Muddling Through in Shanghai, With No Surprises in Sight
Philip Bowring International Herald Tribune
Thursday, March 22, 2001
SHANGHAI "Learn to live with contradictions" might be a good motto for the new U.S. administration in its dealings with China. The Chinese live with them all the time, which is why it is so easy for outsiders to be carried away with enthusiasm for the nation's progress, yet also so easy to believe that China is about to hit a wall.
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Shanghai tells us that the Chinese economy is still growing at a handy pace. Sure, things are slowing compared with 2000; exports are off the boil as the United States slows and Asian recovery falters. But domestic demand is still strong, helped by government stimulus. So the economy should expand this year by an official 8 percent and a genuine 6 to 7 percent.
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Foreign investment is flooding into Shanghai and adjacent provinces to take advantage, it fondly hopes, of China joining the World Trade Organization. It adds to the financial services boom that Shanghai has been enjoying. Much is from Taiwan. Who cares about reunification so long as Taiwan invests? In Taipei, too, there is a growing reluctance for politics to obstruct mainland investment.
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The net result is that the office towers which sprouted in the last five years are filling up faster than seemed possible. Overt poverty is hard to see and mobile phones are almost as ubiquitous as in rich countries. Optimism and initiative rule. The WTO is opportunity, not threat. Making Hong Kong look provincial is a civic goal.
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But do not forget how much public money has been poured into the city's impressive infrastructure, and how much political investment the "Shanghai clique" of Jiang Zemin, Zhu Rongji and Co. have in its success.
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The flip side of Shanghai success is the ever widening gap between a handful of big cities and most of the nation. This is not just between the coast and the interior.
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Shanghai homes have refrigerators, but elsewhere buying power is so low (and state planning is so poor) that nationwide supply is double demand. Communism has created one of the world's least equal societies, with the added insult that the rural poor are allowed into Shanghai and Beijing only as temporary cheap labor. No favelas here. Keep the poor in their place, on the farm.
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The government is increasingly aware of this divide. But in the short run most reform is likely to make it worse, as subsidies dwindle and capital and bright people congregate in the bright spots.
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Meanwhile, politics remains in command. The one big thing that could be done, allow complete freedom of movement of people, is anathema to the party's control instincts and to the spoiled citizens of Shanghai and Beijing.
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Is this sustainable? In the long run probably not. But it is unlikely to cause major problems soon.
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Big city opportunities are consuming the passions of youth. The party and elders may be derided, but while moneymaking opportunities exist, why challenge the political system? Once a hotbed of radicalism, Shanghai is trying to put economics in command. The rest of the country mostly agrees, so long as life slowly improves for most. Party leadership changes next year will have modest impact.
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Money madness and corruption often go together, yet Shanghai is often viewed as the least corrupt place in China. Even the politicians have figured out that corruption is inefficient, bad for the image and bad for attracting foreign capital. Likewise, the city's courts and administrators are somewhat less arbitrary than elsewhere in a China, where power is routinely abused and legal concepts are only slowly taking root.
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Shanghai households save furiously. Either they get a low return from state banks which lend to incompetent state companies or they invest in high-priced shares in poorly run state companies. Chinese "people's capitalism" is the great Shanghai A share bubble, a product of gambling instincts, financial sector immaturity, state control of share issues and management greed. This will end in tears, with political consequences. When and how, no one knows.
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Will the bust cause a revolt against share ownership? Probably not. More likely it will sweep away some officials, further undermine the political structure and give a boost to private enterprises. Large-scale private companies are still few and hobbled by officialdom.
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A nationalist and perhaps egalitarian reaction against the wealth gap and openness to foreign products and ideas remains a possibility, especially if global recession sours relations with the United States. But for now, reaction seems containable.
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China does not have a clever long-range domestic plan. Even with a forceful prime minister, it is just muddling through its contradictions. Meanwhile, it has limited desire or resources for strategic power plays.

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