Beijing Rising

[khlee () matai vuw ac nz <khlee () matai vuw ac nz>]

> From CND.
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2. Beijing Rising ..................................................... 242
5. "Greater China" on the March ........................................ 53
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2. Beijing Rising ..................................................... 242
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Forwarded by: Wu Fang (INT3FWU () MVS OAC UCLA EDU)
Source: The Bulletin 5/26/93
Written by: Frank Gibney Jr.
 
If there is a road to China's future, Highway 204 out of Shanghai is it.
Along its two dusty lanes, local tracks and buses jockey with Cadillacs
driven by financiers from Taiwan and Hong Kong investors.  Migrant workers
crowd the narrow shoulders. Factories line the highway, producing sneakers,
toys, plastics, clothes, aircraft components and medical equipment.
Eventually industry gives way to rice fields, which is being dug up to build
still more factories.  Cranes turn overhead as dump trucks and cement mixers
nose onto the road.  Outside the town of Jiading, one tractor-trailer leaves
Asia's largest container plant every three minutes, carrying goods bound for
the Shanghai docks.  The traffic on Highway 204 is so thick that the trip
from Shanghai to Zhangjiagang--only 115 kilometers away--takes five hours.
 
Zhangjiagang is a commercial hub of Jiangsu, the fastest growing province in
China.  China has the most dynamic economy in the world today.  Its boom
radiates from Guangdong, its richest province, but it has spread as far west
as Xingjiang, where foreign investors are searching for oil and other
natural resources.  It is creeping inland, from Jiangsu to the cities of
Chongqing and Wuhan, where businessmen from Hong Kong and Taiwan are
starting to spend billions of dollars to build factories. And it has
penetrated the northeast, where the city of Shenyang, long a moribund center
of state industry, is bustling with new private business, from trading
companies to prostitution.  Back in Beijing, officials at China's state
council, or cabinet, are giddy with excitement--and exhaustion.  'We don't
have people, we don't have time," said one.  "Things are moving too fast."
 
Is this the same China that was supposed to be on the verge of breakdown in
1989, when the Tiananmen Square uprising collapsed in a hail of bullets?
Many experts predicted then that China could not continue to prosper without
opening up to democracy.  The opening never came.  Yet, after a slowdown
through 1990, China's economy bounced back mightily, reaching a recent peak
of 13 percent growth last year.  Now, some Western experts are predicting
that China could become the world's dominant economy early in the 21st
century.  Many economists believe a standard estimate of China's per capita
gross national product ($370) is already two to three times too low.  And
former World Bank chief economist Larry Summers recently argued that China
could surpass both Japan and the United States to become the world's largest
economy by 2020.
 
A farfetched prediction?  The new American administration doesn't think so.
Bill Clinton has appointed China hands to top Asia posts at the State and
Treasury departments.  When critics called the appointments a slight to
Japan, the leading Pacific economic power, U.S. Deputy Treasury Secretary
Roger Altman explained that administration's reasoning: by early in the next
century, he said, China may replace Japan in importance to the U.S. as an
economic partner.  Japan recognizes the rise of China. As a warning shot in
an intensifying rivalry, Tokyo last week put punitive import tariffs on
Chinese steel.
 
Formidable bloc: China is reaping the rewards of reforms first launched by
Deng Xiaoping in 1979.  Foreign investment is now welcome.  Special Economic
Zones are booking.  The opening of securities and real-estate markets have
created new opportunities.  Growing ties between Chine's traders and their
partners in Taiwan and Hong Kong are creating an unofficial but formidable
"greater China" trade bloc.
 
Expansion has transformed places like Jiangsu province, where GDP grew 26
percent last year.  Six years ago Zhangjiagang was part of another town and
did not even have its own name.  Now it's China;s seventh largest port and a
tumultuous construction zone of half-built office buildings and hotels.
 
Clearly, China's economy is a work in progress, nowhere near realizing the
potential of its billion-plus population.  Its gross domestic product last
year was, according to the official measure, $420 billion--no more than that
of southern California. China remains primarily a nation of farmers, and the
transition to an industrial free market is much like the traffic on Highway
204--unpredictable.  Few state-owned firms have been sold, and most are
laggard behemoths.  Growth is driven by new joint ventures, collectives and
private businesses, which now account for more than 50 percent of China's
industrial production.  To survive, the private sector counts on protection
from its ailing octogenarian benefactor, Deng Xiaoping.  "We are still
governed by men, not laws", said a Chinese official.  "Until that changes,
we can never be sure what will happen."
 
In commercial hotbeds like Zhangjiagang, confidence is high. Zhu Yu Bao, a
member of the local Communist Party member of local Communist Party rand and
file, already knows a good deal about the transition to capitalism.  Zhu
started out as a warehouse worker in 1964--now the warehouse is part of
Zhu's budding empire in surgical instruments and metal tubing, which made a
$3 million profit last year on sales of $ 18.5 million to Europe and the
United States.  For his 2,000 workers, Zhu is building an entertainment
complex with dance halls and a nursery. For himself, he has ordered a nw
Mercedes 560.  Meanwhile, he is looking for overseas partners to create a
$200 million development of warehouses, offices and shipping berths on the
Yangze River.  "We have a saying here," says Zhu. "Your party rank doesn't
matter, only your profits."
 
Profits are up throughout the region--thanks largely to low wages.  Last
year the BeiBei company in Zhangjiagang cleared $14 million on exports of 10
million pairs of shoes to U.S. department stores.  At the BeiBei plant,
women huddle over a convey or belt in frigid temperatures, gluing rubber
sneakers together.  Typically, Chinese workers in a plant like this make
about 34 cents an hour, compared with $3.50 for Korean workers, according to
South Korean estimates.  That gives China a huge competitive advantage.
Just tow years ago South Korean manufacturers were flourishing on contracts
from western athletic footwear giants like Nike, Reebok and Adidas.  Since
then much of business has shifted to China, dealing a hard blow to the South
Korean shoe industry.  This is a blow to Seoul, but it also reflects the
fact that South Korea is moving to a high-tech, high-wage economy--leaving
China behind.
 
China is now reaching for the next rung on the economic ladder.  Last fall
Beijing agreed to open its markets to more U.S. goods, including everything
from Polaroid film to automobiles.  In return, Washington would support
China's membership in General Agreement on Tariffs and Trade.  Membership in
this club, which includes all the world's leading economies, could provide a
huge boost for a low-wage export economy. Already though, China's commercial
strength is starting to worry competitors.  Last year China's trade surplus
surged, buoyed by exports of toys, textiles and consumer electronics.  Its
trade surplus with the United States hit a record $18 billion.  Only Japan's
was larger.  With the U.S. Congress due to consider the renewal of China's
most-favored nation trade status in June, officials in Beijing fear the
trade imbalance could surpass human rights as a source of U.S. opposition to
preferred status for China.  "The trade surplus itself will be the No.1
problem this year," says one Chinese official. "After Japan, we'll be first
in line for retaliation."
 
At the same time, America has an increasingly large stake in good relations
with China.  In 1992 American companies led a rush of foreign investors who
signed more than $30 billion worth of contracts in China.  (That is 30 times
more than the 1987 record for annual foreign investment in South Korea).  In
Shanghai, Tianjin and other urban centers, China is trying--with
considerable success--to attract high-technology firms that will modernize
its economy.  McDonnell Douglas has built 35 MD-80 series aircraft in
Shanghai--and has contracted to build 40 more. General Motors and Ford are
rushing to establish a beachhead there.  Throughout China, foreign firms are
building plants for copiers, computers, and industrial machinery.
 
Even more striking, China's entrepreneurs are starting to hunt for
opportunities abroad.  In the last year Capital Steel, a state-owned
conglomerate with 205,000 employees, purchased steel operations in the
United States and announced plans to build semiconductor chips in
cooperation with NEC of Japan.  In December Capital outbid a
Japanese-Mexican-Chilean consortium to buy Peru's leading iron-and steel
complex, Hierroperu.  The $312 million purchase makes Capital the second
largest foreign investor in Peru.  Other state-affiliated companies,
including ICTIC and China Resources, Inc., are branching out from Hong Kong
to establish overseas posts as varied as diamond-trading operations in Sri
Lanka and brokerage services in New York.
 
In Shanghai, which is re-emerging as a vibrant commercial center after
decades of communist repression, Executive Vice Mayor Xu Kuangdi says a "new
man"--cosmopolitan and business- smart--is rapidly replacing China's old
party hacks.  Indeed, new men can be seen in all the best hotels, wearing
new suits and talking into cellular phones.  They are making a go of
enterprises like Venturetech, established in 1985 with few assets other than
close ties to the government.  It has parlayed those contacts into $700
million in assets, including some of the most valuable real estate in
Shanghai and Beijing.  Among its latest projects: a joint venture with
Goldman, Sachs to establish a China mutual fund in the United States.
 
The problem, of course, is that the new man may also be a party hack.
"Every company you visit, the party secretary comes out and presents his
card as the chairman of the board," says David Zweig, and American academic
who has studied Zhangjiagang. Moreover, party members are growing more
brazen about using their position to demand cash.  Says a prominent Chinese
banker in Beijing, "The party is starting to act like the Mafia--demanding a
piece of the action for certain services that no one else can deliver."
Does the party hear the stir of discontent?  In Beijing, the Central Party
School recently contracted a leading american advertising agency, but not
for advertising.  The firm will give lectures on crisis management and
public relations.
 
A get-rich-quick ethos is spreading, and not only inside the party.  In
Shanghai, one in five families has money at play on the stock market.
Security guard Bai Chun was so poor that his wife regularly threatened to
divorce him--until he hit a stock jackpot last year.  Now Bai has $40,000 in
the bank, and leads lunchtime investment discussion at the auto-parts
factory where he works.  As employees mull stock picks, the plant is losing
more than ever.  "There is a lot of tension with people who aren't in the
market," Bai admits.
 
For those in the money, China has become a land of routine luxuries.  In the
mid-1980s, Beijing heralded the arrival of washing machines, refrigerators
and tape players in every household.  Now it's compact-disc players,
Nintendo game sets, imported jewelry and a bottle of Courvoisier on every
shelf.  By the time it had been open three hours last month, Nike's first
shop in Shanghai had sold more than $6,000 worth of sneakers, at between $50
and $100 a pair.  But the poor Chinese laborers who stitch those sneakers
together can't afford them on $30 a month. Who can?  At one high-rolling
financial house in Beijing, foreign-exchange traders get a car, a house and
$20,000 annual salary before commissions.  "The income gap is getting bigger
every day," says an economic official for the central government. "It may
soon be the biggest in the world."
 
Growing Tension: That spells trouble for Beijing.  The perception of
widespread inequality and corruption, coupled with double-digit inflation,
helped lure thousands of people into the streets in 1989.  Now, the tension
is ratcheted up by growing pockets of regional poverty; this year as many as
190,000 peasants a day have surged into guangzhou in search of work. Back in
Shanghai, the commercial beat goes on: advertisers hawk everything from
Pond's Cold Cream to $3,000 Rado watches. Insurance salesmen knock door to
door.  There's a new television station and a 24-hour radio station with
call-in.  At J.J.'s Disco, a new Hong Kong joint venture in a converted
theater, office workers can afford the $4 entrance fee--but not the
prostitutes who charge $80 a fling.  Police occasionally raid other
Taiwan-style clubs, but  Shanghai businessmen say that, for a price, even
police will look the other way.
 
To punish or to profit?  It's a common dilemma as China's bureaucracy
muddles through the contradictions of a "socialist" market economy.
Consider the satellite-television business. According to the Ministry of
Radio, Film and Television, Chinese are prohibited from owning satellite
broadcasts.  That's dead wrong, says the machinery and electronics ministry,
which makes satellite receivers.  Who's right?  A recent report in the
party- controlled Economic Daily offered a hint:it predicted satellite- dish
sales would balloon to 500,000 this year, up from 30,000 in 1991.
 
Even as the party promotes growth as a national priority, it worries about
going too far.  Inflation has recently climbed back into double digits, and
the party press is issuing strident warnings, urging restraint on buyers and
sellers alike.  Rapid development is overwhelming China's antique transport
networks. Energy brownouts are a regular occurrence in Guangdong and
Shanghai.  Everywhere, however, solutions are impeded by bureaucratic
inertia and ideological thick-headedness.
 
In the "socialist market economy", privatization is still a dirty word.  A
plan to begin closing state-owned plants last year was shelved after
demonstrations at several of the targeted factories.  Meanwhile enterprises
that should  be closed or scaled back are instead spending state funds to
play the stock and real-estate markets.  When the shakeout comes, some
economists suggest that the number of unemployed and underemployed could
reach 150 million within 10 years.  Warns a Western economist who has been
watching China for 10 years:"Whether it is retail-price inflation or an
overloaded infrastructure, you can't grow this fast for too long.  Something
will stop you."
 
This brings China's leaders back to their original post- Tiananmen
dilemma:how to build a market economy without allowing democratic reform.
In recent years Deng Xiaoping has promoted rapid growth as a way to
legitimize Communist Party rule.  So far, the strategy has worked--but it
has also created new problems that could undercut both the party and
continued growth.  A real solution is unlikely while Deng and his generation
of revolutionaries are still alive.  In the meantime, according to internal
government documents, Beijing has cut this year's growth target from 10 to
8.5 percent, in an effort to keep the economy from careering out of control,
just as it was cut back in 1989 and 1990 when it overheated.  "We need a
smooth transition into another system," says the head of a research
institute in Shanghai.  "But no one in the world has a design we can use, so
we just have to experiment."  Even 8.5 percent growth a year doubles an
economy in 10 years.  China's "new man" may well find himself astride one of
the world's largest economies in the 21st century.  And the rest of the
world will look foolish if it lets itself be caught by surprise.
 
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5. "Greater China" on the March ........................................ 53
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Forwarded by: Wu Fang (INT3FWU () MVS OAC UCLA EDU)
Written by: Paul Maidment
 
Without fanfare or formality, southern China, Taiwan and Hong Kong are
forming an informal regional trading block.  This Chinese Economic Area
(CEA), or greater China, is a little-noticed but fast-growing power in world
trade.  It threatens to become an even mightier one.
 
China's economy is two and a half times as big as Taiwan's and more than six
times bigger than Hong Kong's, but all three are equally matched as traders
with developed countries.  Stripping out their trade with each other, the
trio now collectively accounts for 4.5 percent of world trade-- about the
same share as France or Britain.  Only the United States, Germany and Japan
have a substantially bigger share.  In 1980 greater China accounted for just
1.8 percent of world trade.  Thanks to fast growth of its manufactured
exports, the CEA is the third largest supplier to the United States, after
Canada and Japan.  It has also become a leading market for the United States
and Japan.  Other Asian dragons, such as Singapore and Thailand, are having
to cut their export prices to stay competitive.
 
If the CEA can maintain its rapid growth for another generation-- which
Asia's other dragons managed at a similar stage of development-- then it
will likely have a bigger share of world trade than Japan by the end of the
century--and be a bigger trading nation than even the United States in less
than 40 years.  Do not, though, get carried too far ahead of events by such
extrapolations.  Today, California is a larger economy than greater China.
 
Unlike the negotiated trade blocks of Europe and North America, greater
China is being knitted together by businessmen rather than politicians.  One
third of the trio's total trade is now among themselves, triple the level 15
years ago when China embarked on its economic reforms.  Investment,
financial and technological links have grown even faster.  China and Hong
Kong are the biggest direct investors in each other; Taiwan is the forth
biggest investor in China.  Hong Kong is both a source of debt  and equity
capital for China.  Even a 40-year ban on Taiwanese sending money to China
was lifted in 1990.
 
Potent mix: Taiwan's capital and technical and managerial know-how, China's
cheap labor and natural resources and the skilled financial and commercial
middlemen of Hong Kong--all held together by strong family and cultural
ties--make from a potent mix.  They have also helped make China's transition
from a planned economy so much smoother than in the former Soviet Union.
What next?  A common currency, perhaps?  Well, 20 percent of Hong Kong's
currency is already circulating in southern China.
 
[The attached figure] Three Become One
 
# Trade: China was an $8 billion export market for Hong Kong in 1992.
China-Taiwan trade rose from $50 million in 1978 to $7 billion  in 1992.
 
# Investment: Hong Kong and China are the biggest direct investors in each
other at $9 billion each.  Taiwan firms have put $3 billion into China.
 
# Finance:  Four fifths of China's big commercial loans are raised in Hong
Kong.  Taiwanese have remitted $120 million to China since 1990.
 
# Jobs: Hong Kong firms employ up to $3 million workers in Guangdong.