The greatest development story in history
has run into serious roadblocks in the past two
years.
China's mammoth and largely
successful efforts at improving the lot of its
billion-odd people have run into the realities of
the limits posed by centralized development. As
with the Indian story of
rural-versus-urban conflicts,
China's two distinct economies are spinning ever
faster away from each other. Only a renewed focus
on profitable growth can change the dynamics of
China enough to rebalance its social gaps.
The country has seen a steady rise in the
number of mass incidents/public disturbances since
the beginning of this decade. [1] While
authorities appear to have engaged in some
subterfuge in reporting the data recently, by for
example reclassifying different types of protests,
the overall message of higher public participation
seems irrefutable.
In a nominally
totalitarian state, such expressions of protest
may appear anachronistic, but they are well within
the character of today's China. Anecdotal evidence
from various second-tier Chinese cities such as
Shantou, Xiamen and Bobai show that protests over
local issues such as enforced family planning or
abrupt changes to development plans have quickly
attracted a gaggle of unrelated protesters and
quickly turned serious.
Central
planning As I wrote in previous articles,
[2] Asian governments have intervened repeatedly
in economic matters, and imposed grandiose
projects at whim. These have been funded with
public savings, and while the objectives of
employment generation and urbanization are both
laudable, many projects have failed to turn a dime
in profits. The result has been a mess of publicly
financed private vanity projects, which will
eventually cause billions of dollars' worth of
loan losses for banks if left completely
unchecked.
Various officials in China's
government certainly realize this, as recent
conversations showed a greater understanding of
the problem of "refreshing" defaulted loans with
new bank loans by many of the country's commercial
banks. Economic Ministry officials readily admit
that corruption [3] plays a large part in such
decisions, but are less willing to attack the
notion of central planning itself.
The
initial phase of growth using export-led
industries and ample local labor was easy enough.
However, this was heavily concentrated in the
southeastern part of the country, leaving other
regions untouched. In that respect, China's growth
looks exactly like India's even after keeping in
mind the higher level.
To change the
picture and allow for greater development, the
Chinese government has pushed local officials to
boost growth, thereby resulting in grandiose
building projects in many cities. When the large
number of vacant offices in Beijing and Shanghai
are kept in mind, it is indeed intriguing to
observe the continued eruption of new buildings in
other Chinese cities. That feature owes much to
people's demands for being included in the
country's growth, and thus today's boom in Chinese
construction is simply a bricks-and-mortar version
of India's attempts at affirmative action that I
wrote about in Part 1.
As with
the futile Indian attempt to select education for
candidates rather than candidates for education,
China is attempting to select businesses for
cities rather than the other way around. The
introduction of non-economic agents into any
economic process will cause imbalances. When one
of the agents - say the businessman taking charge
of the project - has goals other than profits on
his mind, for example the prestige associated with
being the biggest-in-show, other participants in
the project, including bankers and employees,
inevitably suffer. Away from boring economic
topics, we can instead focus on the price of
char siu, or indeed any other pork cut.
Hog cycles Despite all
machinations of centrally planned economies,
agricultural products often suffer serious
shortages or price hikes. Such incidents
accelerate whenever governments intervene to
control prices. The bread queues of the Soviet
Union have now been replaced with the pork queues
of China, but the process is in essence the same.
Since 2004, when pork prices declined
sharply in China, farmers have cut back on raising
new hogs because of concerns on profitability. The
decline in hog production was assisted by ongoing
population moves to urban centers, and also
increased prices for feed due to the overall
issues with food shortages. [4]
Ironically
enough, a pork-barrel project in a distant land
played a big part in the Chinese problem. The US
government's apparent efforts at reducing fuel
dependency on the Middle East by increasing the
use of "biofuels" such as corn-sourced ethanol
helped to push up corn (maize) prices globally,
which ended up hurting Chinese pig farmers,
thereby playing a direct role in the current spike
in pork prices.
Of course, Vice President
Dick Cheney and his cohorts have no intention of
reducing the imports of Middle East oil into the
United States, especially when the close
relationships with the region's execrable
dictators are considered. Their main objective was
to push up corn prices to help farmers across the
US Midwest, which counts as deeply powerful
Republican territory. As I noted in the previous
article on affirmative action in India, this was
simply America's version of a race to the bottom
in being politically responsible.
Back to
the situation at hand, just how concerned is the
Chinese government? Enough to send Premier Wen
Jiabao on a well-publicized visit to local
farmers' markets, wherein he reiterated the need
for pork prices to remain stable. In essence, the
message was one of admonishing farmers for cutting
production, but in so doing, Wen highlighted the
deep misunderstanding of market economies that
exists in Beijing.
Vicious
cycle China's version of misaligning its
economic forces looks like this: government
intervention to create grandiose projects, which
push up commodity prices, which in turn help boost
inflation. The government is no fan of inflation,
and so attempts to bump up production to meet
rising demand, but in so doing stands to lose ever
greater amounts from any bust in the global
economic cycle.
Its currency manipulation
is a futile device designed to keep this charade
going, but finally China has started importing
inflation from other countries such as from higher
oil and corn prices that have hurt feedstock
prices, in turn pushing up the prices of staples
like pork.
In addition to the obvious
message [5] that I have focused on frequently in
the past, the Chinese government also needs to
remove itself from the business of, well,
business. In particular, the local building
projects that have underpinned investment booms in
China over the past few years now look
overstretched. Public disturbances over the
illegal acquisition of land and other elements of
"growth at all costs" have increased dramatically
in recent years, which rising inflation can only
push to boiling point. The government thus has
little or no time to push through more aggressive
structural reforms.
The road to hell is
paved with good intentions; that saying appears
both timely and eerily predictive of the efforts
toward social justice in both China and India.
Notes 1. China Ministry
of Public Security and US State Department. 2.
Barbarians at Asia's
gates, Asia Times Online, January 27,
2007. 3. Wages of corruption,
ATol, August 19, 2005. 4. Toward food FTAs, ATol,
April 12, 2007. 5. Pegged problems, ATol,
May 25, 2007. This is the concluding article
of a two-part report.
(Copyright 2007
Asia Times Online Ltd. All rights reserved. Please
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