
What drove Mr. Yang to such an act? People wonder if “injustices carried out by the Shanghai police” led to his brazen action. Some postulated that his genitals had been damaged by the police (AP), others assumed less or more vicious forms of punishment. Others argue Yang was just insane.
Option 1: Ignoring the Situation
What is important, however, is not the status of Yang’s guilt or innocence, but the reaction of Southern Weekend, a Chinese newspaper, and those of a number of Chinese. When the trial was held behind closed doors, some people clamoured for it to be heard in the light of day so people could know the trial was conducted fairly. The case concluded behind closed doors despite their protests, and Yang was sentenced to death. He is currently appealing the decision.
Closed-door trials can work, but if people believe the government is abusing power, then support for the government can decrease. For a system to work “above the heads” of the common people, the common people must either trust the government is morally superior, intellectually superior, or both. And with rising education and wealth spreading across China, more and more people are beginning to doubt whether or not the Communist Party really has all of China’s “best and brightest.” Still, in a 2008 Pew Global Attitudes Survey, 89% of Chinese were polled as satisfied with their government. Interestingly, only 34% were satisfied with their own life. There is possibility that as more Chinese become middle class, they will begin to demand the government “help” them more so they can achieve happiness. Comparatively, the US numbers were 51% and 65% [h/t Mei-Zhong Guanxi]).
This article by Prof. Carl Minzer suggests an attempted governmental cover-up of social unrest.
Option 2: Expanding Rights
Discontent directed against closed trials, presumed abuse-of-authority and lack of disclosure is bubbling stronger and stronger with nearly 87,000 “mass incident” protests in 2006, even though by all measures, Chinese citizens’ legal rights are expanding. “[T]his summer, criminal defense lawyers got the right to meet with their clients without official permission, request evidence from prosecutors and call witnesses in court” (AP). And that is in addition to China’s Labor Contract Law (June 2008) (Also see HERE), and its Property Law (2007), both of which expanded citizens’ rights and remedies.
These laws have spurred citizens to litigate. China Law Blog noted that in the wake of the Labor Contract Law; ”[s]ince last year, labor disputes have increased in Beijing’s Chaoyang District People’s Court by 106%, by 231% in Nanjing’s Qinhuai District People’s Court, 126% in Shenzhen, 132% in Dongguan and 92% in Guangzhou.”
Option 3: Stop-Gap Patches
Weng’an County’s riots, proximately precipitated by a girl’s drowning, provide another example of China struggling to deal with accountability in the midst of a system that regrettably allows a good deal of opportunity for corruption and abuse-of-power.
Often, China’s central authorities deal with injustices and abuse-of-power by applying stop-gap fixes, like dismissing the Weng’an Party commissar and police chief. But finding ringleaders or scapegoats will only succeed in quashing corruption and abuse if the Chinese system is not plagued by systemic problems.
It appears, based on the NYT articles and prior unrest, that China’s “rule by law” may result in significant systemic problems. Still, the Chinese could prove Western analysts incorrect; their problem may not be systemic- even though 87,000 mass incidents in 2006 seem to imply the problem is widespread and beyond possibility of being addressed by stop-gap fixes.
Societies in socioeconomic and legal flux are presented with unique problems. In the 18th Century, the French system exploded into rioting and unrest. Louis XVI and his regime were overthrown, and in their wake, there was chaos. In 20th Century Russia, the Tsar was brought down, likewise in flames, even though he, like Louis XVI, was by some measures “liberalizing” the country in steps. In contrast, China’s path to modernity could be more like that taken by the United States in the early 20th Century.
In the United States, the late 19th and early 20th Century saw the expansion of rights for millions of previously oppressed groups that culminated with the 1960s Civil Rights Movement. A system of “rule of law” and an understanding by citizens, judges, lawyers, and juries of what that means took nearly 200 years to develop (and is still developing) in the United States.
Over the course of a century, America confronted turmoil with first the Progressive Movement, and later the Civil Rights Movement. In China, it can be argued that a “rights reform” movement is already underway. China often likes to describe how it is “different” and “unique” (Fool’s Mountain has an opinion on this phenomena.), so perhaps it will not suffer the social upheaval of 1960s-America or Industrial Age Europe.
Regardless of any perceived differences, China will still need to confront problems similar to those suffered by these countries as the Chinese people gain wealth, leisure time, become more involved in the market, gain greater mobility, and discover political power.
Hukou registration saw reform in 2003 after public outcry reacted to an embarassing situation where a legal city resident was beaten to death by police officers during questioning. At least lip-service to further reform continues (March 4, 2008). [The Chinese Law and Politics Blog, by Prof. Carl Minzer has a discussion on difficulties surrounding hukou reform.]
To respond to people’s demands for more attention and more autonomy, the government will choose whether to expand rule of law; encourage people to accept the status quo (which appears to be increasingly less likely an option); or close off influences that encourage the common Chinese 老百姓 to demand greater power.
Lawlessness might result from a society that fails to create a pressure-release valve for pent-up emotions. Rule of Law would allow China to follow the path taken by Europe and the United States. It will be interesting to see which choice China takes.
* Or is this really a dualistic “either/or” choice of increasing lawlessness/tension or ultimate reform toward “rule of law” in China? Will China turn insular again if it must confront chaos? I welcome your opinions on the subject in the Comments.
* EastSouthNorthWest almost always has the most in-depth stories regarding mass incidents in China, if you’re interested in doing further research on that issue.
* Previously, in Rule of Law, I discussed why establishing a legal culture in China is key to ensuring “human rights” and to empowering individuals.
China recently announced it would launch its third manned spaceflight later this month.
With the US Shuttle’s planned retirement, and the Orion’s delayed development, the United States’ space presence could theoretically in the future be threatened in prestige by the Chinese. Below, I examine the Chinese space program, and possible implications for America’s space program.
China’s Plans for Space
* Space Station China plans to build a space station and a space laboratory before 2020.
* The Moon China has vague plans for putting a person on the moon by 2020, but plans are not yet official. The Economist cites Jiao Weixin of Peking University who “says China would not have the technical ability to put a man on the moon for another 20 years.” If China develops the capacity, that would put China’s moon arrival date around 2027. It appears somewhat odd to state it could take China so long to put someone on the moon, considering how they have rapidly accelerated their space program in the past five years.
Comparatively, NASA was founded in the US in 1958, conducted ASAT tests by 1959, had astronauts in space by 1962, landed “men on the moon” in 1969, and launched Skylab in 1973.
Today, China has access to superior technology than what the US possessed in the 1960s. If funding and bureaucratic will exists, I do not think it would be foolish to suggest the Chinese could feasibly reach their spaceflight goals ahead of schedule.
Assuming China’s progress tracks America’s historical progress (and it will by no means necessarily track similar milestones, for various reasons), China would be able to reach the moon eight years after China first launched manned spaceflight. That is, they could arrive by 2011-2012. No sources indicate the Chinese are attempting to achieve those dates. Still, a moon landing would be a dramatic accomplishment to highlight President Hu’s passing the baton of leadership at the 2012 Party Congress.
* Lunar Exploration
In 2007, as an intermediate step toward eventual human exploration of the moon, China sent a lunar probe. In 2009, China will send its second lunar probe, the Chang’e II. In 2012, China intends to land a moon rover vehicle. In 2017, China hopes to send a second moon rover that will land, collect soil samples, and then return to Earth (Xinhua).
Chinese Space Flight Timeline
October 2003, with the Shenzhou V’s successful journey, China became the third country to send a person into space with its own equipment.
October 2005, China sent two people into space for a five-day period on the Shenzhou VI.
January 2007, China conducted an Anti-Satellite ASAT test, becoming the third country to have successfully performed such a test (PINR).
October 24, 2007, China sent a lunar probe to the moon (Chang’e I).
Late September 2008, China will send three people into space on the Shenzhou VII. They will perform China’s first spacewalk (IHT).
How Much are the Chinese Spending?
Estimates of Chinese space expenditures vary, but the World Security Institute posted an overview of amounts. Official statements indicate the Chinese spent about $120 million on the Shenzhou V program, and claimed space program spending of $240 million a year; but those sums are almost certainly significantly underreported. More recently Chinese-government reported estimates appear to be closer to reality. China Daily, for example, claims $630 million will be invested in a new project to design a carrier rocket, the Long March V. Western reports suggest China’s annual space expenditures as between $1.2 to $3 billion, which would make Chinese space program spending comparable to Japan (~$2.1 billion) and Russia’s yearly expenditures (~$1.4 billion).
In 2005, the United States spent over $16 billion on government-sponsored space exploration, with $6 billion going toward space flight, $4 billion to the shuttle, and $500 million for flight support. (In 2007, NASA spent $16.8 billion, and in 2006 the European Space Administration spent over $4 billion.) NASA estimates the cost for “landing a crew on the Moon in 2020: [will be] $64 billion in FY2003 dollars. The $64 billion consists of $24 billion to build and operate the Crew Exploration Vehicle from FY2004-2020; plus $40 billion for the years 2011-2020 to build the lunar lander portion of that vehicle, a new launch vehicle, and operations. The $64 billion does not include the cost of robotic missions” (NASA, 4).
China is spending a good amount on space exploration, but it appears to be embarking on small practical steps rather than grandiose displays in development. China intends to perfect technology designed to traverse the lunar surface before it makes concrete plans to send human beings to the moon.
China probably could, through concerted funding and engineering, send a shuttle with humans to the moon by 2014-2017, since by then it should have a moon rover that can land and then return to Earth. However, plans appear directed toward developing technology to permit human landing on the moon for extended periods. Without development of a practical exploration vehicle, exploration of the moon might be too limited to justify significant expenditures.
For now, most of China’s space spending appears focused on satellites and spacecraft. China’s narrow focus might allow it to develop new programs much quicker. Still, without significant further investment, it is unlikely the Chinese will travel to the moon until after 2014 when resources can be refocused on exploration vehicles.
* Chinese success in space flight, coming at a time when America is drawing back space exploration programs and entering into an antagonistic cycle vis-a-vis Russia might lead to postulations that America might buy astronaut flight time from the Chinese in order to fulfill American obligations toward the International Space Station. However, this probably will not happen.
Although the following is speculation of a space-wise layman, it appears that China’s space program will develop too slowly to present a complement or competitor to NASA in the crucial period, 2010 to 2014, when NASA might benefit from a strong Chinese space-partner.
* NASA’s current Shuttle will be retired by 2010 if current policies are continued. US cargo to the International Space Station (ISS) is expected to be transported by private companies after that date. These companies include Orbital Science and SpaceX (run by the founder of PayPa1). NASA also plans to close the gap of ISS supply by “buy[ing] roughly $700 million worth of [cargo] services from Russia through 2011″ (MSNBC).
American astronauts could be transported to the ISS by the Russians. But, considering recent tensions, continued cooperation with a Russian space program might be unlikely. And after 2011 when an agreement to purchase cargo from the Russians expires, NASA will likely be pressured to reach a politically safe solution to solve its cargo and astronaut supply problem.
Assuming that cargo ships are ready by delivery-date, which is by no means necessarily going to be achieved, cargo ships will be available in late 2010, early 2011. However, if the Shuttle is retired on schedule, astronauts will be unable to reach the ISS with American ships. As a stop-gap measure, astronauts might be transported on SpaceX’s cargo ships, which are being designed to be “man-rated,” but which are as yet unproven.
* Although some hoped to have NASA’s new Orion class shuttles ready for service by late 2013; the project deadline is more likely to creep toward March 2015. That makes it even more imperative for NASA to close the shuttleless gap between 2010 and 2015.
* NASA is studying feasibility of extending the current shuttles’ lives until 2015. Extension of useful lives presents problems both practical as to the shuttle maintenance, and economic since NASA hopes to divert flight money to development of its Orion-class shuttles.
* Assuming private options fail to produce, NASA might be tempted to look to China to help it fly astronauts to the ISS. However, there are problems with this scenario. China is not a partner involved with the ISS. Indeed, that appears to be a reason for Chinese plans to create a uniquely Chinese satellite. And politically, the deal could be touchy. A China-partnership might be marginally more politically acceptable than a Russia-partnership, but still, China is occasionally lambasted by Congress over human rights issues, most recently for its treatment of the T1b33tan unrest. Thus, such a partnership with China would be wrought with uncertainty. More important, China currently lacks capacity to rent or sell passage on its ships. China has its spaceflight resources quite busy putting even one space flight up each year.
Chinese Future in Space
China’s current space funding is not significant enough to pull off a near-future manned trip to the moon, or launch of a space station any time soon. Still, if funds are discovered in China’s budget for exploration and development, China could probably beat the United States back to the moon. However, China seems dedicated to a slow but steady vision of gradually increasing funds and development of space exploration. After 2015, the US will have its new Orion craft, and the Chinese will be send a land and return rover to the moon. In 2019, the US will return to the moon. In 2021 or 2022, a Chinese taikonaut might follow soon thereafter.
China’s Space Activities in 2006 (China government white paper) contains plans for the next 5-15 years and indepth discussion of China’s space achievements in fields such as satellites, and multilateral space-exploration agreements.
A powerpoint report by CRS (Congressional Research Services) on China’s Space Program.
NASA’s plan to get back to space and the moon (Popular Mechanics).
(added Sept. 26) TIME Magazine’s Sept 24th article on the Shenzhou VII.
The Capitalistic country controlled by a Communist Party has free trade agreements with at least nine countries. Below, I give an updated view on current and potential trade agreements.
A more in-depth analysis of cost-benefits of said agreements will have to wait until a later post. If you can’t wait, check out W. McKibbin and Tingsong Jiang and the Brooking’s Institution who did a good study of the impact of current and future trade agreements. Their article was a basis for this one.
* Agreement on goods signed on 29 November 2004 for implementation in Jan 2005;
* Agreement on services signed in 14 January 2007 for implementation in July 2007;
* Agreement on investment under negotiation (McKibbin and Jiang believe this may be concluded by 2010. 10.) However, a more recent article (August 27, 2008) postulates the agreement may be signed as early as December 2008.
* Phase-Out period for normal items ends for China and original ASEAN countries by 2010.
* Phase-Out period for sensitive items ends for China and original ASEAN countries by 2013.
* Phase-Out period for normal items ends for the newer ASEAN members (Cambodia, Laos, Myanmar, Vietnam.) by 2015.
* Phase-Out period for sensitive items ends for the newer ASEAN members (CLMV) by 2020.
* “According to ASEAN statistics, the trade value between the ASEAN and China increased from 59.6 billion U.S. dollars in 2003 to 171.1 billion U.S. dollars in 2007, growing at an annual rate of 30 percent” (Source).
Australia Under Negotiation
* The tenth round of negotiations was held on 22-26 October 2007.
* Agreement on goods was signed on 18 November 2005 “immediately removing all tariffs on 92 percent of Chile’s exports.”
* Agreement on services signed on April 13, 2008.
* Agreement on services goes into effect on January 1, 2009.
* “[B]ilateral trade soared 65 percent year on year to 14.7 billion U.S. dollars in 2007, up from the 23.9 annual growth of 2006. Last year, Chilean exports to China surged 79 percent to 10.3 billion U.S. dollars, boosted by copper and grape wine trade. Meanwhile, Chinese exports to Chile jumped 42 percent to 4.4 billion U.S. dollars with strong growth in computers and communications technology, electronic products and automobiles” (Xinhua).
East Asian Free Trade Area (of ASEAN+China, Japan, Korea) Under Negotiation
* The Brookings report believes this may be concluded for goods by 2015. 11.
* A services agreement may follow in 2017.
* An investments agreement may follow in 2020.
FTAAP (Free Trade Area of the Asia Pacific) Under Negotiation
* The Brookings Report (11) believes that this may happen for goods by 2025.
* Services by 2027
* Investments by 2030.
Gulf Cooperation Council Under Negotiation
* The third round of negotiations was held on 17-18 January 2006.
* A fourth negotiation meeting was held on 19-22 July 2006.
Iceland Under Negotiation
* A third round of negotiations was held on 17-18 October 2007.
* Fourth round: March 2008
* Agreement was signed on 7 April 2008. [Two-way trade between China and New Zealand currently is worth more than $6.1 billion a year, with Chinese exports making up about 75 percent. (IHT)]
* On October 1st, 2008 “tariffs on New Zealand’s exports to China that are currently set at 5 percent or less will be cut to zero” (IHT).
* “31 percent of New Zealand’s exports to China slated for tariff-free status by 2013″ (IHT).
* Dairy and almost all (96%) of NZ’s exports should be tariff-free by 2019.
* Agreement on goods signed on 24 November 2006;
* Went into effect on July 1, 2007 (People’s Daily).
* 36 percent of products will be tariff free by 2010.
* 85 percent of products will be tariff free by 2013, and Phase II begins, with a goal to reduce tariffs on 90 percent of goods.
* Agreement on services under negotiation (Brookings).
* The current agreement already covers investments (People’s Daily).
* “China-Pakistan trade volume exceeded 4.3 billion dollars in 2005, representing a year-on-year increase of 39 percent. The officials said the trade deal could triple bilateral trade to 15 billion dollars within five years” (People’s Daily).
Peru Under Negotiation
* The 2007 Joint-Feasibility Study.
* The second round of negotiations held on 3-7 March 2008.
* A third round was held in May 2008.
* The fifth round was held at the end of August 2008.
* On August 26th, Peru’s foreign minister of trade and tourism stated a belief that negotiations could conclude by November, 2008.
* The first round negotiation was held on 26 October 2006. There were a total of eight rounds.
* On September 4, 2008, negotiations for a full free trade agreement including goods, services, and investments were concluded. The agreement should be signed by October 2008 (International Herald Tribune). [Bilateral trade between Singapore and China was $63.83 billion, in 2007.]
Southern African Customs Union Under Negotiation
* Negotiation started on 29 June 2004
* The 1st Joint Meeting was held on 9-11 January 2008
* The feasibility study on Regional Trade Agreement (RTA) concluded at the sixth meeting on 21-22 October 2007
* A feasibility study concluded on 13 December 2007
* The 4th Joint Meeting was held on 18-20 Febuary 2008.
* December 2007 China Daily article.
* In July 2007, the countries agreed to study the feasibility of a free trade agreement.
From: Page 7 of Brookings report; originally People’s Republic of China Ministry of Commerce news releases; also edited and updated with data inter alia from the Brookings report and from various news sources from around the Internet.
Potential Free Trade Timeline
October 2008 – “[T]ariffs on New Zealand’s exports to China that are currently set at 5 percent or less will be cut to zero” (IHT).
October 2008 – Singapore-China Free Trade Agreement signed.
November 2008 – Peru-China Free Trade Agreement signed.
December 2008 – Agreement on investment with ASEAN signed.
January 2009 – Agreement on services with Chile goes into effect.
2010 – Phase-Out period for normal items ends for China and original ASEAN countries.
2010 – Pakistan: 36 percent of products will be tariff free.
2013 – Pakistan: 85 percent of products will be tariff free.
2013 – Phase-Out period for sensitive items ends for China and original ASEAN countries.
2013 – “31 percent of New Zealand’s exports to China slated for tariff-free status″ (IHT).
2015 – Phase-Out period for normal items ends for the newer ASEAN members (Cambodia, Laos, Myanmar, Vietnam.)
2015 – ASEAN single-market finally established.
2015 – East Asian Free Trade Area (ASEAN, Korea, China, Japan) for goods.
2017 – East Asian Free Trade Area (ASEAN, Korea, China, Japan) for services.
2019 – Dairy and almost all (96%) of New Zealand’s exports should be tariff-free by 2019.
2020 – East Asian Free Trade Area (ASEAN, Korea, China, Japan) for investments.
2020 – Phase-Out period for sensitive items ends for the newer ASEAN members (CLMV).
2025 – FTAAP for goods.
2027 – FTAAP for services.
2030 – FTAAP for investments.
While both Presidential candidates have at times “talked tough” on China, it’s important to remember that traditionally much inflammatory campaign rhetoric has been just that, rhetoric. The China Backpedal of talking tough in the election campaign, then pursuing a conciliatory relationship once in office, is well-documented.
Ultimately, however, since you (the reader) also possess interest in China, I think it’s also useful to hear some of your responses on which president you think would be
(1) best for continuing peaceful relations, and/or (2) best for long-term strategy (from America’s point of view).
As you read the analysis, feel free to retort with your own opinions.
It appears John McCain’s past interest in free trade implies he would encourage a positive relationship between heavy trading partners America and China whilst preserving American economic strength and military investments in the Asian region.
McCain appears to have a balanced opinion in regards to China. He counseled Bush to “avoid confrontations” on his Beijing Olympics trip to China, saying that some of China’s actions are “also regrettable, but I don’t think China is regressing the way that Russia is. We have a greater opportunity to work in a cooperative way with China.” McCain “hopes Bush will tell the Chinese leadership that “we understand, as the [DL] does, that T$3b$t is part of China but we hope Tibetans are not repressed or oppressed.” Importantly, McCain met relatively recently with the D$$ai L$$a in Colorado (Washington Post).
McCain’s main foreign policy focus will be on Iraq and Iran. Being a military man, McCain doubtless realizes there is little to be gained by forcing America to further overextend forces to posture against China over issues that present relatively minor relationships to immediate American interests. On the negative side, it is possible the McCain presidency will continue the dubious Bush policy of benign neglect of ASEAN and South-East Asian relations, which would allow China to increase its influence in that region.
Running-mate Palin’s foreign policy experience is slighly less than Obama’s (she hasn’t yet visited Iraq or Europe on state-trips), and regrettably there are few easily located documents on any statements tied to her positions on China.
Ultimately, a McCain presidency appears to offer continued peaceful relations with China.
Barack Obama would be pressured by both his party [Nancy Pelosi is a noted China-basher] and his own conscience and campaign rhetoric to “get tough on China.” Obama has made several tough statements on how America is “shipping jobs overseas.” If he carries through with campaign promises, Obama might work to roll back certain aspects of China-trade, perhaps creating more jobs in the United States. If he succeeds, that would certainly harm US-China relations and raise prices of goods that were formerly cheaply made-in-China, or assembled therein. At a minimum, Obama might seek to set up administrative hurdles to US-China trade, as Experience Not Logic implies in its analysis of Obama’s acceptance speech and the Democratic primary debate.
Obama’s running-mate, Joe Biden, is even more negative on China trade, saying; “If I were president, I’d shut down any imports from China, period, in terms of their toys — flat shut it down. Imagine if this was Morocco selling us these toys, we would have shut it down a year ago.”
Despite Obama’s anti-trade rhetoric, one Chinese journalist believes that because much of Obama’s expert team consists of Clinton-era officials, his relationship will be pragmatic. Still, that same journalist believes “an Obama administration would put more pressure on China, even to the point of being more likely than the Bush administration to use the WTO to confront China in court on related issues.”
On the positive side with Obama, he will probably talk to Hu Jintao, and not overtly pressure China beyond token expressions of dissatisfaction. At least, talks will happen if Obama isn’t forced to burnish an image of diplomatic weakness, like former US President Kennedy needed to do in order to establish credibility. If Obama is perceived as “weak” after having unsuccessful talks with Iran or Syria or Hamas, then he will need to regain his political capital somehow– and that somehow could be through bashing Russia or China- traditional bugaboos.
It is a little uncertain to say what Obama’s ultimate China policy relationship will be, but it is promising to note his advisory staff contains several people who possess deep knowledge concerning China. (See Below)
Other Views on Obama’s China Policy:
Joe Biden’s China Stances – at China Esquire.
Other Information on McCain’s Foreign Policy
McCain’s essay in Foreign Affairs.
McCain’s China positions at OnTheIssues.
Foreign Policy and China Teams:
The Foreign Policy Research Institute analyzed what a Democratic or a Republican majority in Congress and the White House might mean for US-China relations.
(added 10/5/08) Shen Dingli of Fudan University weighed in with his views on the candidates and China.
Obama certainly has the big names on his team, from Brooking’s Jeffery Bader to Richard Bush of Brookings; Ken Lieberthal, former NSC; Mike Lampton, SAIS; Evan Medeiros, RAND; Bob Kapp, former president of the US-China Business Council; Kevin Nealer, The Scowcroft Group; and Bob Suettinger, former NSC and CIA now consultant. Elizabeth Economy is also involved in Environmental issues.
McCain has former Deputy Secretary of State Rich Armitage, former Bush Administration defense, NSC and foreign policy officials Peter Rodman, Rick Williamson, Mike Green, the former NSC Senior Director for Asia, now at CSIS, and Dan Blumenthal, former DOD, now at AEI.
Here’s a couple of interesting “Olympic-Aftermath” posts from around the internet, and below is some value-added analysis:
* The Olympic Sponsor – Biggest Winners and Biggest Losers
All Roads Lead to China
Discusses how sponsors like Lenovo and GE may have benefitted from their Olympic sponsorship.
*Yeah! I’m a Llama Again
Silk Road International
Great Olympic-review/overview piece with even better links that are worth consideration. (Such as this harsh piece by TimesOnline (Some of its assertions might be treated with a grain of salt though- and it should be noted that the British Times appears to have an almost pathological dislike for China’s regime), and a thoughful piece in the Washington Post.)
* The Great Convergence?
The China Beat
Compares similarities between China and the United States and coverage of the Olympics.
* Making sense of what comes after the Olympics
Michael Pettis at Asia EconoMonitor
Discusses China’s still-weak stock-market, declining growth in expansion of tax revenues, and speculates on near-future performance of the Chinese economy.
*Rio Tinto predicts post-games boom
By Rebecca Bream and Chris Flood; Financial Times
The Financial Times reports how Rio Tinto believes commodity prices will rise again, amid a post-Olympics construction boom as transportation/supply chains are untangled, factories are reopened, and trucks get back onto the streets… This would probably happen starting sometime around mid-September after the Paralympic Games are finished.
Olympic Pollution: Comparisons
If you wanted to compare pollution pre-Olympics, or to compare Beijing’s pollution to Olympics’ pollution in Athens, or Barcelona, this is an excellent resource.
Wireless Data Roaming Wins Gold During Beijing Olympics
Ever wondered how much information was sent over roaming phones during the Beijing Games? Now you can become enlightened. “[A] surge in wireless data roaming traffic exceeding 40 percent over the same period of days the month before. This increase in roaming traffic resulted in more than 332 GB of data being exchanged between 225 mobile operators in 106 different countries on the Aicent network. This increase in wireless data roaming is the equivalent of the content in books stored on nearly two miles of shelves.”
Conclusion… What Does This Mean?
Links without analysis are only of marginal use, so here’s some value-added content.
* Rio Tinto is probably right to believe demand in China for metals and resources will continue, despite a weak international economy. And if other countries’ demand for resources drops, China has the cash to step in and bargain-shop.
* A weaker international economy will harm China’s export-market, but the PRC appears willing to focus policy on expanding economic growth. Brad Setser of the CFR (Council on Foreign Relations) persuasively argues that China’s exports have not yet been significantly harmed by the global slowdown.
It appears RMB appreciation will slow if the Chinese continue to prop up their exporters. Michael Pettis, who specializes on Chinese Financial Markets and teaches at Beida in Beijing, believes that China might also sustain high inflation in order to support its exporters.
It is surprising that exporters are still maintaining at least a limited amount of strength, considering that the new Labor Law requires employers to pay workers more and treat them better, and considering that new tax provisions do away with some benefits for foreign companies based in China. A fuller examination of China’s economic future and the consequences of its economic policies definitely merits more in-depth future analysis that will certainly take a good deal of time to properly treat.
* And The China Beat reminds us that in many ways, China and the United States have similarities… things that often go unnoticed when the “China Threat Theory” is promulgated, or China’s collectivist culture is over-stressed, or when commentators focus on China’s “communism.”
* And, to close, I welcome your thoughts on where China’s economy is going post-Olympics or if the Olympics really changed anything about China in the long run. (Bonus Article: “Orville Schell discusses the future of Chinese nationalism and Olympic changes. (Written Before the Games)”) Thanks for reading.
Prognostications are often suspect, but here’s an alternative view in juxtaposition to the usual gloom and doom regarding the threat posed to China by its air and water pollution.
Still, pollution in China is definitely a problem. It leads to over 750,000 premature deaths each year in China, according to a World Bank report. (656,000 air pollution-related deaths, and 95,600 water-related deaths.) ”Of the 1,300 Chinese rivers surveyed in 2004, 40.6% received a quality rating of grade IV or V, and 30% of the river water monitored by the Chinese government is grade V.” A rating of IV indicates that the water is unfit for human consumption. Grade V is not even acceptable for agricultural or industrial use (Anna Brettell, 158. In Guo, Challenges Facing Chinese Political Development, 2007).
However dire the current situation is, it is similar to the troubles suffered by America and other countries during the Industrial Revolution and in its wake. But, the problems exist on a much larger scale, since China has more people.
For comparison purposes; as of 2007 in the United States over 41,000 people a year (0.00014 % of 300M) are estimated to die prematurely due to air pollution (Also see WHO comparisons for 2002). (Other estimates place the 2007 US mortality rate at between 22,000 to 52,000 and speculate that this amount must have dropped significantly in the past 30 years since “the US Environmental Protection Agency reported a decline of 25% from 1970 to 2001 in 6 principal air pollutants: carbon monoxide, lead, ozone, nitrogen dioxide, sulfur dioxide, and particulate matter.” The best data I could find on prior US mortality rates was cited HERE, and argued that in 1991, 60,000 a year in the US succumbed to early death due to air pollution. (1990 US Population=250M, so 0.00024%) (* See End of Article for full citation). This past higher number implies that improvements in pollution mortality rates can be made in a relatively short period of time
In India, 527,700 perish each year due to air pollution. (0.00044% of 1.2B) In China, the amount is 656,000 (0.00050% of 1.3B).
The US (1948), UK (1952), and Japan, with its Minamata disaster, suffered environmental problems in their manufacturing boom-eras with higher percentages of pollution-related deaths than they currently sustain. What changed in these countries? The passage of legislation such as Clean Air acts in the United States (1962) helped regulate pollution. As people became more aware of pollution’s deleterious effects, they became more motivated to regulate and end it.
Through an abstract theory, it can be argued that China has good precedence for being able, like the US, Europe, and Japan, to mitigate its pollution problems. The “Kuznets Curve Theory” states that as societies modernize, “Pollution will begin to decrease after a country reaches a per capita GDP of between US $3,000 to US $5,000″ (Anna Brettell, 155 in Guo Challenges Facing Chinese Political Development, 2007) (other articles state $8,000) . This decline in pollution can be attribuitable to 1.) Awareness, 2.) Improvement in technologies for energy efficiency, 3.) A shift away from manufacturing to cleaner industries.
China’s GDP per capita, in Purchasing Power Parity, for 2007 was ~$6,700 according to the UN Human Development Reports, but according to the CIA it was $5,300. (I believe the CIA may be using the updated numbers after China’s PPP was readjusted around December.)
In constant dollars, China’s GDP per capita in 2000 was $846 US… by 2007 it had grown to $2,200 US. The Chinese expect to reach $3,000/capita around 2010 (China Daily). If China maintains current +10%/year growth rates, per capita GDP could reach $6,000 by 2020 (It should be noted that China’s GDP statistics are often called into question for being over-estimated; for ease of discussion, I’ll take the official stats at face value.)
Once basic necessities are provided, and economic growth secure, people can afford to deal with pollution externalities that threaten their long-term health.
Environmental NGOs and Environmental Activism in China
Environmental consciousness is rising, and the State is allowing it to perpetuate. In 1990, citizen environmental complaints were a “mere” 140,681. By 2004, over 726,192 instances of people sending letters and visiting the Environmental Protection Bureau were recorded; a 410% rise over 1990. The number of incidents leading to those visits and letters rose from 111,359 in 1991 to 682,744 in 2004 (Brettell in Guo, 156).
And these letters and groups are having some effect; “The decision in late January 2005 by SEPA Vice Director Pan Yue (with the support of Premier Wen Jiabao and the State Council) to bring to a halt 30 large infrastructure projects including 26 power-related projects on the grounds that environmental impact assessments were not properly completed suggests strong support within the top reaches of Beijing for NGO activity in this realm” (Economy).
What Does This Mean?
China is in the midst of a pollution crisis. But if its situation is similar to that faced by countries elsewhere around the world, its amount of pollution is nearly at an apex, after which, in China’s wealthier and better-developed coastal provinces, pollution will decrease.
By examining the situation through the lens of the Kuznet’s Curve, it appears that China’s has nearly reached the ~$6000 per capita/PPP amount necessary to facilitate development toward cleaner industries and technologies. China’s recent expansion of its Environmental Ministry represents a step in the direction of a cleaner environment and less pollution.
I prefer to use PPP (Purchasing Power Parity) for comparisons since PPP presents a good way to compare costs of living in different countries. Therefore, I argue China is due for a major anti-pollution push. In a few years, with the assistance of its new Environmental Ministry, and barring any extreme energy crisis necessitating sustained reopening of unclean coal mines, China will get even more serious about enforcing its pollution laws. So, from 2010 and through 2012, prepare to see some major improvements to China’s environment– for the better.
ALSO; The Economist talks about China and India’s differing approaches to dealing with pollution.
World Bank 2007 comparative charts on pollution in countries and cities around the world.
Extra Notes: (see above *) * according to an “Air Pollution in Typical U.S. Cities Increases Death Risk,” press release dated May 13, 1991, from the Harvard School of Public Health, Boston, Mass. describing findings later reported in Joel Schwartz and Douglas W. Dockery, “Increased Mortality in Philadelphia Associated With Daily Air Pollution Concentrations,” AMERICAN REVIEW OF RESPIRATORY DISEASE Vol. 145 (1992), pgs. 600-604.”)
and [Brettell, Anna. "China's Pollution Challenge." 155-193. In Guo. Challenges Facing Chinese Political Development, 2007.]
* AEI did an excellent article on China and the Kuznet’s Curve.
What Is A Superpower?
In comments on my site, and on the China Law Blog, Here and Here, several readers indicated it would be useful to define “superpower” when discussing China’s future propensity for achieving “superpower” status.
The debate about what defines a “superpower”, whether it is a high ranking on the Human Development index, whether it is equivalent or not to “hegemon”, whether it is “force projection”, or merely “military” or “economic” force, is quite expansive.
For the purposes of my post, I’ll take a simplified position. From what I gather, when the hoi polloi (common people… the laobaixing 老百姓) discuss “superpower” or what makes a nation great, they mean an entity that can project its force overwhelmingly and has the ability to influence geopolitical events on a worldwide scale. Other countries need to plan around this country’s policies. In that sense, the United States and the USSR were “superpowers”; to some degree, the economic Japanese juggernaut was a superpower in the late 1980s and 1990s. Increasingly, China is becoming an economic superpower.
While I acknowledge this definition can be debated, I hope to keep the definition simple so I can move into the point of the post.
Another issue perhaps worthy of consideration is that my article and Pomfret’s did not set a timetable on when China might achieve said “superpower” status. I assume Pomfret was taking Keidel’s statement of China surpassing the US in total GDP around 2030 as the date most people assume for China’s arrival at superpower status.
In listing possible challenges facing China, I’ve tried to base statements on the time horizon of 2020-2025, shortly after the sixth generation of PRC leaders comes to power. One inspirational source was the roundtable discussion of Cheng Li, Pieter Bottelier, Fenggang Yang, and David Lampton in “China in the Year 2020.”
To continue its rise to an economic and soft power status that can “shake the world” by 2025, China’s pressing challenges include a need to ensure energy supplies, tame inflation, confront environmental degredation, deal with dissent/protests/petitioning by instituting a rule of law and providing social services.
Below, I briefly cover these ideas. Eventually, I hope to deal with these challenges at length– a lot of good articles and books have been written on all of them and they are all large issues and deserve more treatment.
Energy Supply Maintenance
China will require 11.6 to 12.3 million barrels of oil a day, up from 6.9 million/day in 2005, and around 7.5 million/day in 2007, and allegedly 8 million/day in 2008 (according to IEA-2004 and DOE-2005 estimates, respectively (Kreft, 2) and more recent energy statistics.) Nearly 75% of this capacity will have to be imported since China can only produce around 3.7 million/day domestically.
China could also experience a deficit of 620-770Mt/a of coal in 2020 alone, according to He Youguo in a 2003 report by China Coal Industry Development Research and Consulting Co. Ltd. (7).
If current trends continue, Herculean efforts at ensuring an uninterrupted energy supply will need to be undergone to ensure that the lights stay on at China’s factories.
In 1989, part of the impetus for the protests was runaway inflation, rising unemployment and lowering standards of living. And as Pieter Botellier also argued; “the Communists’ defeat of the Nationalists in the Chinese civil war of 1945-1949 was greatly assisted by the run-away inflation of those years, which sharply reduced the popularity of Chiang Kai-shek’s Republic of China (ROC) government. “
China’s economic system today, however, is more sophisticated. Still, this is the highest inflation we’ve seen in China since the mid 1990s, with over 20% price hikes on food and double-digit growth in gas prices.
Currently, policy priorities appear to be toward promotion of economic growth rather than inflation containment. Arguably, maintaining growth could contribute more toward long-term stability. Still, if growth only goes to the middle and upper classes and the poor bear the brunt of inflationary increases, and their lives stop becoming noticably better- and their standard of living stagnates… there may be problems. Every year, China’s ranking on the GINI coefficient, which measures wealth distribution, becomes increasingly unequal. Currently, China’s GINI hovers between .37 and .46 (depending on measurement), either slightly more equal than the US’ GINI rating, or much less equal.
China faces severe environmental challenges. Pomfret, Economy, and other experts have discussed this in detail. For China to continue 10%+ yearly GDP growth, it will have to clean up its polluting industries. According to China’s Green GDP, in 2004, pollution cost China at least 3% potential growth. The Green GDP numbers for 2005 were never released, and arguably China’s pollution increases every year.
Energy efficiency per unit of GDP improved 3.66% in 2007, and arguably should improve this year as energy-intensive factories are shuttered. But, partially due to rising car ownership, pollution expanded significantly in the 21st Century. China hopes to reduce energy consumption per unit of GDP 20% by 2010, but it is a little behind its goal of yearly reduction percentages. Small coal mines and plants have been shut to ensure compliance, but to avoid power disruptions, many mines have recently been reopened.
Stability and the Rule of Law
China could arrest dissidents en masse, growing more repressive, but this will increase tensions in its relations to the outside world, and might stifle ideas and innovation.
However, as China’s economic influence becomes felt around the world, it is possible that it might set up its own international framework in competition to the West’s APEC, WTO, and IMF. (See the last section of my article on Maslow’s Hierarchy and Rule of Law- Not Human Rights for more info.)
With sovereign wealth holdings of over $1.7 trillion, China has extensive ability to affect the world… Unless of course, that wealth becomes tied down in foreign non-performing assets, declining currencies, and a need to invest in overpriced resource markets.
China is a giant in terms of wealth, so it can take quite a beating in economic losses from its funds, but poorly performing assets can lead to public opinion backlashes.
Without strong development of a domestic consumer economy, China will have difficulty in existing isolated from international economic forces.
Providing Social Services
Pomfret identified China’s demographics, its aging, and its peak of a working age population around 2015 as being a large problem. I rebutted that. However, with China’s GINI coefficient rising (at increases of 6%, the fastest in the world for the past decade), and with a degrading environment, and 350 million smokers, perhaps 1/3 of the world’s total smokers, health care costs will rise and create public tensions if the government fails to aid sick people.
Fear of these tensions could be a reason the Party prevents cross-provincial NGOs from organizing, and is cracking down on Sichuan post-earthquake support organizations and people who threaten to challenge the Government’s handling of the incident.*
Crafting an efficient social safety net, or preventing unrest in response to lack of said net, will be an important challenge for future Chinese administrators.
* Note: I realize this particular person, Huang Qi, has a history of challenging the state which might lead it to be more repressive. However, the point still stands; the state has harassed and/or paid off families not to complain about allegedly faulty construction that may have caused more schools to collapse than should have if codes were followed.
To solve its many challenges, China could turn inward and become repressive, or turn outward and allow development of civil society, or it could mix the practices. While some commentators might paint China’s future as that of a “negative” (closed-society) or a “positive” (democratic society), both I and the commentators in “China in the Year 2020” tend to see opportunities from many points along the choice continuum.
China could ”succeed” in achieving superpower status even in spite of democratization. Or it could fail to achieve said status even despite democratization and liberalization.
Once again, I welcome your comments regarding challenges China’s development could confront in the coming 20 years.
* On August 25, 2008, The Wall Street Journal presented its own ideas about which challenges China faces. (Inequality, Resources, Population/Aging).
In the Washington Post, John Pomfret, former WP Beijing Bureau Chief and author of Chinese Lessons: Five Classmates and the Story of New China (2006), argues that China is not going to become a superpower. His argument is a bit misleading, however. He demonstrates that China faces challenges, but he admits China’s GDP will outpace the United States’ in size.
Pomfret’s four challenges, while intriguing, appear to be the wrong challenges to address. Despite them, China will still become a superpower. In this article, I explain why his challenges are not the most apt. Then I suggest four different challenges to China’s growth.
Pomfret calls attention to four challenges; “dire demographics, an overrated economy, an environment under siege and an ideology that doesn’t travel well.”
Dire Demographics… But Room for Expansion
Pomfret successfully argues “that as the working-age population shrinks, labor costs will rise.” In China’s coastal provinces, labor costs have already risen, partially due to reduced migrant labor flows. It is also true that after 2013, China’s labor force will peak at 900 million and subsequently the elderly will be more numerous than adolescents and children. And there are nearly 119 males born for every 100 females, which will create tensions.
But, it is also true that despite decades of posting productivity gains, China is still underutilizing its human capital. Its workers have not yet realized the full potential of productivity gains that workers in other countries have realized- which means that China still has a vast, untapped potential for growth.
Chinese labor productivity has grown from (in 1995 RMB values) around 5000RMB per worker in 1979 to 21,500 RMB per worker in 2005 (or roughly $3100). (Holz, 166 and He & Kuijs, 6) And productivity grew at around 8.7% per year from 2000-2006. (The OECD defines Labor Productivity as GDP per hour worked) The US Labor Productivity value-added per worker is currently ranked sixth in the world by the OECD, behind Luxemborg, Norway, the Netherlands, Ireland, and Belgium.)
Japan and South Korea, which similar to China started at a low base for productivity, are currently at 71% and 41% of US productivity ratings. Regrettably, it appears these OECD numbers have not been adjusted for PPP (Purchasing Power Parity). However, the point remains, South Korea had low productivity and a majority of citizens employed in agriculture back in the 1960s. Now, only 7.5% of its population works in agriculture.
China still has up to 43% of its population employed in agriculture (due to the nearly 200 million migrant workers who retain rural residencies, the number is probably more like 30%, but that is still an overly-high number). This underutilization and underemployment of workers demonstrates China still has much room to grow, and many more productivity gains to realize– its rise is not yet finished.
Overrated Economy… But Massive Purchasing Power
Pomfret rightfully criticises Keidel at the Carnegie Foundation for a July 2008 extremely pro-China growth article. Keidel assumes China will maintain over 7% yearly growth rates through 2030. These estimates may prove to be overly optimistic. However, China’s economy is still deregulating and expanding. It may not grow as fast as Keidel assumes, but barring massive inflation and energy shortages, the sheer amount of human capital and potential for development will allow it to expand at a healthy clip.
Pomfret wanders a bit into strange territory when he argues China cannot become a superpower simply because GDP per capita is so low. But why does low per capita GDP preclude development of a strong country? If GDP is high enough, China can finance a modern military, and its state-owned businesses can purchase overseas energy and mineral resources.
With even modest GDP growth, the domestic market can serve a middle class of perhaps 400 million (or 100 million, depending on the estimate), which is larger than almost all Western countries’ populations! If China is a giant in terms of worldwide trade, it can have greater influence in trade contracts with countries like Brazil and the Central Asian nations, marginalizing the United States.
Note: In later articles I hope to explore China’s middle class, its productivity in detail, and how China’s aging might effect domestic policies. I would love to go into greater detail on these items here, but then this post might become thesis-length.
Environmental Problems… A Legitimate Challenge; But It Can Be Overcome
Pomfret is correct that China faces environmental problems. Elizabeth Economy and other scholars have detailed this in numerous books and articles. And environmental pressures can cause societies to implode, as Jared Diamond famously argued in Collapse.
However, China may be able to make fighting its pollution an opportunity for societal and technological development. China could allow NGOs and private groups greater chances to challenge local development and expose corrupt practices. Or, China could continue to suppress cross-provincial border NGOs, and could fail to develop technological innovation. The future of China and its environment could be dire, as Pomfret believes, or it could be positive should Chinese invent innovative environmental solutions (See Prospects for China’s NGOs for more info on Chinese NGOs).
Bankrupt Ideology… But The Country Is Just Now Developing Its “Mission” (See Maslow’s Hierarchy)
Pomfret’s argument about China’s ideological intellectual bankruptcy is interesting. He makes a good point about how China’s one-party system can stifle innovative thoughts. But China is still developing its mission, and there may come a time when China’s ideology can be successfully exported. (Please see the last section of my article on Maslow’s Hierarchy).
In contrast to the United States’ private think tank minds, and European NGO leaders, China has yet to produce many world-respected political theorists to propogate its philosophy. Its famous discursive-thinking thinkers and personalities; Wu Jinglian (economist), Bao Tong (politician), and Gao Xingjian (author) are either retired, marginalized, or living in exile.
(Note: This is not to say China lacks independent thinkers; CASS (The Chinese Academy of Social Sciences) has been known for producing innovative thought. And University scholars such as Shi Yinhong have done innovative work in regards to foreign policy. But in one example of stifling creativity, the State closed the innovative Journal “Strategy and Management” when they felt its authors strayed too far from the party line; Other thinkers contribute valuable intra-China thoughts on nationalism and how China should relate to the rest of the world, but Chinese views on how the world should be ordered internationally are less often elucidated, and have less of a world-wide impact. China has also long taken a non-voting and non-leadership position on the UN Security Council.)
Pomfret is right, China faces challenges. But these challenges are not dire enough to hobble its rise to global superpower status. Only the environmental challenge appears to be a potentially growth-derailing problem, and it could yet be overcome.
In response to Pomfret’s proposal, I suggest a few different problems China is facing that may delay its rise. To succeed as a superpower, China most needs to ensure energy supplies, tame inflation, deal with dissent/protests/petitioning by instituting a rule of law, and provide social services. (If the last two items are combined, then I would list Pomfret’s “environmental” challenge).
I hope to explore these problems in a future article and would like to hear your opinions on what four problems you believe are most important for China to overcome.
Canon, Nissan, and Germany’s Steiff Toys are either forgoing China expansions or leaving China to produce in other countries. Other companies are leaving China to find cheaper, less regulated places to manufacture. RMB appreciation, costs of training, the new labor contract law, end of some preferential tax breaks for foreigners, inflation, visa regulations, and energy rationing have made China a little less attractive for foreign businesses and manufacturing. But where will these companies go, and why? Even some of the so-called drawbacks to doing business might be good for the long term. Below, the issue is examined.
Why Leave China?
Booz-Allen and AMCHAM released a March 2008 study that argued “More than half, or 54 percent, of companies surveyed [out of 66] believe that China is losing its competitiveness to other low-cost countries.” And “wages in China now [as of June are] rising close to 25 percent a year in dollar terms in many industries” (IHT). Specific “problems” include:
1.) China’s new labor contract law, which went into effect this year, might increase costs by 8% on average per firm, and will make it more difficult to lay off workers. One provision states; “from January 1, workers who have been with a company for 10 years – or signed two fixed-term contracts – will be entitled to one month’s severance pay for every year worked.” One could argue that this law is well-needed to align Chinese workers’ interests and pay with international norms. But still, it does put upward pressures on costs of doing business.
2.) RMB appreciation. The currency has risen by 7.1% this year against the dollar, which is amazing since the RMB only appreciated 3% from July 2005 through March 2006. (But there are opposing views, namely that the evaluation is overstated due to a weak dollar- since the RMB has actually declined 16% from 2006-2008 versus the Euro.)
3.) Preferential Tax Rates Ended for Foreign Firms; Export Tax Rebates Ended. Now, foreign firms pay a higher rate, generally 25% of taxes. (Information on the new law is from Deloitte, and HERE.) Also, export tax rebates were phased out. A trade manager quoted in AFP claimed, “The yuan appreciation has a huge impact on our business. It costs us much more in the production and delivery costs. What’s worse, the export tax rebates of 13 percent were cancelled so our total costs are up 20 percent,”
4.) Inflation. ”Seven out of 10 respondents cited the rising renminbi as a major reason for China’s decline, while wage inflation was cited by 52 percent of those polled. Wages for white-collar managers and blue-collar workers have jumped 9.1 percent and 7.6 percent, respectively [on the year],” according to the AMCHAM study.
5.) Visa Regulations. The Wall Street Journal described how, due to the newly onerous visa regulations, one businessman had to leave China for Thailand, even though his company “researches commercially viable ways to sustain water and land resources in China.” In China’s defense, this businessman’s situation was made troublesome because his company had not been legally registered to operate. (Previously, many companies have not been registered). Visa regulations and enforcement of already on-the-book rules may do a little to slow inward-bound China growth. Ultimately, however, enforcement of logical laws will benefit China, so the stifling effect of strict Visa regulations may pass post-Olympics. (Michael at The Opposite End of China explains his visa problems HERE.)
6.) Costs of Training/Turnover. The experience of Steiff Toys provides an interesting anecdote about the challenges of training and turnover in an emerging market. After being trained, employees might seek to market their talents at a better paying company. In Steiff’s experience, “[t]he company had frequently visited its Chinese partner to try to build up a good relationship. However, once, during a six-month gap between visits, almost the entire work force at one factory had changed.”
“It was no surprise the quality varied so much. New people came, the quality dropped, then they improved their skills and left,” he said, adding that the Chinese-made trampoline parts did not reach high enough endurance standards.”
Where to Go?
Vietnam is the country most mentioned as a relocation place, but it faces surging inflation. In May 2008, food prices were 42% higher than they had been one year ago. China, in comparison, saw food prices increase by only 21% since 2007. Still, inflation worries in both countries only cuts their economic outlook from growth at 1-2% less than initially projected. This allows both countries to grow at 7% (Vietnam), or +9% (China) on the year.
What Vietnam lacks, that China increasingly has, are sufficient infrastructure developments. AmCham Vietnam discusses the problem of infrastructure. Vietnam’s plans for development are available at the World Bank.
Also, Vietnam’s population of 86 million pales in comparison to China’s 1.3 billion. International Lawyer Dan Harris, in informal interviews with several of his clients, believes that Vietnam’s manufacturing processes and human capital still need a great deal more of investment before they can compete with China- which may never happen.
Cambodia. Hailed as the next Vietnam, some garment manufacturers are relocating here. And “South Korea and Malaysia have been pouring in investment. In 2006, foreign direct investment totaled $2.6 billion, up from just $340 million in 2004, according to the International Monetary Fund” (IHT).
Cambodia “is where Vietnam was some 8 to 10 years ago.” [Yeo] likes a lot about Cambodia: its location in a fast-growing region, a young and inexpensive work force, rising productivity, a pro-business government, stable politics and strong GDP growth, which peaked at 13.5 percent in 2005 but was expected to mellow to 7 percent or 8 percent in coming years” (IHT). Still, Cambodia is tiny, with a population of 14 Million. And the vast majority of Cambodians are laregly uneducated and unskilled. Hyping Cambodia as a future economic powerhouse is probably overstated.
Malaysia’s International Trade ministry hopes to position itself to poach manufacturing plants that leave China. Malaysia claims it is interested in investments in ”high technology,” less labour-intensive industries. Malaysia’s economy and workforce, however, is much smaller than China’s (at $357 billion PPP [Purchasing Power Parity] in 2007 and a 6.3% yearly growth compared to $6.9 trillion and 11.4% growth in China). More importantly, Malaysia has less to grow than China. Only 13% of its workforce is in agriculture, compared to 43% of the workforce in China.) While it may attract certain manufacturing industries, a large-scale relocation is unlikely since costs in Malaysia will rise as the pool of workers decrease and compete for better-paying jobs.
India. People like to laud India over China due to its democratization, but India suffers environmental degradation just like China. And India suffers internal dissent, from Naxalites, from Jammu-Kashmir, from Islamist extremists, and from its rival Pakistan. Attempts to deal with water purification, smog, and other challenges will slow India’s growth in the short run, just like such attempts can short-term stall Western countries’ industrial expansions.
India’s Democratic society is also less likely to sanction the painful changes than China’s semi-autocratic government permitted to increase development. China ended or reduced many state pensions, reduced health benefits, and evicted thousands from their homes. As Robert Shapiro, a former undersecretary of Commerce, describes in his book Futurecast:2020, it does not appear India has the political will to carry through needed reforms.
India still faces a large variety of difficulties it must overcome before it can rightly challenge China as a competitive place for companies to relocate their industries. The day of relocations may come, but it is not yet here.
Why China is Still Attractive
China Law Blog believes the Labor Contract law did little to directly dissuade big foreign companies from investing in China. And that makes sense. China is a huge market, well worth the time and effort of investment, both for substantitve purposes (returns on capital), and for prestige (WE have a China office; do you?).
However, CLB also noted that “China has seen a number of factory closings of late, but most of these are very domestic factories that produced low end goods. I also have no doubt that many Taiwanese and Hong Kong and Korean factories producing the same sorts of goods have closed as well [because]… Beijing has instituted a number of policies explicitly aimed at marginalizing such factories so as to push China up the value chain. “
Asia Sentinel backs up Dan Harris’ comments, calling attention to the closing of marginal manufacturing industries, but also stating that the higher value, better-run factories are staying open.
The Chinese Miracle, of its economic growth, still has a long way to expand. As the Motley Fool’s argues, the China Story is not going to end because wages are rising in coastal provinces. Instead, a new chapter will open as manufacturing and development “Go West” and drive to the interior. China has hundreds of million-person-populated second tier cities like Xi’an, Lanzhou, and Wuhan that can benefit from and contribute to internal development, services, and manufacturing.
China is experiencing teething pains, but it still has vast human resources. Its largest problems appear to be sustaining energy supply, its need to move more toward rule of law, and a need to contain inflation. And China, for the most part, is moving toward those goals (although containment of inflation is an open question). So will businesses depart from China? Some manufacturing might. Other manufacturing will just move farther inland, to take advantage of cheaper provincial labor as the coastal regions move up the value chain.
* September 8, 2008, the Washington Post presented a story about manufacturing moving from China to the US.
The BRICs are getting cozier.
In 2007 Brazil finally experienced a trade deficit with China. “Brazil’s official figures show its China-bound exports totaled $10.75 billion in value in 2007, with imports from China reaching $12.62 billion,” according to Xinhua. ” 6 percent of all Brazilian exports went to China last year, while 10 percent of all imports came from China,” according to NPR. Bilateral trade rose 71.7% in 2007. Trade between the two took off between 2000 and 2003, when trade rose five-fold, and then again from 2004-2007 when trade more than doubled (BBC).
In 2007, the United States, Brazil’s #1 trading partner, exported $24.6 billion to Brazil and imported $25.6 billion; however, China may soon supplant the United States and Argentina in trade importance to Brazil.
In Brazil’s July-launched China Agenda program, the Brazilian Foreign Trade Secretary spoke of hopes to triple exports to China by 2010, which would account for $30 billion. This could mean that by 2011, Brazilian-China trade could surpass US-Brazil trade. However, I think that is unlikely, as I explain below.
China Supplies Mfg. Goods, Brazil Supplies Raw Materials
“96 percent of Brazil’s Chinese imports are high-value manufactured goods, 74 percent of its exports to China are low-value commodities such as soybeans and pig iron,” according to the AP.
According to Agenda China, Brazil hopes to increase exports of 619 product lines, including “Brazilian pharmaceutical products, chemicals, plastics, shoes and metals, as well as expanding the array of agricultural goods, through a higher Brazilian presence at trade fairs and through visiting delegations of businessmen” (AP). Brazil currently has three consulates in China. They are located in Beijing, Shanghai, and Xianggang (Hong Kong).
Brazil supplies raw materials China will require, such as iron. However, it is difficult for Chinese ships to reach Brazil, which could feasibly increase transport costs. They only have three options; a sea route (through Panama), another sea route around the tip of South America, or perhaps a land/sea route that would need extensive development before it could be widely feasable.
Of the three, transport through the Panama canal is by far the quickest (by days). The planned increase in Sino-Brazilian trade will make it even more vital that Panama’s expansion of the canal (to serve larger ships) is completed by 2014. (Panama Canal Expansion Proposal)
“The current locks are 33 metres (108 feet) wide, but the new locks would be 50 metres (150 feet). A third lane of traffic would be able to handle the wider loads” (BBC).
There are fears, perhaps over-stated, by some in American Ports, that US ports are not prepared to handle the newer large class of ships that can transverse the channel. If US ports are not dredged deeper, the US will lose a percentage of trade to the Venezuelan, or Brazilian economies.
Given the current fuel-price increases and the necessity of long journeys for goods to be transported from Brazil to China, I consider it doubtful that Brazil will increase exports to China three-fold in the next two years. Although the countries have demonstrated an ability to increase trade, the current economic slowdown and Chinese resource investments in Africa and in Australian companies will make purchases from Brazil of less immediate importance.
Trade will increase, since both countries’ are growing despite global difficulties, both will experience slight drags on expansion due to the global slowdown. This will ultimately make unattainable Brazil’s three-fold growth in trade to China .
After 2014, however, with the Panama Canal’s widening, all bets are off. In those circumstances, Brazil-China trade could certainly increase, perhaps exponentially.
* An interesting blog post from MarketOracle on the Brazil-China trade (crica, Feb 2007)
Every winter, Beijing skies darken with pollution’s gray fog. Exercising becomes dangerous to the health since too much bad air is drawn in and and not enough good. Soot merges with Beijing’s snowfalls, solidifying the snow and making these dense packed black and white masses last.
Beijing’s foul air contrasts greatly to air quality elsewhere. Good air, which rates a 50 on the AQI (air quality index) means air absent of “ground-level ozone, particle pollution, carbon monoxide, sulfur dioxide, and nitrogen dioxide,” according to airnow.gov. When air rates over 150, it is considered unhealthy and a red pollution day is declared. Several American cities experience red, or purple (201-300 AQI values) pollution days a few times per year. Beijing’s index, by contrast, suffers over 110 days each year in excess of AQI 100. Several days in December 2007, air quality hit 500- meriting a hazardous maroon rating (US air quality scale).
In Winter 2006 and 2007, the pollution index also hit 500. On those days, we could not even see buildings less than a block away. Bleakness oozed. Chinese wore white face masks.
“Beijing lung”, our endearing term for hacking up black spittle, became a common sight and ailment among not just foreigners, but also among locals. People felt dizzy, lethargic, and disoriented. Food took on a slightly tinny tinge, and eyes watered.
Is Beijing’s polluted clime livable- yes. As bad as my description sounds, thousands of Beijingers more or less live, and work- hanging 30 stories off construction beams, or carting bales of cardboard and crushed plastic on precariously balanced bikes. According to a New York Times article by Aaron Kuo-Deemer, hospital visits and deaths do rise significantly during high pollution days. But it is amazing how much pollution the human body can withstand. Even though just walking on a 500 level pollution day feels like smoking several cigarettes, one recalls some heavy smokers live long lives. In fact, Jeanne Calment, the world’s oldest lady smoked until she was nearly 117. Other smokers at least live into their sixties.
But living a relatively healthy life among increasing pollution is not sustainable. Pollution cuts into productivity as asthma cases increase and lung diseases strike, creating pressure on China’s health care system. Last year cancer accounted for nearly 20 percent of Chinese deaths, according to China Daily. Estimates state “70 percent of China’s 2 million annual deaths attributable to the disease were pollution-related,” according to China’s State Environmental Protection Administration; also “a World Bank report said about 750,000 Chinese die earlier due to air pollution every year.”
The situation, despite government claims to the contrary, may be worsening. Although Beijing can celebrate an alleged 244 blue sky days where the pollution index remained below 100, part of the reason for the achievement attributes not to greater environmental sustainability, but to movement of monitoring stations to new locations- farther away from highway intersections.
Cleaning up sulfur-spewing factories and particulate-emitting coal plants, Beijing has progressed in reducing airborne particulate matter. However, with over a thousand cars added daily to Beijing’s streets, automotive pollutants are merely replacing industrial pollutants. Although Beijing has made great strides in improving car and bus emission standards and although it has increased mass transportation, opening two subway lines, and a light rail in 2007 and 2008, Beijing’s rapid growth and unfortunate location negate much of its environmental gains. Smog originating from northern provinces’ factories blow into Beijing’s dry mountain-surrounded plateau and is trapped. The dust only dissipates with a rain or strong wind. Otherwise, bleakness looms.
Despite recent environmental advances- the preponderance of cars, influx of people and high energy demands will contribute to increased pollution. Beijing will grow and the government will struggle to limit pollution. People will endure, but as the city grows, so too will the dark clouds looming above.
(This article was originally written in March 2008 )
China has long been a country of entrepreneurs, from its urine merchants, to the indigents who walk around recycling plastic bottles and aluminum (they are ubiquitous, despite some efforts to remove them, both high and low tech [The former is an electronic recycling machine; the latter, a poignant transcript of a UK special on a "clean up" of homeless who make a living collecting plastic bottles]), to the proprietors of hundreds of mom and pop shops.
What follows is an amusing prediction for this week’s Isn’t That Odd. If you’re in China and you see this happening, please post here- I’m asking my contacts to look out for this.
I predict that China’s new plastic bag policy is going to create a new wave of self-employment for their urban poor. Why? Well, first, let’s examine the policy:
1.) A National Policy Designed to Reduce Plastic Bag Waste
The policy of charging for plastic bags (at .2-.6 yuan), and phasing out the ultra-thin bags will hopefully decrease waste as people begin toting canvass and bamboo bags to the stores. However, some problems have been realized due to this policy, as a recent Xinhua article examined; ranging from vendors who are still utilizing the ultra-thin bags, to others who are not charging for bag usage. “At a small grocery near the Carrefour, the shopkeeper still offered customers free plastic bags. As he said: “I sold vegetables worth 0.7 yuan. How can I charge 0.5 yuan for a bag?”
Other problems include:
It is more difficult to tote canvass bags everywhere when one goes outside. Penny-pinching people have to plan before going shopping, instead of previously being able to use free store-supplied plastic bags or to purchase new canvas bags at the grocery.
Also, at markets, fish-sellers now wrap fish in newspapers instead of inside plastic bags. This causes newsprint to leak onto the fish, which makes the food untasty and unsanitary. And places where the plastic bags are still used have suffered problems of people grabbing extra bags to use for private purposes- creating a shortage at some stores, as the Xinhua article goes on to explain.
Consequences: Depending on how much of a price these plastic bags might be oversold at, I wouldn’t be surprised to see some Chinese entrepreneurs standing outside stores, selling and undercutting the stores’ prices for plastic bags. They might grab a few extra bags when they are in the stores, they might repurpose previously-used bags, or they might (if they have some capital) go to a manufacturer and purchase bags in bulk.
If you’ve ever read Carl Crow’s venerable 400 Million Customers, you know how hardscrabble the Chinese can be in seeking out entrepreneurial opportunities.
My favorite tale of Mr. Crow’s (he wrote in the 1930s but his words are still relevant and amusing today- and inspired another informative book- James McGregor’s One Billion Customers.) is how Crow organized an ad promotion with a US manufacturer who wanted to introduce a better brand of soap (I think-I read the book a few years ago so my memory is slightly hazy) in Chinese stores. The manufacturer gave stores free soap samples to hand to their customers.
A month later, the manufacturer was quite upset, because brand awareness hadn’t increased. So Crow went to investigate. He found the stores and discovered several problems.
1.) Many stores were selling the “free” samples; because they figured it didn’t matter if one brand of soap was more popular than another; because they weren’t in the business of selling soap, consumers could buy their soap anywhere so giving soap for free would do nothing for their store! (They didn’t believe they could build store-brand loyalty with customers by giving something away for free- see point 2). And by selling the soap (cheaper than other brands), they could gain extra money that their neighbor stores wouldn’t get and could still win a little customer loyalty since customers would be glad that store A offered better prices!
2.) If something was free, many customers figured, it must be lower quality, or spoiled. So they didn’t want to take free samples. Only the poorest of the poor took the free samples, and they couldn’t afford to purchase this expensive soap anyway, so the marketing tactic fell flat!
Oh, China- such an Odd and wonderful Capitalistic place.