Democracy has a well-documented downside: an irresistible urge to vote oneself a share of the spoils disproportionate to one’s economic contribution.
Of course, the wealthy in any society have a stronger voice because of their wealth, and they naturally fight increasing redistribution of income. But in truly representative democracies, there will always be at least one political party whose major claim is to fight for the rights of the poor, the powerless, the downtrodden – basically, everyone who would like a greater share in their nation’s wealth. And in a truly representative democracy, that party occasionally – and in some cases, frequently – wins elections.
Perhaps this is why China continues to so vehemently reject any variant of what they term “Western-style” democracy. With a massive population, only a small sliver of whom have truly benefited from China’s experiments with markets and capitalism, China’s leaders are concerned with how the poor would handle the potential ability to vote themselves a massive redistribution of income. They are also concerned about maintaining the support of the co-opted bourgeoisie who seem content to keep their mouths shut as long as they have opportunities to increase their riches. As study after study have demonstrated, China’s wealthy are not interested in agitating for democracy.
Indeed, this is the single most common argument you will hear from average Chinese citizens about why democracy is not appropriate – not yet anyway. Try this. Go to China and ask any Chinese why China doesn’t have democracy. Nine out of ten people will tell you it is because China has too many poor and uneducated people who are incapable of making informed decisions. (To which I often respond, “Oh, like California?” – which, for me, has been a very enlightening revelation in and of itself.)
The Chinese path of partial economic reform, combined with practically no political reform, has produced some astounding results when viewed in aggregate. China’s 30-year average of double-digit economic growth is unprecedented. Deng Xiaoping’s market reforms have lifted hundreds of millions of people out of poverty – more than ever before in human history.
Given this astounding feat, is it any wonder then, that developing country dictators find China’s model to be far more palatable than constant Western harassment to clean up their governments and democratize in exchange for aid?
While the China model draws increasing interest from among poor developing countries, we increasingly see discontent bubbling up from China’s “poor and uneducated” population. The increasing number of public demonstrations is an open secret in China. The citizens of thousands of local communities have felt the need to gather in large numbers to counter what they perceive to be the capricious and unchecked power of local officials.
Lately, we have also seen a rash of school attacks in China. At the risk of reading too much into this situation, I would like to suggest that these are further symptoms of disappointment among China’s lower classes due to their powerlessness. If this were simply a matter of mental illness, as some observers have suggested, then why aren’t the mentally ill stabbing children worldwide? Why is this happening in China, and why now? And even if most of these are copycat incidents (and I believe that is the case) just how bad do things have to get before people start to think that killing children is an effective strategy for calling attention to injustice?
Since Hu Jintao and Wen Jiabao ascended to power in 2002, their concern for China’s common people has been quite visible. They chose to divert the Party’s sole focus away from getting the wealthy on-board toward getting the poor on-board as well, and some tangible results prove their dedication to this goal. However, despite all their efforts to shore up support among China’s poor, the number, frequency and intensity of demonstrations and protests in China continues to grow.
While the notion that democracies eventually vote for redistribution may be true, it doesn’t begin to address the real issue. Perhaps the hypothesis should be broadened to include the poor in any society – from democratic to fully authoritarian. Perhaps the idea is that poor people in any society eventually grow tired of their lack of opportunity and will resort to whatever means they have available to make their voices heard.
In democracies, the poor vote for redistribution and only occasionally demonstrate. In authoritarian countries, they frequently protest and demonstrate, and when those options seem no longer to get enough attention, some may resort to even more drastic means to get their points across.
The purely democratic option is beginning to seem unsustainable over the long term – for proof of this, we need look no further than California where direct democracy has allowed voters to tie government’s hands to such an extent that the state is ungovernable. But the authoritarian option, while it has allowed China’s leaders the freedom to experiment and develop the economy, has also failed to satisfy those at the bottom rungs of society.
Maybe it is time people in all countries begin to take an honest look at the political sustainability of their systems.
Is democracy nothing more than a 250-year march toward excess and disincentive? Does authoritarianism sow the seeds of its ultimate destruction by suppressing freedom? Is there a mode of governance somewhere in the middle that gives the poor an honest shot at improving their lives while simultaneously giving the rich a stake in the success of the poor?
The rich are going to get rich. That’s what they do when provided with a system that allows them to do so. Most of the rich, I believe, don’t hate the poor; they simply see the poor as unwilling to work hard or to educate themselves to a level that would allow them similar achievements.
But what if, in addition to all of the necessary elements such as relatively free markets, relatively low tax burdens, and solid property rights, the state were also to provide the rich with a stake in the future of poor people?
Our current systems – both Chinese and Western – offer the rich a stake in the existence of the poor: the poor work themselves to death for a minimal wage so the rich get richer. It’s a great system – if you happen to be on the right side of that equation.
But what if our systems, instead of offering the rich a stake in the existence of the poor, offered them a stake in the success of the poor? What would that look like?
The problem in the US is that we have two parties whose interests lie ostensibly with these two groups: the Democrats support the poor and the Republicans support the rich (while both claim to support the middle class).
In China, there is one party who claim to represent everyone, but who will only allow a select few to become members. Still, the fact that both rich and poor have been allowed to join is at least a tacit recognition of the importance of both segments of society for the continued reign of the Communist Party.
The truth, regardless of whether we are talking about the democratic West or authoritarian China, is that the lives of the rich and the poor are more intertwined than many are willing to recognize. The rich could not become rich if there were not millions of poor and middle class toiling away in the trenches of business day-in and day-out. The poor and middle class could not make a living if not for the capital investments of the rich that create the businesses for which they toil.
China’s Marxist-Leninist model clearly didn’t work. While it took aim at the right problem, the gap between the rich and the poor, its solution offered no incentive for innovation and made everyone equally poor. Its semi-capitalist model, while a vast improvement, doesn’t seem to be working very well either; now that China is more than thirty years into its capitalist reforms, the rich-poor gap is wider than ever and growing wider by the day.
Which brings the discussion back around to China’s recent school violence. Perhaps foreigners who are getting all hung up on China’s ban of media reporting about the school stabbing incidents have directed their disdain at the wrong problem. Clearly, there is an issue of copycatting going on, and China’s government is right to want to prevent other similarly disaffected people from getting any ideas.
The problem that foreigners – or indeed anyone, especially China’s government – should be focused on is not media coverage, but the root cause(s) of these incidents. How can China’s poor be given greater hope, greater opportunity and a larger voice in society?
If the answer to this question is “more of the same”, then we should not be surprised to see China’s trend of violence continue to escalate. Whether through democracy, or by some other means, China’s leaders have to figure out how to give their most successful citizens a stake in the future success of the poor.
Friday, April 30, 2010
Tuesday, April 27, 2010
When will China decide to subsidize electric vehicles?
Without government subsidies, hybrid and electric vehicles are a hard sell for the average American consumer. Not surprisingly, this would also appear to be the case in China. Toyota has so far managed to sell only a few hundred Priuses per year in China. Perhaps this is due to its tariff-laden sticker price, the equivalent of about US$41,000.
Given the uncertainty of future demand for these vehicles in China, it is not surprising that few foreign manufacturers are willing to import these vehicles or their parts (which are still subject to WTO-allowed import tariffs) for sale in China.
China’s “New Energy” Vehicle Manufacturers
China also has a few home-grown manufacturers of “new energy” vehicles, a category that encompasses hybrids, plug-in hybrids, pure electric vehicles and fuel cell vehicles. The most well-known outside of China is BYD, a Shenzhen automaker with roots in the manufacture of batteries and mobile phone handsets.
BYD captured attention over a year ago when Warren Buffet’s Mid-American Energy, a Berkshire Hathaway subsidiary, invested over $200 million for about ten percent of the Hong Kong listed company. BYD has a couple of “new energy” offerings.
The F3DM, a plug-in hybrid, though announced to the public in December of 2008 was just last month finally made available for consumers to buy.
BYD’s E6, a pure electric vehicle will reportedly be tested as part of Shenzhen’s taxi fleet this year, and the company has also announced that the E6 will be its first entry into the US market, possibly as early as the end of 2010.
Zotye, a small Zhejiang province-based automaker also reportedly has an electric vehicle ready for sale, as do Chery of Anhui Province and Lifan of Chongqing. So far though, none of these has sold a single new energy vehicle to a Chinese consumer.
Vague Announcements on Subsidies
In March of 2009, China’s National Development and Reform Commission (NDRC) released its “Automotive Industry Adjustment and Revitalization Policy” which both encouraged the development of new energy vehicles and recognized the need for consumer subsidies to support their sales in China.
And in March of 2010, Miao Wei, China’s Vice Minister of Industry and Information Technology announced that the government is considering subsidies of between 50,000 and 60,000 yuan (approx. US$7,400 to $8,800) per vehicle. However, he was not specific about when the subsidy would be implemented.
Automakers’ Complaints
In the fall of 2009, BYD Chairman Wang Chuanfu, speaking at a conference, was vocal about his disappointment that the Central Government had still not announced subsidies for new energy vehicles. He said that BYD’s inability thus far to make these cars available to consumers was due to the lack of subsidies.
So while BYD was leading the way among Chinese automakers in fulfilling government policy by developing these vehicles, the government, according to Wang, was not yet upholding its end of the bargain by implementing subsidies.
Wang Chuanfu would not be the only leader of an automaker to prod China’s government toward a decision on new energy vehicle subsidies. Carlos Ghosn, head of Renault/Nissan, also announced just a few days ago at the Beijing Auto Show that Nissan’s new Leaf electric vehicle would probably not be sold in China until a subsidy is announced.
It’s all about who benefits
So if China’s government wants new energy vehicles to be developed and sold in China, why has it taken so long to announce a consumer subsidy? I asked the same question of a Chinese auto executive (who shall remain anonymous) about a year ago.
He responded. “Who is selling these vehicles in China right now? Toyota? Why would the government want to subsidize the purchase of foreign brands? You will not see an announcement on subsidies until the government can be sure most of the money will support domestic brands.”
Indeed, we should not be surprised that China’s government wants to support domestic brands. This was also the case with China’s tax breaks on small cars with engines of 1.6 liters or less beginning in early 2009. Another auto executive in China shared with me statistics demonstrating why the tax breaks went to cars with engines of 1.6 liters or less.
Though traditional categorization of engine sizes for statistical purposes are cut off at the zeros and fives (e.g. 1.0-1.5 liters, 1.5-2.0 liters, 2.0-2.5 liters, etc.) 1.6 liters was exactly the cutoff point at which domestic Chinese manufacturers would most benefit from the tax break. (Of course, this may no longer be the case as foreign manufacturers rushed to increase production of small cars in response to the tax break. The tax break was also scaled back earlier this year.)
The point here is that China’s government is very much involved in guiding the development of its automotive industry, but the focus, far from being on giving consumers the best options, is on giving its domestic manufacturers – whether state-owned or private – a leg up against foreign competition.
Whether China’s auto manufacturers ever become competitive outside of China (and I am betting they will), we can be certain that the government will ensure that ultimately, the China market belongs to the domestic manufacturers.
Given the uncertainty of future demand for these vehicles in China, it is not surprising that few foreign manufacturers are willing to import these vehicles or their parts (which are still subject to WTO-allowed import tariffs) for sale in China.
China’s “New Energy” Vehicle Manufacturers
China also has a few home-grown manufacturers of “new energy” vehicles, a category that encompasses hybrids, plug-in hybrids, pure electric vehicles and fuel cell vehicles. The most well-known outside of China is BYD, a Shenzhen automaker with roots in the manufacture of batteries and mobile phone handsets.
BYD captured attention over a year ago when Warren Buffet’s Mid-American Energy, a Berkshire Hathaway subsidiary, invested over $200 million for about ten percent of the Hong Kong listed company. BYD has a couple of “new energy” offerings.
The F3DM, a plug-in hybrid, though announced to the public in December of 2008 was just last month finally made available for consumers to buy.
BYD’s E6, a pure electric vehicle will reportedly be tested as part of Shenzhen’s taxi fleet this year, and the company has also announced that the E6 will be its first entry into the US market, possibly as early as the end of 2010.
Zotye, a small Zhejiang province-based automaker also reportedly has an electric vehicle ready for sale, as do Chery of Anhui Province and Lifan of Chongqing. So far though, none of these has sold a single new energy vehicle to a Chinese consumer.
Vague Announcements on Subsidies
In March of 2009, China’s National Development and Reform Commission (NDRC) released its “Automotive Industry Adjustment and Revitalization Policy” which both encouraged the development of new energy vehicles and recognized the need for consumer subsidies to support their sales in China.
And in March of 2010, Miao Wei, China’s Vice Minister of Industry and Information Technology announced that the government is considering subsidies of between 50,000 and 60,000 yuan (approx. US$7,400 to $8,800) per vehicle. However, he was not specific about when the subsidy would be implemented.
Automakers’ Complaints
In the fall of 2009, BYD Chairman Wang Chuanfu, speaking at a conference, was vocal about his disappointment that the Central Government had still not announced subsidies for new energy vehicles. He said that BYD’s inability thus far to make these cars available to consumers was due to the lack of subsidies.
So while BYD was leading the way among Chinese automakers in fulfilling government policy by developing these vehicles, the government, according to Wang, was not yet upholding its end of the bargain by implementing subsidies.
Wang Chuanfu would not be the only leader of an automaker to prod China’s government toward a decision on new energy vehicle subsidies. Carlos Ghosn, head of Renault/Nissan, also announced just a few days ago at the Beijing Auto Show that Nissan’s new Leaf electric vehicle would probably not be sold in China until a subsidy is announced.
It’s all about who benefits
So if China’s government wants new energy vehicles to be developed and sold in China, why has it taken so long to announce a consumer subsidy? I asked the same question of a Chinese auto executive (who shall remain anonymous) about a year ago.
He responded. “Who is selling these vehicles in China right now? Toyota? Why would the government want to subsidize the purchase of foreign brands? You will not see an announcement on subsidies until the government can be sure most of the money will support domestic brands.”
Indeed, we should not be surprised that China’s government wants to support domestic brands. This was also the case with China’s tax breaks on small cars with engines of 1.6 liters or less beginning in early 2009. Another auto executive in China shared with me statistics demonstrating why the tax breaks went to cars with engines of 1.6 liters or less.
Though traditional categorization of engine sizes for statistical purposes are cut off at the zeros and fives (e.g. 1.0-1.5 liters, 1.5-2.0 liters, 2.0-2.5 liters, etc.) 1.6 liters was exactly the cutoff point at which domestic Chinese manufacturers would most benefit from the tax break. (Of course, this may no longer be the case as foreign manufacturers rushed to increase production of small cars in response to the tax break. The tax break was also scaled back earlier this year.)
The point here is that China’s government is very much involved in guiding the development of its automotive industry, but the focus, far from being on giving consumers the best options, is on giving its domestic manufacturers – whether state-owned or private – a leg up against foreign competition.
Whether China’s auto manufacturers ever become competitive outside of China (and I am betting they will), we can be certain that the government will ensure that ultimately, the China market belongs to the domestic manufacturers.
Thursday, April 22, 2010
Forbes' new China Blog: The China Tracker
Covering China is not the easiest of journalistic assignments.
First there's the language issue. Do you send a great journalist who needs a translator, or do you send a so-so journalist who already speaks Chinese -- or do you look for the rare combination of the two?
Then, once you've found a journalist willing to take on this assignment, and have smoke blown up his...well, you know... on a weekly basis by the foreign ministry, how does one person cover everything happening in Beijing, much less the rest of this continent-sized country?
For those of us who are out of China at least as often as we are in, fortunately there are multiple media organizations attempting to tackle the task of providing some understanding to the rest of the world. And we all benefit from the diversity of views.
Then there are those rare few organizations that get the fact that their readers come to them for a full understanding, not just a tiny piece of the picture. Forbes is one such media organization.
Not only does Forbes have several brilliant reporters in the field in Greater China, but now they are adding a new blog called "The China Tracker". Forbes has pulled together a fantastic group of volunteer bloggers who will be contributing their (uncensored) views alongside those of some regular Forbes reporters.
The list of bloggers who will be contributing contains a virtual who's who among contemporary China thinkers. And me. I'll be contributing the occasional post on my little corner of the China-verse as well. While I am honored to have been asked to contribute, I am especially excited to see such a concentration of diverse views on China, and I hope it will help to improve the understanding of China among non-China specialists.
Hana Alberts, Forbes' HK-based reporter, explains here what the new blog is all about. Check it out. There are already a few new articles up. And while you're there, go ahead and add this one to your RSS reader.
First there's the language issue. Do you send a great journalist who needs a translator, or do you send a so-so journalist who already speaks Chinese -- or do you look for the rare combination of the two?
Then, once you've found a journalist willing to take on this assignment, and have smoke blown up his...well, you know... on a weekly basis by the foreign ministry, how does one person cover everything happening in Beijing, much less the rest of this continent-sized country?
For those of us who are out of China at least as often as we are in, fortunately there are multiple media organizations attempting to tackle the task of providing some understanding to the rest of the world. And we all benefit from the diversity of views.
Then there are those rare few organizations that get the fact that their readers come to them for a full understanding, not just a tiny piece of the picture. Forbes is one such media organization.
Not only does Forbes have several brilliant reporters in the field in Greater China, but now they are adding a new blog called "The China Tracker". Forbes has pulled together a fantastic group of volunteer bloggers who will be contributing their (uncensored) views alongside those of some regular Forbes reporters.
The list of bloggers who will be contributing contains a virtual who's who among contemporary China thinkers. And me. I'll be contributing the occasional post on my little corner of the China-verse as well. While I am honored to have been asked to contribute, I am especially excited to see such a concentration of diverse views on China, and I hope it will help to improve the understanding of China among non-China specialists.
Hana Alberts, Forbes' HK-based reporter, explains here what the new blog is all about. Check it out. There are already a few new articles up. And while you're there, go ahead and add this one to your RSS reader.
Wednesday, April 21, 2010
GM Repays its Loans Early
Washington-appointed CEO of GM, Edward Whitacre reported with much fanfare today that GM had fully repaid its loans from Canada and the US five years ahead of schedule. GM had borrowed as much as $6.7 billion from the US government and $1.4 billion from Canada.
Now that the debt is repaid, GM is free of its government obligations, right? Not by a long shot. GM is still 61 percent owned by the US government and 11 percent owned by Canada.
Following his announcement, Whitacre boarded a plane for Washington to meet with one of his many bosses, House Speaker Nancy Pelosi.
The Washington-appointed Whitacre is actually well-suited for this position. Prior to retiring as CEO of AT&T, he had worked his entire career for Ma Bell.
Now that the debt is repaid, GM is free of its government obligations, right? Not by a long shot. GM is still 61 percent owned by the US government and 11 percent owned by Canada.
Following his announcement, Whitacre boarded a plane for Washington to meet with one of his many bosses, House Speaker Nancy Pelosi.
The Washington-appointed Whitacre is actually well-suited for this position. Prior to retiring as CEO of AT&T, he had worked his entire career for Ma Bell.
Sunday, April 18, 2010
The 8th Most Innovative Company IN THE WORLD?
This week's Bloomberg Business Week contains the results of their annual "Most Innovative Company" survey, conducted in cooperation with Boston Consulting Group. (A sortable list of the top 50 can be found here.)
The number eight company on this list this year was a bit of a surprise to me: BYD, the automaker from Shenzhen. While it doesn't surprise me at all that the number of Chinese companies on this list should increase (from only one last year to four this year), I was shocked to see BYD at number eight -- with a bullet -- and ahead of the likes of GE, Sony, Samsung and Intel.
Among auto companies, only Toyota ranks above BYD at number five. (The survey was conducted last December before the extent of Toyota's current woes became known.) Behind BYD are Ford (13), VW (15), Tata (17 - also a bit of a surprise from the Indian automaker), BMW (18), Hyundai (22), Honda (26) and Fiat (43).
So why should BYD be ranked so highly its first time on this list? Is it because BYD makes the highest selling sedan in China? Hardly. The F3, though a hot seller, is basically a copy of a Toyota Corolla. And based on feedback from a number of auto journalists, a very poor copy at that. In all fairness, however, those same journalists credit BYD for great improvement since it entered the car business in 2003.
The BYD F3
The Toyota Corolla (2008)
Is it because BYD is the leading Chinese manufacturer of electric and hybrid vehicles? Perhaps. The plug-in hybrid version of the F3 (the F3DM) was announced to much fanfare back in December of 2008 as the world's first production plug-in hybrid. BYD had beaten the Japanese, the Americans and the Europeans to market. The only problem was, no one could actually buy one.
As of last August, only a few hundred had been sold, and only to fleet purchasers such as the local government of Shenzhen. Supposedly, consumers are finally, as of this month, able to buy the F3DM, but as even Business Week admits, it comes with a $24,900 pricetag. The regular version of the F3 only goes for about $9,000. (Why buy a Corolla for $19K when you can get a look-alike for $9K? Why buy a look alike-hybrid for $25K when you can get the real thing for $19K?)
And even if Chinese consumers had been able to buy the F3DM as early as December 2008, how exactly is a plug-in hybrid innovative? The Toyota Prius, a hybrid of the non-plug-in variety has been available in Japan since 1999. And nearly every car company in the world now has some variety of electric and/or plug-in hybrid in the works, most using the same lithium-ion battery technology.
I am not saying that BYD is not an innovative company. In fact, from what I have learned talking to current and former BYD employees, the company's internal philosophy is all about innovation -- learning, experimenting, finding new ways to do things. And it is because of this that I really want to see BYD succeed in its mission. What I am saying, however, is that, for all their innovative talk, they have still produced very little beyond a hot-selling copy of a gasoline car and a hybrid version that is still untested by the driving public.
Isn't ranking BYD high on a list of innovators sort of like handing out a Nobel Peace Prize to someone because he talks a lot about peace? Let us hope that both peacemakers, and innovative carmakers, can live up to their reputations.
The number eight company on this list this year was a bit of a surprise to me: BYD, the automaker from Shenzhen. While it doesn't surprise me at all that the number of Chinese companies on this list should increase (from only one last year to four this year), I was shocked to see BYD at number eight -- with a bullet -- and ahead of the likes of GE, Sony, Samsung and Intel.
Among auto companies, only Toyota ranks above BYD at number five. (The survey was conducted last December before the extent of Toyota's current woes became known.) Behind BYD are Ford (13), VW (15), Tata (17 - also a bit of a surprise from the Indian automaker), BMW (18), Hyundai (22), Honda (26) and Fiat (43).
So why should BYD be ranked so highly its first time on this list? Is it because BYD makes the highest selling sedan in China? Hardly. The F3, though a hot seller, is basically a copy of a Toyota Corolla. And based on feedback from a number of auto journalists, a very poor copy at that. In all fairness, however, those same journalists credit BYD for great improvement since it entered the car business in 2003.
The BYD F3
The Toyota Corolla (2008)
Is it because BYD is the leading Chinese manufacturer of electric and hybrid vehicles? Perhaps. The plug-in hybrid version of the F3 (the F3DM) was announced to much fanfare back in December of 2008 as the world's first production plug-in hybrid. BYD had beaten the Japanese, the Americans and the Europeans to market. The only problem was, no one could actually buy one.
As of last August, only a few hundred had been sold, and only to fleet purchasers such as the local government of Shenzhen. Supposedly, consumers are finally, as of this month, able to buy the F3DM, but as even Business Week admits, it comes with a $24,900 pricetag. The regular version of the F3 only goes for about $9,000. (Why buy a Corolla for $19K when you can get a look-alike for $9K? Why buy a look alike-hybrid for $25K when you can get the real thing for $19K?)
And even if Chinese consumers had been able to buy the F3DM as early as December 2008, how exactly is a plug-in hybrid innovative? The Toyota Prius, a hybrid of the non-plug-in variety has been available in Japan since 1999. And nearly every car company in the world now has some variety of electric and/or plug-in hybrid in the works, most using the same lithium-ion battery technology.
I am not saying that BYD is not an innovative company. In fact, from what I have learned talking to current and former BYD employees, the company's internal philosophy is all about innovation -- learning, experimenting, finding new ways to do things. And it is because of this that I really want to see BYD succeed in its mission. What I am saying, however, is that, for all their innovative talk, they have still produced very little beyond a hot-selling copy of a gasoline car and a hybrid version that is still untested by the driving public.
Isn't ranking BYD high on a list of innovators sort of like handing out a Nobel Peace Prize to someone because he talks a lot about peace? Let us hope that both peacemakers, and innovative carmakers, can live up to their reputations.
Monday, April 12, 2010
国进民退: Is China Re-nationalizing? (III)
Please note this is the final post in a series. Previous posts can be found (in order) here, here and here.
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This is going to be a long post, so I apologize to those of you who will have to scroll to reach the end of this in your Google Readers.
I ended my post of March 27 by mentioning this article from China Economic Weekly that was recommended to me by a friend. The article summarizes a rich debate going on in China right now about whether the company is backsliding in its economic reforms by, in effect, re-nationalizing its economy which had ostensibly been on a path of increasing privatization since the late 1990s.
What follows is a somewhat abbreviated translation of this article with a little of my own commentary.
According to the article a relatively small number of people from academic circles began last year to raise this question of whether the state was reversing course on privatization reforms, and the concept of guo jin min tui “theory” and 与民争利论 (yu min zheng li lun – theory of officials profiting at the people’s expense) just took off from there. This “sensitive and emotional concept” of guo jin min tui “theory” has drawn attention from outside China and generated much debate.
(The term “theory” may also be a mistranslation. In this case, I think the term “theory” may be better translated as “idea” or “concept” -- words that don’t carry the assumption of having been subject to rigorous scientific inquiry.)
Prior to last month’s National People’s Congress (NPC), Professor Hu Xingdou of Beijing Institute of Technology penned an article criticizing the apparent reversal saying, “China never actually had the intention of establishing a real market economy. Rather, the intention was to establish a so-called state-led socialist market economy. In fact, (what we have is) a bureaucrat- and government official-led economy.” (The word used for “bureaucrat” is 官僚 which has negative connotations of an unproductive government employee who doesn’t do any work.)
(http://www.huxingdou.com.cn/2010suggestion.htm Article headlines in English.)
Far from being a theoretical piece, Prof. Hu’s article begins with anecdotal evidence that the state’s share of assets has been growing at the expense of private capital in the following industries: steel, chemicals, coal, petroleum, mining, electricity generation, civil aviation, highways, water, finance, brokerage, insurance, real estate, posts, etc.
On the other side of the debate are people who question the concept calling it “hype” created by academics “in support of special interest groups”. (Yes, China has special interest groups too. Who knew?) They point out 民 of 国退民进 and 与民争利 do not have the same meaning.
One change the article does point to is that, in the past, the arguments of academics were rather weak, and had little influence on economic policy. That is no longer the case, they say. In the first half of 2009, academics and journalists used the term guo jin min tui to refer to the phenomenon of “local industry and regional emergence of guo jin min tui”. In the second half of the year, people began to use the term “guo jin min tui da chao” (the tidal wave of guo jin mi tui) to describe the trend.
And the people who have noticed this trend are not only academics and journalists. The assistant director of the Enterprise Institute within the State Council’s Development Research Council (a government-owned think tank) says that the “problem of guo jin min tui has become especially critical in certain local regions and certain industries.”
In April of 2009 China Entrepreneur magazine conducted a survey among senior enterprise managers, and one of the findings was that over 72 percent believed the trend toward guo jin min tui was increasing, and that China’s four trillion yuan stimulus was disproportionately benefiting state owned enterprises.
By the end of 2009, the discourse had changed from “finding a win-win for state-owned and private enterprises to calling on (the state) to give private enterprises a just and fair market environment.” People even began to worry aloud that reforms were being reversed, and call for resumption of the original guo tui min jin reforms.
In September of 2009 a professor from the China Europe International Business School said that the trend of guo jin min tui ran counter to China’s reform and opening (改革开放), and that it was causing social inequality and crony capitalism (权贵资本主义). In November of 2009, a professor from Beijing Institute of Economics told media that state takeovers of private coal mines in Shanxi Province represented a reversal of reforms.
In the face of such overwhelming criticism, official circles began to fight back.
At an economic conference in November of 2009, the Director of China’s National Bureau of Statistics said the statistics from 2005 to 2008 do not support people’s claims of guo jin min tui. The statistics he cited were total number of enterprises, industrial output, asset values, total profits, taxes paid and numbers of employees. (This particular article did not repeat his statistics, but I will give him the benefit of the doubt for the moment. I will, however, point out that the discussion trend of guo jin min tui began to gather momentum toward the end of 2009, a period that would not have been covered in his statistics.)
One month later, this same official admitted that while, yes, the phenomenon of guo jin min tui did exist, it was only in some specific areas, but not in the economy as a whole. And he expressed his wish that people’s discussion of the phenomenon would be “vigorous and meaningful.”
While here was a central government official who had changed his mind about the existence of this phenomenon, most local officials were adamant that guo jin min tui was not an accurate description of what had been happening.
Local officials in Shanxi Province (where private coal mines had been nationalized) were at pains to describe what had happened, not as guo jin min tui but as “you jin lie tui” (优进劣退) or “the excellent enter; the inferior withdraw”. Another defense of these moves (and a far more plausible one in my view) was that it was an attempt to improve safety conditions in these mines.
The Chairman of China National Building Material Group Corporation, an SOE, explained at a press conference that the phenomenon of guo jin min tui has not happened in China. And the primary reason he gave is that, because so many formerly wholly state-owned enterprises launched public offerings, their ownership had become diversified; the people were now part owners of these enterprises.
The Bureau Chief of China’s Civil Aviation Administration said, the fact that there had been mergers and acquisitions in the aviation sector was a testament to “market behavior”. The mergers that had happened were in the best interest of the industry as a whole. (He failed to recognize, however, that most of China’s private startup airlines were acquired by state-owned airlines.) And anyway, he said, because the airlines are publicly listed, they have diversified ownership. (In other words, people were welcome to buy minority positions in publicly traded shares -- an issue I also addressed in a previous post.)
Regardless of whether people believe in the existence of guo jin min tui, the debate has served to highlight the question of its existence as an issue. The news spokesperson of the CPPCC had no choice but to face this issue when asked about it at a press conference. His response was a curt denial: “guo jin min tui does not exist in China.”
At the NPC meetings that took place last month, several local government officials were asked by journalists about the phenomenon of guo jin min tui. The governor of Shanxi Province responded to a question about nationalization of coal mines in his province with prepared statistics: the ratio of state-owned to private to mixed ownership mines in Shanxi is 2:3:5. (He apparently did not address the trend.)
(The Shanxi Governor might have also mentioned the abysmal safety record of Shanxi’s mines and that government control was considered the last straw at an attempt to reign in safety violations that have lead to thousands of needless deaths in recent years.)
The Mayor of Chongqing said that guo jin min tui is a "false concept. During the financial crisis, the government provided funds to...help enterprises during their difficulties. This is not guo jin min tui; this is a rescue. (People who are now calling our rescue) during the financial crisis guo jin min tui are Monday morning quarterbacks (事后诸葛亮).”
Also during the NPC, SASAC, the state shareholder of 127 of China’s largest central state-owned enterprises, weighed in on the issue by prominently posting on its website articles with titles such as “Analysis: Is guo jin min tui true or false?”, “Mergers and acquisitions (by SOEs) are qiang jin ruo tui (strong enter, weak withdraw) not guo jin min tui”, and “The Falsehood of SOE Monopoly Theory”.
(I found these articles on the SASAC website, and while I only took the time to skim them, what I did not see were the typically shrill name-calling and denunciations to which the state has resorted in the past. Rather, SASAC lays out a reasoned defense for the existence of a “state-led socialist market economy with Chinese characteristics” and it also addresses, point by point, every one of the arguments made by those who do believe in the reality of guo jin min tui. Whether one buys the logic or reasoning employed by either side, it is refreshing to see such a vigorous and well-mannered debate taking place regarding this issue.)
While the article does not really answer the question, it does a surprisingly good job of balancing views from both sides of the argument – for a Party-owned publication, that is. Those who would read to the end of this fairly long article would probably still find that the article’s sentiment seems to slightly favor the arguments of those who do not believe in the existence of this phenomenon. At least that is the view of this non-native speaker of Chinese.
_____________
This is going to be a long post, so I apologize to those of you who will have to scroll to reach the end of this in your Google Readers.
I ended my post of March 27 by mentioning this article from China Economic Weekly that was recommended to me by a friend. The article summarizes a rich debate going on in China right now about whether the company is backsliding in its economic reforms by, in effect, re-nationalizing its economy which had ostensibly been on a path of increasing privatization since the late 1990s.
What follows is a somewhat abbreviated translation of this article with a little of my own commentary.
According to the article a relatively small number of people from academic circles began last year to raise this question of whether the state was reversing course on privatization reforms, and the concept of guo jin min tui “theory” and 与民争利论 (yu min zheng li lun – theory of officials profiting at the people’s expense) just took off from there. This “sensitive and emotional concept” of guo jin min tui “theory” has drawn attention from outside China and generated much debate.
(The term “theory” may also be a mistranslation. In this case, I think the term “theory” may be better translated as “idea” or “concept” -- words that don’t carry the assumption of having been subject to rigorous scientific inquiry.)
Prior to last month’s National People’s Congress (NPC), Professor Hu Xingdou of Beijing Institute of Technology penned an article criticizing the apparent reversal saying, “China never actually had the intention of establishing a real market economy. Rather, the intention was to establish a so-called state-led socialist market economy. In fact, (what we have is) a bureaucrat- and government official-led economy.” (The word used for “bureaucrat” is 官僚 which has negative connotations of an unproductive government employee who doesn’t do any work.)
(http://www.huxingdou.com.cn/2010suggestion.htm Article headlines in English.)
Far from being a theoretical piece, Prof. Hu’s article begins with anecdotal evidence that the state’s share of assets has been growing at the expense of private capital in the following industries: steel, chemicals, coal, petroleum, mining, electricity generation, civil aviation, highways, water, finance, brokerage, insurance, real estate, posts, etc.
On the other side of the debate are people who question the concept calling it “hype” created by academics “in support of special interest groups”. (Yes, China has special interest groups too. Who knew?) They point out 民 of 国退民进 and 与民争利 do not have the same meaning.
One change the article does point to is that, in the past, the arguments of academics were rather weak, and had little influence on economic policy. That is no longer the case, they say. In the first half of 2009, academics and journalists used the term guo jin min tui to refer to the phenomenon of “local industry and regional emergence of guo jin min tui”. In the second half of the year, people began to use the term “guo jin min tui da chao” (the tidal wave of guo jin mi tui) to describe the trend.
And the people who have noticed this trend are not only academics and journalists. The assistant director of the Enterprise Institute within the State Council’s Development Research Council (a government-owned think tank) says that the “problem of guo jin min tui has become especially critical in certain local regions and certain industries.”
In April of 2009 China Entrepreneur magazine conducted a survey among senior enterprise managers, and one of the findings was that over 72 percent believed the trend toward guo jin min tui was increasing, and that China’s four trillion yuan stimulus was disproportionately benefiting state owned enterprises.
By the end of 2009, the discourse had changed from “finding a win-win for state-owned and private enterprises to calling on (the state) to give private enterprises a just and fair market environment.” People even began to worry aloud that reforms were being reversed, and call for resumption of the original guo tui min jin reforms.
In September of 2009 a professor from the China Europe International Business School said that the trend of guo jin min tui ran counter to China’s reform and opening (改革开放), and that it was causing social inequality and crony capitalism (权贵资本主义). In November of 2009, a professor from Beijing Institute of Economics told media that state takeovers of private coal mines in Shanxi Province represented a reversal of reforms.
In the face of such overwhelming criticism, official circles began to fight back.
At an economic conference in November of 2009, the Director of China’s National Bureau of Statistics said the statistics from 2005 to 2008 do not support people’s claims of guo jin min tui. The statistics he cited were total number of enterprises, industrial output, asset values, total profits, taxes paid and numbers of employees. (This particular article did not repeat his statistics, but I will give him the benefit of the doubt for the moment. I will, however, point out that the discussion trend of guo jin min tui began to gather momentum toward the end of 2009, a period that would not have been covered in his statistics.)
One month later, this same official admitted that while, yes, the phenomenon of guo jin min tui did exist, it was only in some specific areas, but not in the economy as a whole. And he expressed his wish that people’s discussion of the phenomenon would be “vigorous and meaningful.”
While here was a central government official who had changed his mind about the existence of this phenomenon, most local officials were adamant that guo jin min tui was not an accurate description of what had been happening.
Local officials in Shanxi Province (where private coal mines had been nationalized) were at pains to describe what had happened, not as guo jin min tui but as “you jin lie tui” (优进劣退) or “the excellent enter; the inferior withdraw”. Another defense of these moves (and a far more plausible one in my view) was that it was an attempt to improve safety conditions in these mines.
The Chairman of China National Building Material Group Corporation, an SOE, explained at a press conference that the phenomenon of guo jin min tui has not happened in China. And the primary reason he gave is that, because so many formerly wholly state-owned enterprises launched public offerings, their ownership had become diversified; the people were now part owners of these enterprises.
The Bureau Chief of China’s Civil Aviation Administration said, the fact that there had been mergers and acquisitions in the aviation sector was a testament to “market behavior”. The mergers that had happened were in the best interest of the industry as a whole. (He failed to recognize, however, that most of China’s private startup airlines were acquired by state-owned airlines.) And anyway, he said, because the airlines are publicly listed, they have diversified ownership. (In other words, people were welcome to buy minority positions in publicly traded shares -- an issue I also addressed in a previous post.)
Regardless of whether people believe in the existence of guo jin min tui, the debate has served to highlight the question of its existence as an issue. The news spokesperson of the CPPCC had no choice but to face this issue when asked about it at a press conference. His response was a curt denial: “guo jin min tui does not exist in China.”
At the NPC meetings that took place last month, several local government officials were asked by journalists about the phenomenon of guo jin min tui. The governor of Shanxi Province responded to a question about nationalization of coal mines in his province with prepared statistics: the ratio of state-owned to private to mixed ownership mines in Shanxi is 2:3:5. (He apparently did not address the trend.)
(The Shanxi Governor might have also mentioned the abysmal safety record of Shanxi’s mines and that government control was considered the last straw at an attempt to reign in safety violations that have lead to thousands of needless deaths in recent years.)
The Mayor of Chongqing said that guo jin min tui is a "false concept. During the financial crisis, the government provided funds to...help enterprises during their difficulties. This is not guo jin min tui; this is a rescue. (People who are now calling our rescue) during the financial crisis guo jin min tui are Monday morning quarterbacks (事后诸葛亮).”
Also during the NPC, SASAC, the state shareholder of 127 of China’s largest central state-owned enterprises, weighed in on the issue by prominently posting on its website articles with titles such as “Analysis: Is guo jin min tui true or false?”, “Mergers and acquisitions (by SOEs) are qiang jin ruo tui (strong enter, weak withdraw) not guo jin min tui”, and “The Falsehood of SOE Monopoly Theory”.
(I found these articles on the SASAC website, and while I only took the time to skim them, what I did not see were the typically shrill name-calling and denunciations to which the state has resorted in the past. Rather, SASAC lays out a reasoned defense for the existence of a “state-led socialist market economy with Chinese characteristics” and it also addresses, point by point, every one of the arguments made by those who do believe in the reality of guo jin min tui. Whether one buys the logic or reasoning employed by either side, it is refreshing to see such a vigorous and well-mannered debate taking place regarding this issue.)
While the article does not really answer the question, it does a surprisingly good job of balancing views from both sides of the argument – for a Party-owned publication, that is. Those who would read to the end of this fairly long article would probably still find that the article’s sentiment seems to slightly favor the arguments of those who do not believe in the existence of this phenomenon. At least that is the view of this non-native speaker of Chinese.
Wednesday, April 7, 2010
Continuously Lost in Translation
Part of the challenge of dealing with culture not one's own, whether it be for business, academia or diplomacy is finding a common language in which one can communicate with others.
A few comments on Twitter and Google Reader about yesterday's post bring this difficulty to light. Part of the upshot of that post was that perhaps many outside of China had mistranslated guo tui min jin to mean "privatization" when that was not the understanding of those in China who propounded the policy.
I would even suggest that when Chinese use the word "privatization" in English language conversation, their understanding may also be different from that of native English speakers who use the same word.
We tend to define both 民营化 (minyinghua) and 私有化 (siyouhua) as "privatization", and vice-versa. As I showed in yesterday's post, the Chinese do not define minyinghua and siyouhua as the same thing. However, a glance at both Google Translate and Babelfish shows these two terms as interchangeable with the English word "privatization".
Based on discussions that have taken place since yesterday's post, I feel safe in saying that privatization and minyinghua do not have precisely the same meanings. As nearly as I can tell, here is what they do mean:
privatization = absence of government involvement
民营化 = presence of non-government involvement
To illustrate, when the US Government finally sells its 60 percent stake in General Motors, this will be considered a "privatization". But the Chinese definition of minyinghua is already satisfied at the present because the other 40 percent of General Motors shares are in the hands of non-governmental entities (the UAW, institutional and private investors).
In China the fact that many of China's large SOEs are now publicly traded and minority positions are held by non-governmental entities counts as 民营化, and if our dictionaries are to be believed, it also counts as privatization. However, in this case, we are better off not trusting our dictionaries.
As a bonus, here's another term that we often get wrong.
Our dictionaries define 外国人 (waiguoren, literally, "outside person") as "foreigner", and vice-versa. However, when Chinese citizens visit the United States, they do not consider themselves to be 外国人.
Why?
Because the opposite of 外国人 is 中国人 (zhongguoren) or Chinese person (literally, person from the Central Kingdom). Their identities as 中国人 do not change when they leave China.
So while I refer to Chinese visitors in America as "foreigners", and I refer to myself as a "foreigner" when I visit China, the Chinese always refer to me as 外国人 and themselves as 中国人, irrespective of location.
And while I fully agree with the sage advice of Dan Harris at ChinaLawBlog to write your agreements with Chinese counterparties in Chinese, you may also want to ensure that you and your counterparties agree on what all of the words mean.
I know there are many other equally confusing Chinese-English translations. Which ones have you come across?
The next post in this series can be found here.
A few comments on Twitter and Google Reader about yesterday's post bring this difficulty to light. Part of the upshot of that post was that perhaps many outside of China had mistranslated guo tui min jin to mean "privatization" when that was not the understanding of those in China who propounded the policy.
I would even suggest that when Chinese use the word "privatization" in English language conversation, their understanding may also be different from that of native English speakers who use the same word.
We tend to define both 民营化 (minyinghua) and 私有化 (siyouhua) as "privatization", and vice-versa. As I showed in yesterday's post, the Chinese do not define minyinghua and siyouhua as the same thing. However, a glance at both Google Translate and Babelfish shows these two terms as interchangeable with the English word "privatization".
Based on discussions that have taken place since yesterday's post, I feel safe in saying that privatization and minyinghua do not have precisely the same meanings. As nearly as I can tell, here is what they do mean:
privatization = absence of government involvement
民营化 = presence of non-government involvement
To illustrate, when the US Government finally sells its 60 percent stake in General Motors, this will be considered a "privatization". But the Chinese definition of minyinghua is already satisfied at the present because the other 40 percent of General Motors shares are in the hands of non-governmental entities (the UAW, institutional and private investors).
In China the fact that many of China's large SOEs are now publicly traded and minority positions are held by non-governmental entities counts as 民营化, and if our dictionaries are to be believed, it also counts as privatization. However, in this case, we are better off not trusting our dictionaries.
As a bonus, here's another term that we often get wrong.
Our dictionaries define 外国人 (waiguoren, literally, "outside person") as "foreigner", and vice-versa. However, when Chinese citizens visit the United States, they do not consider themselves to be 外国人.
Why?
Because the opposite of 外国人 is 中国人 (zhongguoren) or Chinese person (literally, person from the Central Kingdom). Their identities as 中国人 do not change when they leave China.
So while I refer to Chinese visitors in America as "foreigners", and I refer to myself as a "foreigner" when I visit China, the Chinese always refer to me as 外国人 and themselves as 中国人, irrespective of location.
And while I fully agree with the sage advice of Dan Harris at ChinaLawBlog to write your agreements with Chinese counterparties in Chinese, you may also want to ensure that you and your counterparties agree on what all of the words mean.
I know there are many other equally confusing Chinese-English translations. Which ones have you come across?
The next post in this series can be found here.
Tuesday, April 6, 2010
国进民退: Is China Really Re-nationalizing? (II)
Following up on my post from March 27, I first wanted to look back in history a bit to the origin of the term guo tui min jin to determine how it entered the lexicon of policy a decade ago. I am not certain whether this particular exercise buys us any better understanding of whether the state is re-nationalizing businesses today, but perhaps it sheds a little light on why the idea is generating debate.
Referring once again to an official history of the reforms of China's state-owned enterprises, as I mentioned before, the credit for guo tui min jin is given to a Professor Wang Jue of the Central Party School.*
In 1999, Professor Wang was interviewed about this concept, and the following few lines are important for an understanding of what policymakers were apparently hearing from the originator of this concept. I will quote a line or two of the original Chinese and follow with my (possibly flawed) translations. Words in brackets "[ ]" are my own exegesis.
Thanks for reading.
And, by the way, I welcome clarifications anyone has to offer in translating the Chinese material above.
The next post in this series can be found here.
_____________________
* 章迪诚，著，中国国有企业改革编年史，（北京：中国工人出版社，2006） pp.556-7.
Referring once again to an official history of the reforms of China's state-owned enterprises, as I mentioned before, the credit for guo tui min jin is given to a Professor Wang Jue of the Central Party School.*
In 1999, Professor Wang was interviewed about this concept, and the following few lines are important for an understanding of what policymakers were apparently hearing from the originator of this concept. I will quote a line or two of the original Chinese and follow with my (possibly flawed) translations. Words in brackets "[ ]" are my own exegesis.
国退民进—就是国家退出来，让老百姓进去。有人说国退民进是搞私有化，其实不是，民有经济和私有经济是两个概念，So what, in a nutshell, does all of this mean? Assuming the policy truly was influenced by Professor Wang, as this official state-owned enterprise history says it was, then this is what I have learned:
Guo tui min jin means the state withdraws to let the common people go in. Someone said that guo jin min tui means privatization [um, like me a few posts back], but that is not the case. People’s economy (民有经济) and private economy (私有经济) are two different concepts. [Note that he’s distinguishing between “the people” collectively and private individuals.]
私有经济是民有经济的一个部分。集体经济、股份制经济都是民有民营的。
The private economy is part of the people’s economy. The collective economy [encompassing some of the few remaining township and village enterprises or TVEs] and the shareholder ownership economy [encompassing firms that have undergone conversion to a shareholding, though not necessarily publicly listed, corporation] are also part of the people’s economy.
民有民营是相对国有国营说的。不是国有国营的都是民有民营的，它既有公有性质的也有四有性质的，也有公私混合所有制的。
“People owned and managed” (民有民营) should be contrasted with “state owned and managed” (国有国营). If a company is not state owned and managed then it is people owned and managed. [He’s saying these two types are mutually exclusive.] The people owned and managed (economy) contains the natures of both public and private ownership. [If I’m not mistaken, here he is saying that people owned and managed enterprises can have both the state and individuals as owners – which, again, if I’m not mistaken, violates the mutual exclusivity implied by his previous sentence.]
- Everyone outside China (or inside, for that matter) who interpreted guo tui min jin as privatization was simply wrong.
- The many shareholder reforms among state-owned enterprises that took place over the past couple of decades all qualify as guo tui min jin reforms. That despite the fact that few of these shareholding enterprises were listed on China’s stock markets (only about 1,800 firms are traded), and among those, all but about 200 continue to have either the state, or a state-owned entity, as the controlling shareholder.
- One may also say that this has all been a wasted effort anyway: how unusual is it, really, for politicians and officials to interpret rules and policies for their own benefit?
Thanks for reading.
And, by the way, I welcome clarifications anyone has to offer in translating the Chinese material above.
The next post in this series can be found here.
_____________________
* 章迪诚，著，中国国有企业改革编年史，（北京：中国工人出版社，2006） pp.556-7.
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