Saturday, May 25, 2013

The New York Times and Barbara on China's Economy

Link: The Year of the Pig (It Crossed My Mind)
I saw an article in the New York Times this week talking about the Chinese economy and the central government in Beijing proposing a radical new plan to unleash the business community. The Times says the party is considering....

…reducing government intervention in the marketplace and giving competition among private businesses a bigger role in investment decisions and setting prices. The overhauls, if successful, could also make China an even stronger competitor on the global stage by encouraging innovation and expanding the middle class.

My husband and I have been to China three times now.  We stayed for 3 or more seeks each time we entered the country.  We have traveled on subways, taken taxis and shopped....a lot.  While we don't really understand what is going on in that country, we definitely have a feel for what it takes to function.

Giving up control of markets and weaning the business sector off the financial support they have become accustomed to is going to be very difficult for government run businesses but that artificial market place is not what we saw come into play on a day-to-day basis. I don't think it is the story behind the Chinese way of life and how the common man and woman functions in that culture. There is now and always has been a whole world of business that does not even see the light of day. This is where the real China lives, works and shops.

We visit expat family in the eastern part of Shanghai (Pu Dong). Pu Dong is translated as east of the river and it is a huge very modern "city" that stretches from the Huang Pu waterway east to the Shanghai International Airport and beyond. It is home to huge foreign manufacturing companies. In order for us to visit  Shanghai central (Pu Xi), a shuttle, taxis and a long subway ride is required. There are train changes and sprawling underground stations to maneuver. This is where the real story of commerce in that huge city begins.

Substations on the subway have become the home to every kind of market. When we went to China the first time in t 2006, those markets that sold knock-off goods operated in open air spaces very near the city center.  There was no attempt to hide or even control all of the merchandise that came out of the back doors of manufacturers.  But when the world came to visit, the Communist party was the recipient of an outcry by the US government asking  them to stop selling US products at a cut-rate price. China wanted to fit into the world market so they made an effort to at least make this segment of the business community less visible. They wanted to give the outside world the impression that they were trying to control the sales of illegal knock-off goods. 

So the obvious solution was to move the markets into their ever-expanding subway system. Out of sight out of mind. For the over six years we have been visiting Shanghai, the market we used has been moved several times. But the beat goes on. The people know where they will be relocated by word of mouth.  Even expats are privy to the information if they pay attention.

This underground world does not appear to be under the Communist Party control. I cannot imagine that there is not a lot of protection money exchanged but who knows. They are definitely not following the Party line. Vendors are setting prices and bargaining is necessary if the buyer wants get a fair price. If you are going to navigate this world, you will need to learn to offer less than the vendor is asking. The Chinese people are adept as the process and like any other county in the world that has a culture like this, unrepentant if they get more than they are due. 

On the other hand, if you are traveling in the country with a tour guide or with a group of tourist in a large group, you will be taken to government-controlled businesses. Local goods like pearls, silk and jewelry are sold at these stores and a "fixed price" system is used. Bargaining is not allowed. This is China’s version of a “tourist trap”. 

Even in People's Square in Shanghai the government must be controlling prices at the Chinese owned department stores. We could not afford to buy anything in those places. In fact, the quality of the goods was shoddy and unattractive. I would not have bought them at any price. Basic items like socks or sweaters were very scarce. Children’s clothing was nowhere to be found. We wondered how they could even stay in business. I don't imagine they could without government support. The competition from the foreign owned department stores doing business in the country now is becoming more and more of a problem for them I think.

While huge grocery stores and big box stores serve expats and the more wealthy Chinese citizens in Pu Dong, the villages and back streets are home to markets where the local Chinese buy their clothing, food and fresh vegetables. We have not shopped for food in these places but we have seen where the produce is grown and how animals are hung to season along side the road. We would not survive this food but it is fine for those living with the conditions. It is neither bad nor just is.

We traveled with a tour guide in Beijing before the Olympics. She was with us for 3 days. A driver accompanied us and he controlled how long we were required to stay at government-sponsored businesses. We ate together and the driver always sat beside the guide. I don’t know who was listening to whom but there was a feeling that each was a little uncertain of the other. In fact, the tour guide actually whispered behind the drivers back when we asked about things like communes once used for the re-education of social dissidents. We were treading on thin ice when we even asked and we knew it. It didn't take us long to get a feeling for the veil of secrecy surrounding everything in that world, even it's history.

I might add here that our tour guide was either a Party member herself or would be one day. She had been raised with the ideals, touted the virtues of Chairman Mao in a way that left you no doubt about her feelings and truly loved her way of life. She told us her parents knew every word of the Beijing Opera and attended as often as they could. She was evidently raised with educated people around her.

But...the guide was more than willing to take us to knock-off markets. While she did take us to the government-sponsored business as required, she did not push the products. She and the driver may have been paid a fee for just bringing in buyers. I bought silk, pearls and pirated recordings of American and Chinese music on side streets. She would tell us if the goods we were looking at in the government stores were priced right or not. We traveled north of Beijing down back roads to the Great Wall and we were taken to eat at her favorite restaurant where we caught the fish that were prepared especially for us. We watched real “Chinese noodles” being prepared in the window of the restaurant she said was her family’s favorite.

Every time she did something outside the normal, she would say, "Don't tell anyone!" But it seems that money talks no matter where you are.  She knew she would be tipped generously if she did what we wanted and liked. She also knew that more business would come her way if we liked what we saw. She and the driver tiptoed around the legal, expected and financially expedient.

So in China the free enterprise system is alive and well down at the level where the majority of the people live. I think there really is no way to control it. The officials are golden as long as they make money for the country and one gets the feeling that the bribe system is alive and well. I believe that is why you see horrible incidents like poisoning of children with milk cut with chemicals, tainted tooth paste or schools collapsing killing the students. I think the officials are rewarded or have a private interest in keeping construction and manufacturing costs down. There is no "doing the right thing" and they are only punished if something goes wrong. They are willing to take the chance because the rewards outweigh what happens if things go wrong. Business is much the same there as it is here in the United States.

It will be very interesting to see the changes that take place in China if the free market is unleashed and the private sector is allowed or forced to take control of their own world. I have a feeling that many of those government owned businesses will fail. I cannot even speculate on how the changes will trickle down to the markets hidden around every corner in that country. 

We will be going back soon but we are able to afford to buy less and less each time we go. The climate is changing and prices are going up everywhere. We see the expansion of the upper class and the wealth being displayed by young people able to tap into the business market and what it had to offer. It is absolutely amazing. Shanghai is looking a lot more like the Paris of the East it was touted as being before the revolution. In order for us to see what we saw just six years ago, we need to go farther out, away from the city center or into the subway tunnels. In fact, before long,  I think we will need to go to Vietnam.

As for these economic changes, the Times says:

To succeed, China’s leaders will have to fend off powerful interest groups, as well as corrupt officials who have grown accustomed to using their political power to enrich themselves and their families through bribes and secret stakes in companies.

Maybe the time for change is becoming evident even to officials. Or maybe they have begun to acknowledge what is already happening. The economy is slowing down and there is a feeling in the wind I think. Some of the people of China are waiting I suppose. But for the vast majority of the Chinese people, life will go on as it has for thousands of years.  

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