National Observer: Australia and World Affairs, No. 85, 2012

Seven things you didn’t know about China

by Jeffrey Babb

 

1) After 30 years of double-digit economic growth, most Chinese are still poor.

Most foreigners see only two cities in China, Shanghai and Beijing. The so-called second-tier cities, such as Dalian, Zhengzhou, Chengdu and even Guangzhou, are off the radar. Take Zhengzhou, for example. It is a city of 8 million people; it is the capital of Henan Province, one of the most populous provinces in China; and it is the major north-south east-west rail junction for China. It is also a major industrial city, and Foxxcon — the Taiwanese firm that makes most of the Apple gadgets — will be moving a large part of its operations there soon. Zhengzhou is also known as China’s Chicago. This is because Henan, which grows more wheat and hogs than any other province in China, is still dirt poor.

Why? Because China’s growth has been based on two things — infrastructure (a great deal of which is virtually unused, such as the empty eight-lane highways with no cars) and exports. Poor China, by keeping its exchange rate artificially low and subsidising exports, is flooding the West with cut-rate goods subsidised by poor Chinese taxpayers. Most Chinese live in miserable conditions and save every cent they can. The people who are benefiting from China’s explosive growth are Western consumers, not the Chinese.

 

2) Nobody lives in new houses in cities all over China.

Most new houses in China are empty. How do we know this? If you look at any block of new apartments at night, out of dozens, perhaps hundreds, you will see maybe four or five with lights on. They are the ones that are occupied. Any Chinese knows that keeping the lights on for more than a minute more than is necessary is akin to financial suicide. The idea that a landlord would keep the lights on in an empty apartment is simply laughable.

Why are they empty? Because Chinese apartments are not fitted out: they have no sinks, no lights, no bathroom, no paint — sometimes not even internal walls. They don’t fit them out because the people who buy them are speculators. These apartments don’t produce income. They have no intention of living there or fitting them out. Why? Because Chinese will never buy second-hand houses — they only ever buy new houses. If anyone lives in them, they won’t be able to sell them.

I have seen developments with dozen of blocks — not apartments, but blocks of apartments — with only one or two apartments occupied in each block. Why do they do this? The answer is money. The central government believes, with very good reason, that the local governments are irretrievably corrupt. Beijing doesn’t give them any money, but they need money. So they sell their major asset — land.

In China, all land is owned by the state. At best, private occupiers get a 70-year lease. So local government officials sell the land for housing to the usual corrupt gang of developers with whom they sit around at night drinking bai jeou — literally, “white wine”, similar to mao tai — attended by beautiful young hostesses. Unfortunately, the land is always occupied by someone already who does not want to move as the compensation offered is very small. And if they are reluctant to move? Send in the goons! And if they still won’t move? Then beat them to death!

Besides providing revenue for local governments, apartments use a lot of steel, copper and other metals and fittings, the raw materials for which come from — guess where? — Australia. And what happens if the Chinese stop using rebar, hardware, pipes and all the rest of it? We’re in trouble.

Let me tell you a story. My father was a panel-beater. He had a very successful small business. His idea of investing was to run all over Perth looking for half a per cent better rate on debentures, which a great many of you will recall were issued by finance companies associated with major banks when the government restricted their lending activities. It was useless explaining to my father that debentures were the most tax-inefficient form of investment there is and that he was getting a net negative rate of return after tax. He just loved getting pre-tax checks for $10 and $20 in the mail every day.

After my father passed away, my mother took the bold move of buying shares. I introduced her to Margaret Hill at Ord Minnett in Melbourne. Margaret picked a very good portfolio, which has done very well. Before executing the order, Margaret said, “Now, Mrs Babb, I must warn you that some of these shares may go down.”

“Oh no, Margaret,” exclaimed my mother. “I don’t want those sorts of shares. I only want shares that go up.”

Unfortunately, all over China, for the first time in a decade, apartment speculators are finding that the price of apartments can go down as well as up — and they are very, very angry.

My rule of the thumb is — no apartments means no steel, which means short rations for the Fortescue Metals Group, because it has nothing going for it except iron ore, while BHP and Rio have other things to fall back on.

 

3) The one-child policy is a myth in large parts of China.

I have spent the last four years teaching all over China. I will not be doing this in future, for reasons I will not go into here. The last place I taught was Luoyang, which is one of the ancient capitals of China. It has a population of 6 million — a smallish city, in Chinese terms.

Luoyang is the second largest city in Henan Province. It is a very interesting city, though not always a pleasant one. For example, the first day I was there I saw a homeless man eating out of a slops barrel, right in the centre of the city. Although for centuries Henan has been the granary of China, it is also one of the poorest provinces and prone to famine. Indeed, there was a drought when I was there and in the old days people would have been dying in the street.

However, when I asked my students how many brothers and sisters they had, I was surprised to find most had two, three and sometimes four siblings. The authorities and the farmers simply ignored the one-child policy. By the way, the polite term is farmers, not peasants. Peasants, despite 60 years of being the “cutting edge” of communism, are still regarded with contempt by urban dwellers.

One of my best friends at the university was a young man named Joe. He was a student organiser for the Communist Party. He was an excellent at this task, tireless and inventive. I asked him why he was doing it. He said, “I come from a very poor family in the country. I have three sisters. It is very expensive to have sisters. To pay off the fines to the government and the bribes to the cadres, my father literally worked himself to death. The only way I can get ahead is through the Communist Party.”

I have no way of knowing if this is typical of rural China, but I suspect it is. Ethnic minorities are not subject to the one-child policy In Shanghai, if two single children marry they can have two children. But most women in Shanghai want only one child, as do women in Beijing and every other major city. The more prosperous they are, the fewer children they want. It is said that it is harder for officials to have more than one child, but I don’t believe it.

As for horrors like forced abortions, there is no doubt they occur, but just how common they are I don’t know. I suspect that, the Chinese being Chinese, the women who want more children are pushing the envelope. All I can say is that China is an immense country in terms of landmass — it is larger than Australia — and population.

It has always operated the same way for thousands of years — Beijing sets the policy and the local governments carry out the instructions. The way they interpret Beijing’s instructions often varies considerably from province to province, and even from village to village within the same province.

 

4) Socialist China doesn’t have government health insurance but capitalist Taiwan does.

There is only one way to get medical and hospital treatment in China — cash on the barrel. No money, and you die. Some of you may recall the 1983 film Rickshaw Boy, a savage indictment of the treatment of the poor in pre-revolutionary China. The rickshaw boy’s wife goes into labour and develops complications. He seeks medical care for her, but can’t pay for it. She dies an agonising death. It still happens in the new China.

Taiwan, on the other hand, has universal health care. Because Taiwan is the source of much of the world’s high-tech medical equipment, the standard of treatment in Taiwan is often far superior to that found in advanced nations such as Australia and light years ahead of China.

 

5) Most major companies are either owned or run by the government.

There are no independent businesses in China. Even the lowliest noodle stall exists only with the tolerance of the government. As far as business is concerned, top personnel are rotated through the party, the government and big business. The cadres are often totally incompetent as businessmen; but that doesn’t matter, because one day they will rule China.

Take Haier for example. Haier, in the space of little more than a decade, has become a Chinese-based multinational enterprise and one of the world’s largest appliance-makers. Its ascent has been near miraculous and various theories, such as a close connection to the security apparatus, have been advanced to explain its success. However, one thing is sure: no-one knows who actually owns Haier.

 

6) Decisions at the local level are taken by an unholy trinity of the party, the government and business.

As I mentioned previously, I have spent the last four or five years teaching in China at university level. My area of expertise is commerce. I taught management, marketing, risk management and knowledge management mainly.

Without exception, all over China, the majority of my best students were young women. They would sit in the front row, take down everything I said, ask intelligent questions, do their homework and in general were a delight to teach. The boys, on the other hand, when they didn’t cheat outright, were happy to just clear the bar. A large proportion would arrive in the morning, have their name marked off on the roll, then leave at the break. Another group would put their heads on the desk and sleep, because they had been up all night playing computer games. If you roused them, they would look at you bleary-eyed, then go back to sleep again. One teacher used to cuff them around the ears, but even that didn’t work.

I said to one local Chinese teacher: “My boys are all hopeless. None of them is going to get a job.” “Oh no,” she said. “They will all get jobs, but none of the girls will.” This amazed me, so I said: “But the boys all struggle. Most of them are lucky to pass, but the girls all get distinctions and high distinctions.”

“You misunderstand the nature of business in China,” said the Chinese teacher. “The boys will go to hostess bars, drink bai jeou and make connections with their customers. That’s their job. A girl couldn’t possibly do that. The girls might be personal assistants or work in the accounts department. They are never going to do any real business. Of course, the boys will form connections with the government officials, the cadres and so on. That’s their job.”

 

7) China will not have the capability to successfully invade Taiwan for at least 30 years. The People’s Liberation Army are the last Maoists.

A lot of rubbish is being talked about the so-called first Chinese aircraft-carrier allegedly having been a Ukrainian aircraft-carrier, but it is more properly called a former Soviet aircraft-carrier. The Soviets only ever had two effective conventional aircraft-carriers, the Minsk and the Kiev. Both were sent to be broken up after the break-up of the Soviet Union.

The Chinese aircraft-carrier had a “ski jump”. Incidentally, my dormitory in Dalian overlooked the dockyard. Dalian is in what the Chinese call deng-bei, or “east north”, or what we would call Manchuria. It is a centre of heavy industry, producing ships, railway engines and rolling stock and chemicals. It has also attracted a lot of foreign investment, especially from the US and Japan, and now includes a large chip foundry.

Back to the Chinese aircraft-carrier. Even People’s Liberation Army (PLA) personnel acknowledge it will be at least 20 years before the Chinese navy will be battle-ready. They know as well as anyone that taking on something like the USS Nimitz today would be a total mismatch. They hold greater hopes for the Sunburn missile as a “carrier killer”, but even that has a long way to go before it is a real threat. At the time of writing, the Chinese aircraft-carrier wasn’t even in service.

According to Mao, “the party controls the gun”. Not in China. The PLA is a semi-independent force in Chinese politics. It is strongly Maoist and more or less does as it pleases. There is certain to be some sabre-rattling, especially in the South China Sea and maybe across the Taiwan Strait if the independence-leaning Democratic Progressive Party led by Tsai Ing-wen wins the election in there.

The PLA is smart enough to know that it can’t invade Taiwan without air superiority, and the PLA is also smart enough to know that if push comes to shove the Americans will back Taiwan. The PLA won’t have air superiority because the US has just undertaken to supply Taiwan with new F16s and because a couple of US carriers could blast the PLA air force out of the sky.

Traditionally, the Chinese say, “You don’t use good iron to make nails.” In other words, good men don’t become soldiers, reflecting the traditional view that soldiers are robbers and ruffians. However, the PLA commands a great deal of respect among the people of China gained through the revolutionary era, which the PLA leadership play on to get their own way. Joining the PLA is regarded as being a good career move.

 

About the author

Jeffry Babb has spent 12 years in Taiwan and mainland China, and speaks fluent Mandarin Chinese. He has travelled all over mainland China as a university teacher and traveller. In Taiwan he was chief copy editor for China Post in Taipei.

 

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National Observer: Australia and World Affairs, No. 85, 2012