Tuesday, August 17, 2004

China's bitter harvest

Foreign support of China's spectacular economic expansion is breeding anti-foreign feeling - near-xenophobia - among an influential group of Chinese. Many executives, entrepreneurs and administrators under 45 say they're being exploited by outsiders, when, if anything, the reverse is more like the reality. Indeed, that very group has been fostered, if not created, by outsiders.

Historically, China's growth has been fuelled by its vigorous relations with outsiders. But many Chinese today, like so many in the past, refuse to acknowledge such vital contributions. That refusal isn't a communist, or even an ideological, phenomenon. A Nationalist foreign minister once told me: "When things get dull in a cabinet meeting and I want to get a rise out of my colleagues, I call on them to recognise how much China has owed to outsiders over the millennia. They hate the very thought."

China's growth is today sustained by access to a virtually limitless reservoir of highly intelligent, adaptable workers, entrepreneurs, scientists and thinkers. However, that growth was initiated - and is now being accelerated - by external contributions.

Modern China is largely, if not wholly, dependant on outsiders. However reluctantly, many senior officials and businessmen recognise that - at least in part. But many younger Chinese who haven't known adversity, resent and deny the reality. Yet, quite simply, without the continuing inward flow of money, technology and marketing skills, the nation would falter in its headlong dash towards prosperity. Authority could then collapse amid the regional rivalries and the inherent contradictions of a deeply corrupt, half-free market.

Commercial, financial, scientific and productive techniques developed elsewhere make the economy race ahead. China's pace is spectacular for two good reasons: foreigners are eager to buy its low-priced products for their own use or for resale; and foreigners further invest massively in China's enterprises and infrastructure, largely because they fear being excluded from a market whose potential they say is immense.

A 20 per cent stake in China's third largest financial institution, the Bank of Communications, has just gone for US$1.75 billion to HSBC - its third such recent investment.

Giant firms such as General Motors, Shell, Anheuser-Busch, Walmart and Volkswagen are routinely prepared to put billions into the country. So are scores of less well-known foreign enterprises. Foreign direct investment into China will total at least US$60 billion this year, a new high in a constantly rising figure. "Contracted" foreign investment - deals signed, but not yet consummated - is forecast to be more than US$73 billion.

Shanghai continues to lead that race in attracting foreign funds and expertise. But others are catching up.

An extremely wealthy new urban class has arisen throughout a series of cities in eastern China, which correspond closely to the "treaty ports" that were imposed by foreign arms on a weak China in the 19th century. Those virtually autonomous enclaves maintained their own municipal governments, which were chosen and run by foreigners.

The "extra-territorial rights", granted by lopsided agreements Beijing denounces as unequal treaties, gave the newcomers privileges, prerogatives and authority wholly beyond Chinese practices, customs or laws. The new urban class also enjoys semi-autonomy, above all in business dealings. Nonetheless, many of that group aren't quite content and blame their dissatisfaction on foreigners' misdoings.

An anti-monopoly law still being drafted is unmistakably aimed at foreign firms - a prime example being Kodak, which spent about US$1 billion buying obsolescent facilities and now operates a nationwide chain of 150 ultra-modern photographic kiosks. Since each employs at least 30 people, Kodak's operations are surely a good thing, given that much of China's national growth has actually cut employment - and led to increasing protests and "social unrest". Only when wise Chinese and indignant foreigners protested at the move was the draft law altered to declare specifically that it also applied to Chinese firms. The words "national interest" were written in, thereby complying with the "non-discriminatory" treatment prescribed by the World Trade Organisation. Why, then, such discontent among a group of which one acute non-Chinese observer said: "They sailed through school from kindergarten to college and into business without meeting any serious difficulties." Not for them the obstacles, the suffering, the degradation, the purges or the mass killing inflicted under the reign of Mao Zedong.

They've come a long way - and they think they've done it all on their own. Thus, their resentment of the supposed special privileges afforded to outsiders, whose invaluable role in helping China attain its new status they don't recognise. Their assertion of superiority, which is compounded by resentment, goes to the heart of what it means to be Chinese.

Historically, during four to five millennia, the Chinese have believed their culture and their manner of life supreme. That conviction, now forcefully reasserted, was for long periods absolutely correct - whether in quality of life, means of governing, psychological insight or innovation, science, productivity and technology.

Like Marco Polo in the 13th century, the learned Jesuits who came to China in the 16th century were struck by Chinese ingenuity, efficiency and wealth.

Behind that manifest superiority to Europe lay a singular force. Chinese culture requires a state ideology that applies not only to worldly matters, but to the realm of the spirit.

Not only to ruling wisely, but to the proper creed, philosophy and morality. Not only to administration - that is, ordering society for the good of all by ordinance and precept - but further to personal ethics and principles, to the manner of thought and reflex actions, right down to the day-to-day behaviour of every individual.

So Confucianism functioned - as inspiration, as well as regulation - more or less smoothly from the second century BC until it was crushed in the early 20th century by modern credos such as democracy, science and socialism. So Marxism-Leninism-Stalinism, transposed into the state ideology called "Mao Zedong's Thought", functioned quite roughly for a few decades in the middle of the 20th century.

No such encompassing credo now exists. Still, many - above all the educated and self-aware - yearn for such a spiritual and temporal authority, even if they're not cognisant of their privation. The young often outnumber elders at temples, shrines and churches, whether Buddhist, Christian, Taoist or Confucian. By its persecution of the essentially non-political sect called Falun Gong, the state acknowledges that such devotion to an ideal is a challenge to its authority - largely because it can offer no such ideal.

"China today is a moral vacuum," the same non-Chinese observer declared. "There are no rules, no guides or even pointers, for either transcendent belief or for practical conduct. Therefore, actual behaviour is often very bad - dead wrong, iniquitous, even evil - in the eyes of outsiders."

At least hundreds of millions, more likely billions of US dollars, have been stolen from Chinese banks by Chinese executives. A new financial scandal breaks almost every other day, as managers and directors scurry away with their loot.

At least US$20 billion, if not twice that amount, moves covertly out of China every year. Most of the enormous sums smuggled out are then returned overtly and reinvested. Thus, native Chinese, who have diverted - essentially stolen - those funds, enjoy the concessions on taxes and the like designed to attract capital from abroad.

A continual in-pouring is imperative not only to sustain growth, which is actually too rapid, but to maintain a functioning economy - for the average man, also for the less well off, as well as the wealthy - and to extend development to large, still poor stretches of the interior.

Few foreign firms as yet profit from their great investments in China, although some do profit from selling Chinese-made goods elsewhere. Many foreign firms are, moreover, pillaged by their Chinese associates - as a slew of legal actions demonstrates in a nation where both natives and interlopers are, quite sensibly, inclined to shy away from inexperienced, bumbling, often corrupt courts.

It's no longer a matter for comment when, to take one example, Chinese partners open a factory across the street to make the product introduced by their foreign associates. They usually take with them not only the practiced techniques and the seasoned workers, but the machinery and the customers, as well. No wonder they can then sell their goods well below the original company's cost price - and drive their former partners out of business, sometimes out of the country.

Such practices towards foreigners, whether formally illegal or not, arose in the mid-19th century when governor Li Hung-chang of the Shanghai region issued instructions to Wing Hing, the first Chinese to graduate from an American university - in his case, Yale. Wing Hing placed a substantial order for machine tools with Connecticut manufacturers, winning a low price on the intimation that the order was the first of many more.

Li Hung-chang then instructed his arsenal in Shanghai to copy those machine tools. Perhaps not quite as effective as the originals, they nonetheless did the job. Needless to say, no more tools were ordered from Connecticut.

It is, still, not remarkable how little is changing when everything is changing.