Sunday, 18 May 2008


The dragon awakens: China, how did it happen?

China's growth over the past few years has been nothing
short of miraculous, and it is predicted that the economy
will overtake America's within a generation. But how did it
all happen? And what are the implications for the rest of
the world?

By Hamish McRae Saturday, 10 May 2008

What is happening in China is the greatest economic story
on the planet. It is the world's biggest boom – and not
just the biggest boom right now, but the biggest boom that
has ever occurred in history. It is having profound effects
on our daily lives, from cheaper goods in the electronics
shops to more expensive petrol at the pumps. It is also
having a profound effect on global power. This year China
will in all probability pass Germany to become the world's
third largest economy, after the United States and Japan.
It seems likely to pass Japan within a decade and it is
possible, though this is much less certain, that it will
pass the US within a generation.

So we are seeing a reordering of the world. It is
inexorable and probably inevitable, but where might it run
and what could that mean for the rest of us?

The economic reforms of Deng Xiaoping began in 1978,
introducing – very slowly – the market system into what is
still in many ways a controlled economy. Now, a generation
later, we can see how what started as a quiet revolution
has now spread through perhaps half or two-thirds of the
country, transforming it from an agrarian society into an
industrial one.

There are still two Chinas. There is the China the visitors
see, the glittering cities of the great arc that stretches
down from Manchuria, with its port of Dalian in the north
east, past Beijing and Shanghai, and much further round,
Hong Kong, towards Guangzhou in the subtropical south east.
And there is the rural China, huge river systems, plateaus
and plains, that supplies labour to propel the growth but
which is otherwise largely untouched by what is happening a
few hundred miles to the south and east.

The statistics of the boom are astounding. China consumes
nearly half the world's cement and produces 40 per cent of
its socks. It commissions a new power station about every
four days and last year built as much power generating
capacity as the entire output of France. It plans to build
97 regional airports in the next decade. And so on.

You see all this. Visitors arrive via glittering airports
and head into town on six or eight lane highways. There is
the famous view from Shanghai's Bund across the Huangpu
river to the towers of the new financial district of
Pudong. There are Beijing's concentric ring roads, always
jam-packed with cars, and the new apartment blocks on the
outskirts of every large city. There are new flash hotels
and shopping malls, for China has elevated consumerism to
the pedestal once occupied by Communism. And there is the

Yet sometimes in the middle of the glitz you catch a
glimpse of the other China. I caught it twice on my most
recent visit. Once was walking at night beside a building
site in Pudong, when we found ourselves going past the
cabins where workers were sleeping in their tiers of bunks.
I suppose the quarters were perfectly adequate, if not much
fun. But you do realise that the great building boom could
not happen if there were not millions of workers living
away from their families and keeping the cement pouring.
China's birth rate is very low, thanks to the one-child
policy. Though that policy now seems to be being relaxed,
there will eventually be a demographic time bomb. But until
now there has been this almost unlimited supply of labour
from the land and the boom runs on.

The other occasion was on the train pulling out of
Shanghai. We were passing a wasteland, a site that had been
cleared for new building. I glanced out of the window just
as we were passing one of the last of the buildings left
standing and for an instant saw a group of concerned people
carrying out an elderly woman, who was clearly in some
distress. I am pretty sure she was being taken from her
home prior to its demolition. Then the train picked up
speed and we were gone.

Victorian England must have felt like this. Visitors to
Manchester were equally appalled and in awe of the
stream-driven cotton mills. Huge wealth; huge misery.
People ran to the city not because there were good jobs in
the mills but because it was a better living than they
could have had in the country. At least there was food to
eat and there was money to be sent home. And so the workers
flock to the cities in China, to what we would call
sweat-shops, to produce the toys, clothes and furniture for
the shops of the West.

Those a little higher up the income scale are the 400
million or so of the new middle class. They own their
flats, bought often with cash rather than a mortgage. Some
have in the past three of four years bought their first car
and it is often evident they are still figuring out how to
drive it. Goods are cheap. Everything is copied, which
makes life tough for Western companies trying to get in on
the act. Ikea wondered why its stores were full of people
but they were selling so little. What was happening,
apparently, was that people would come in and see an item
they liked and, instead of buying it, they would take the
catalogue and get a copy made up round the corner for half
the price.

Yet, despite the evident celebration of consumerism, most
Chinese save like fury. Only about 40 per cent of GDP is
accounted for by consumption, compared with 65 per cent in
the UK. Those savings are for all the usual purposes, but
most particularly for old age – for everyone knows that if
and when they retire they will have to provide for
themselves. They cannot rely on the state and maybe not
even, given the very low birth rates, their own children,
to support them. I was told by a young Chinese friend that
the gradual awareness that a daughter was more likely than
a son to be around to look after you in their old age was
rather changing the age-old preference for male babies,
though this does not yet seem to be reflected in the
statistics, or indeed in the streets.

Women, however, are sharing in the new prosperity. Two of
the young women whom we spent time with last year owned
their own flats and I am told that 30 per cent of the
Ferraris sold in China are bought by women.

So what will happen when China gets old? If you look at the
population pyramids of Beijing or Shanghai they are not
pyramids at all. They are diamonds: very few really old
people, a huge mass of middle-aged, and relatively few
children and babies. China's economic growth is being
driven by this big working population, which is supporting
relatively few dependents. That will change. When it does,
China's growth rate will inevitably decline. What we are
seeing now is a burst of growth that will gradually come to
an end. China will become a more "normal" economy in
another 20 years' time.

Making that transition from the present "big bang" to more
of a "steady state" will be tough. Coping with an ageing
population will be one of the three huge challenges faced
by the Chinese economy, but it is still a little way off.
The other two are more immediate: coping with the
environmental and resource pressures of growth; and coping
with the social and regional inequalities that it has
generated. What happens next depends crucially on how well
it succeeds.

We can, of course, only guess. What you can say is China
will continue to scour the world for resources. It was put
to me by a Chinese economist that it was like a hungry
teenager: it was putting on a growth spurt and therefore
needed to eat a lot to keep going. That is not going to
change, or at least not going to change while growth
continues. If China is forced to prioritise between growth
and the environment, growth will come first. But it would
be wrong to say that the Chinese authorities are
indifferent to the environmental consequences of this
headlong rush to grow. Everyone in authority voices
concern, even if they dislike being told by the West to
clean up their act. Talk about their carbon footprint and
they will point out that the factories that account for the
carbon emissions are making goods for Western consumers.

Still, the damage to the local environment is so obvious –
the air quality in Beijing or Shanghai, for instance – that
change will happen. If concern about Chinese public health
is a much stronger motive for cleaning the place up than
worries about what the rest of the world thinks, so be it.
But this will take time and a huge amount of damage has
been done.

Social tensions and economic inequalities may be even
harder to tackle. You can really only catch a feel for that
from the Chinese people themselves. A young Shanghai woman
told us how she and another friend had spent their last
holiday travelling round the deep country: they wanted to
see the other China. She described houses where the animals
lived on the ground floor, the family in the middle and the
fodder was stored in the loft. She realised that these
farmers had never seen people like her, the
foreign-educated, new middle class of the cities, just as
people like her never saw life in the countryside. They
could not communicate for there was no common language. The
division is even more stark than Disraeli's two nations: at
least we could talk to each other.

Investment in China's infrastructure is racing onwards and
eventually the deep rural areas will become better
connected to the burgeoning cities. Language barriers will
be overcome and so the regional chasms will be narrowed.
The social and economic gaps within the same regions will
remain and it is hard to see quite how that will be
tackled. At the moment the reverse is happening: there is a
celebration of wealth and the pursuit thereof. China does
not do guilt. Those that have it, flaunt it.

At some stage in the future there will be a bump. Maybe the
present global downturn will trigger a sharp slowing of
growth there, though previous ones have not deflected the
China growth project at all. Maybe, post-Olympics, the
pressures from rising world food and energy prices will
lead to economic or social disruption. There is always the
possibility of some disruptive political event: what
happens in Taiwan? More narrowly, the authorities have to
cope with the overheating of the economy and try to rein
back growth, always a difficult manoeuvre. But while I
cannot see straight-line growth continuing I find it hard
to see anything happening that would completely derail the
country's present run for growth. This has been running now
for 30 years. It has too much momentum to stop suddenly.
The Chinese authorities and the new middle class have too
much invested in what is a great success story to allow it
to falter.

I am not sure we in the West fully grasp the magnitude of
what is happening. Intellectually we can see it affecting
us but emotionally it is hard to understand that we are
moving towards a world where Western ideas, our ideas, will
no longer hold sway. China has other ideas. Those will
increasingly co-exist alongside ours in shaping global
economic and political development. You can see that most
obviously in Africa now. If a country seeking inward
investment does not want to submit to the guidelines of the
World Bank or Western donor agencies it can, if it has
something to sell, get China to supply the funds or build
the infrastructure instead. This is just an early sign of
the shift in power that will go much further.

We will not find this comfortable. What we think will
matter less and less. But we cannot do anything about it,
and in any case, consider the alternative. Would we really
want a China that was failing in economic terms, with all
the misery that would cause? That would surely be far more
dangerous and disruptive to the world than a continuation
of China's thrilling but terrifying success story.

China: In Numbers By Simon Usborne

30,000: The expected number of Chinese MBA graduates in
2008. The number in 1998: 0

5.7 million: Students graduated from Chinese universities
in 2007 (compared with 270,000 in 1977)

30: Number of nuclear power plants being built in China

500: The number of coal-fired power plants China plans to
build in the next decade

10 million: The estimated number of Chinese people who have
no electricity

97: New airports to be built in the next 12 years, bringing
the total number to 244 by 2020

540 million: Number of mobile phone users in China, with an
increase of 44 million in the past six months

180: The number of foreign press correspondents arrested or
harassed in 2007

67: The percentage of journalists who replied "no" when
asked in a survey by the Foreign Correspondents Club of
China if they believed Beijing had kept its promise to give
foreign media "complete freedom of reporting" in the run-up
to the Olympics. Only 8.6 per cent said "yes"

33: The number of Chinese journalists thought to be held in
prisons in 2008

95: The estimated percentage of DVDs sold in China that are
fake. Uncensored foreign films are widely available from

20: The approximate number of foreign films passed by
Chinese censors each year for screening in cinemas. Banned
films have included 'Ben Hur' (for its depiction of
religion), 'Brokeback Mountain' (for its homosexuality) and
the 'Borat' film (for its depiction of, among other things,

Passed films are often subject to further editing. Examples
include the deletion of scenes showing hanging laundry in
Shanghai in 'Mission: Impossible III' and the removal of
footage containing Chow Yun-Fat that 'vilifies and
humiliates the Chinese' in 'Pirates of the Caribbean: At
World's End'

160: Cities in China with populations that exceed a
million. In the USA there are nine; in the UK just two

80: Percentage of the world's zips produced in factories in
the Zhejiang Province city of Qiaotou (amounting to 124,000
miles of zip each year, or enough to stretch half way to
the moon). Qiaotou also produces 60 per cent of the world's
buttons (15 billion a year), while nearby Datang makes a
third of the world's socks. As many as 80 per cent of the
world's toys are made in China, which boasts more than
10,000 toy factories

21 million: The number of Chinese-made toys recalled last
year by the US toy company Mattel

0: Miles of motorway in 1988

30,000: Miles of motorway today

6.3 million: The number of passenger cars registered in
2007 (compared with 2.3 million in 2004). More than 1,000
new private cars hit the roads every day in Beijing alone

68: The number of crimes thought to be punishable by death
in China, including non-violent offences such as tax fraud,
embezzlement and the taking of bribes

350 million: The number of Chinese people who smoke (a
third of the world’s smokers). Around a million people a
year are thought to die from smoking-related diseases

240bn yuan: (£17.3bn) The estimated amount earned by the
Chinese government in tobacco taxes in 2005

1.3 billion: China’s population. The country accounts for
one in five people in the world 400 million

The estimated number of births prevented by China’s
one-child policy, introduced in 1979

22: The number of suicides per 100,000 people, about 50 per
cent higher than the global average. Suicide is the fifth
most common cause of death in China, and the first among
people aged between 20 and 35

700,000: The number of people living with HIV or Aids in
China. The UN has warned China it could have 10 million
cases by 2010 unless action is taken

45 billion: Estimated number of chopsticks China produces
every year, the majority of them disposable. In 2006,
Beijing introduced a five per cent tax on disposable wooden
chopsticks in an attempt to help save the country’s forests

30: The number of different animal penises on the menu at
Guolizhuang, Beijing’s ‘penis emporium’. A yak’s costs
about £15, while a tiger’s (which must be pre-ordered) will
set you back £3,000


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