For years, Beijing has been reporting tremendous growth figures, but now the unbridled economic boom is causing concern within the Communist Party leadership. However, the fate of many a nation now depends on the Middle Kingdom’s economy.
He is soft-spoken, committed to the issues, always smiling and always prepared to recite a verse of classical poetry. Chinese Prime Minister Wen Jiabao, 61, in office for the past year, seems completely different from his predecessor, Zhu Rongji, who was more prone to lose his temper and tended speak sharply when calling his comrades to order.
Europeans will soon be able to get to know this friendly gentleman up close, when Wen travels to Germany in May. He also plans to visit Great Britain, Italy, Ireland and the EU headquarters in Brussels. The timing of the trip couldn’t be better, as a wave of euphoria for China is currently surging through Europe. In contrast to Beijing’s earlier leadership, the new heads of the Communist Party enjoy favorable public opinion as they preside over a country in transition.
Western politicians, entangled in endless debates over reform at home, openly admire the Communist Party’s ability to make decisions. However, they forget that Beijing’s rulers have a tendency to accuse their critics of "subversion" or "divulging state secrets" and lock them away in camps and prisons. Managers are envious of these Far Eastern functionaries’ ability to gain speedy approval of investments without concern for public opinion, environmental protection or legal requirements.
"It’s incredibly exciting" to see "how people want to move forward," enthused the Executive Chairman of Schwäbisch Hall, Alexander Erdland, at the February dedication of a joint German-Chinese building and loan association in the port city of Tianjin. The former CEO of chipmaker Infineon, Ulrich Schumacher, is also filled with praise for China, claiming that decisions that "would be discussed for three weeks" in Germany are made here "in 30 seconds." China, it appears, is the flavor of the month these days. Hardly anyone can afford to ignore the previously spurned Red Empire, despite its having a business climate characterized by corruption and legal uncertainty. Its more attractive features include low wages, pliable workers, and the prospect of millions of new customers. Investors figure that the only way to keep up with the low-cost competition is to establish a local presence.
"China is our global factory," says Siemens CEO Heinrich von Pierer. He is especially impressed by the fact that more than 325,000 engineers are trained at China’s universities each year.
To curry favor with the Chinese, Wen’s host, Chancellor Gerhard Schröder, as well as the French and Italian governments, are prepared to go to great lengths to kowtow to the Dragon Throne. Berlin, entirely in support of Beijing’s position, spoke out against the independence referendum being considered by Taiwan. Schröder also intends to do his best to overturn the EU weapons embargo, imposed after the 1989 Tiananmen Square massacre.
There is no mention of at least demanding, in return, the release of demonstrators who have been imprisoned ever since. After all, Schröder said in December, China has become "a completely different country" during the past 14 years.
This certainly applies to its economy. Last year, it grew by 9.1 percent, thereby reaching a new historic high point. On average, each Chinese citizen produced products and services valued at more than 1000 dollars during the year.
The world is impressed, just as it was 30 years ago, when Japan was praised as a model of modern management. Is China following in Japan’s footsteps?
It is too early for exaggerated optimism, as the data obscure the other side of this economic boom. China’s functionaries love to doctor their statistics. Experts say, for example, that of the 53.5 billion dollars in foreign investment Beijing attracted to the country last year, at least a third came from domestic companies that set up fictitious businesses in Hong Kong or the Caribbean to pose as "international investors" to qualify for lucrative tax breaks.
For the Communist Party leadership, the economic boom seems to be causing more reason for concern than elation. Because the country’s power plants cannot keep up with dramatic increases in demand for electricity, many cities are experiencing power failures. Factories in Shanghai, including a Volkswagen plant, are forced to shut down their assembly lines for hours at a time. Beijing is in danger of succumbing to total gridlock.
The economy has grown even further (9.7 percent) during the past three months. If it becomes overheated it could implode, leading to bankruptcies and large-scale layoffs. Prime Minister Wen warns that "this is an extremely critical time for our economy, which has experienced rampant expansion in some areas."
Take the real estate sector, for example. In a gray office tower recently constructed in Beijing’s eastern district by a state-owned weapons manufacturer, the only tenants so far are a bank branch and a restaurant. Otherwise, the building remains vacant. This worries the company’s manager, Mr. Wu: "Most of Beijing’s office buildings are half-vacant."
Meanwhile, even small provincial towns are embarking on beautification projects, building enormous public squares, broad streets, administrative buildings and conference centers. However, the investment disasters come with two benefits: the construction bidding process generates enormous kickbacks for party functionaries, and the projects themselves inflate China’s gross national product.
The government now plans to cautiously cap the economy’s excessive pace of growth at about seven percent. It has instructed government lenders to impose more stringent requirements on real estate development projects. It also plans to reduce the number of steel, aluminum and cement factories to be built in the future.
President and Communist Party leader Hu Jintao and Prime Minister Wen are in a catch-22 situation. They are dependent on strong growth. Each year, 12 to 15 million new workers and about 2.8 million university graduates enter the job market, and they can only hope to find work if China’s economy continues to surge ahead. This is also the only way to avoid social unrest.
Instead of moving toward a classless society, as the party once promised its subjects, China is now a country in which the divide between the wealthy and the poor is as vast as it was in pre-Revolutionary days. Shanghai’s economy now rivals that of Portugal, while the enormous country’s western provinces are barely on a level with Senegal or Uganda.
The residents of big cities, whose incomes have consistently increased in recent years, represent one of the reformers‘ greatest success stories. While they can now afford mobile phones, cars, apartments and trips overseas, the economic wonder has almost completely bypassed the once transfigured proletariat of workers and farmers. Today, Chinese workers in the electronics factories and textile mills in the southern Pearl River delta region earn as much as they did in 1993 – about 600 Yuan a month, or about 61 Euros.
Migrant workers, who mix cement and haul bricks on the country’s construction sites, are shamelessly exploited. By the end of 2003, private and government-owned contractors still owed them salaries on the order of about ten billion Euros. According to the government association of trade unions, this comes to about 1000 Euros per worker – more than a year and a half’s worth of wages.
"In the past," says a Beijing professor, "Manchester capitalism was something you read about in books. Today, all you have to do is take a drive through China."
Most of the country’s 800 million farmers face a similar fate. In some cases, their incomes have even declined in recent years. Now the government plans to reduce farm taxes and pump 15 billion Euros into the agricultural economy. To be successful, says Communist Party financial functionary Chen Xiwen, the government should not focus as heavily on the gross national product and on major projects, but instead should examine "how they contribute to consistent growth in income among farmers."
The difficulties faced by the four largest state-owned banks have also dampened the spirits of key functionaries. The banks are currently saddled with bad loans on the order of at least 420 billion dollars (about a third of the gross domestic product). In reality, they should have been bankrupt a long time ago. However, the banks are needed to keep ailing state-owned businesses alive with constant infusions of cash.
To stabilize two of the banks, the Ministry of Finance has provided them with 45 billion dollars from its currency reserves. However, the state-owned banks cannot be saved by capital injections alone. When China joins the World Trade Organization in 2007, these banks, which generally operate with incompetent managers and inflated staffs, will be forced to compete with foreign banks. "We cannot afford to lose this battle brought about by reform," warns Prime Minister Wen.
After all, it is not just the fate of 1.3 billion Chinese, but also the well-being of other nations that hinges on the economy in the Middle Kingdom. A decline in growth is likely to have adverse effects on many countries. Jesper Koll of investment bank Merrill Lynch predicts that "if China puts on the brakes, Japan will crash-land."
This is why China is both a blessing and a threat to its neighbors. Many investors have already set up shop in Beijing and Shanghai. Countries like Malaysia, Indonesia and Japan supply the growth market with rubber, palm oil, wood, and computers. South Korea’s shipyards have never had as many orders as they do today. China seems to have an unlimited demand for ships.
Even superpower USA is economically tied to the People’s Republic, its third-largest trading partner. In recent months, Beijing has invested about 100 billion dollars in US government bonds. This means that the Chinese are funding the US budget deficit and, indirectly, Washington’s Iraq war.
The party, as willing as it is to engage in economic experimentation, is not interested in changing the country’s political system. This is made evident by the case of Jiang Yanyong, a popular military physician who alarmed the public last year when he disclosed the true proportions of the SARS epidemic. In a recent letter to the party, the doctor asked that it reclassify the 1989 Tiananmen Square massacre as a mistake and rehabilitate its victims.
At that point, the obliging Wen lost his patience. The Prime Minister fiercely defended the bloody suppression of the former democracy movement, treating the doctor’s challenge as a threat to the Communist Party’s power monopoly. "Unity and stability" of the state and party, he said, are and remain "more important than anything else."
Translated by Christopher Sultan
source: http://www.spiegel.de/spiegel/english/0,1518,297042,00.html 26apr04
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