A Taste of Two Chinas

Nov. 15, 2008

Until today, what I’ve tasted of the real China—not just sampling the tourist sites—has been more or less limited to city life. Nanjing city life to be specific. My time in China will soon hit the 3-month mark (hard to imagine!), and all this time I’ve been hearing that there is another side to China; that within the borders of this one unified country, there is not one China but two. Thus far, I haven’t gotten a chance to see that second side. Until today.

What do I mean by “Two Chinas?” Well, the borders of China encompass an estimated 1.33 billion people, making it the most populous nation on earth. As a whole, as a giant mass clumped together, that number—1.33 billion (or perhaps more)—is hard to fathom. But China—and the complex mosaic of the 1.33 billion individuals that make up the nation—can be better understood if taken on in more manageable chunks. That huge number can be further subdivided into countless categories, depending on what criteria you use to divvy things up: by dialect, regional variants Putong Hua (Standard Chinese) or separate languages altogether that can be so different as to make it difficult for neighbors living a block away to understand each other; by ethnic group, of which there are 55 main minorities plus the majority Han Chinese in addition to dozens of other groups; by income or economic standing.

One of the most often mentioned and perhaps most stark such division, however, is the line between urban and rural. Several people I’ve met in the past months—from economists to Chinese college students—all point to the gap between China’s cities and countryside as being almost a line separating two worlds: on the one hand, a world of relative affluence, modernization, and Westernization comprised of some 575 million Chinese that occupy the country’s expanding cities; on the other hand, a world virtually trapped in a more traditional time comprised of 755 million, mostly subsistence farmers, that survive on less than $37 per month.

$37 per month. My new job teaching English to Chinese kindergarteners earns me (well, I don’t really feel that I earn it) 200 RMB an hour, which translates to roughly $30/hour. I feel rather guilty about accepting this exorbitant wage, especially considering that I have absolutely no experience teaching children English while my wonderful Chinese tutor—who actually majors in teaching Chinese as a second language while also having quite a bit of tangible experience—earns about 1/8th of what I do. And I wasn’t even searching for a job. As with all my past jobs, a job came to find me. I don’t start until next Tuesday, but its already been confirmed: I can work for two hours and earn over 10 times as much as a typical family in this country’s rural areas earns in a month.

But by virtue of the fact that native speakers of English are in high demand (and a new boss that inexplicably has full faith in my teaching skills), I have this job in China with a salary higher than anything I’d expect back in the U.S. and can earn in an hour roughly 10 times what the average Chinese can earn over a month of hard labor. Back in the 1980’s, it wouldn’t be incorrect (though perhaps politically incorrect) to say that virtually every family was impoverished. With that in mind, in the span of less than 30 years since Chairman Mao’s strict communist economic policies gave way to Deng Xiaoping’s economic reforms, the economic situation of the average Chinese has improved by leaps and bounds. Out of an entire population of over 1 billion impoverished citizens, the majority of the 575 million Chinese that occupy the country’s cities, in addition to a few in the countryside too, are now relatively rather well off. That 500 million plus or minus can be considered not only the largest number but also the largest percentage of a population lifted out of poverty in such a short span of time.

Still, that doesn’t mean that the average salary in China has caught up with that of the U.S. Though China comes out second only to the U.S. by some methods of measuring world economies, China’s enormous population must be taken into account. China’s substantial GDP ($2.67 trillion in 2006), when looked at nominally as a lump sum, comes in 4th behind—can you guess which 3 countries?—the U.S. with a whopping $13.2 trillion (although, with the current economic tides, who knows how much longer that will last…), Japan with a respectable $4.34 trillion, and Germany in third with $2.9 trillion. When adjusted for Purchasing Power Parity, however (basically taking into account how far that much money can go, how much you can buy with the price levels in a given country), China can be seen as the world’s second wealthiest nation.

Why this discrepancy? Oftentimes, whichever figure is used depends on the spin an economist or government wants to put on the data. To me (a complete ignoramus when it comes to issues economic), both seem like valid measures. Just take this comparison: these days, with the relatively high cost of living in the U.S., earning $20,000 in a year puts a person perilously close to the poverty line. Here in China, however, $20,000 a year goes a long way. With that sum, a family can live rather comfortably with a car (even a chauffer!), plenty of means to spoil the family’s only child, and a housekeeper to clean and cook and make sure the household’s “Little Emperor” doesn’t get too out of hand.

If the GDP figures are adjusted yet again, this time taking population into account, China falls a bit behind. Per capita GDP even knocks the U.S. (with a per capita GDP of $44,190) out of first place, to be replaced by Norway. From a per capita perspective, China’s economy falls significantly behind most European countries—and weighs in at less than 5% of the U.S. figure—with a per capita GDP of $2001. Looked at through yet another economic lens, that of GDP growth, China pulls back up close to the top: in 2007, the U.S. recorded a rather stagnant rate of economic growth at 2.2%. Japan’s bubble economy burst long ago and last year only grew by 2%. The economies of Russia and India are both growing respectably, at the rapid rates of 7.6% and 8% respectively. What about China? Among the world’s large economies, China is leading the race with an 11.4% annual rate of growth. And that’s without oil reserves or any other significant repositories of resources.

Resources: that’s another economic factor that warrants consideration. Especially a certain resource, something on everyone’s minds these days, a three letter word that’s sure to be a hot topic of the 21st century: OIL. The U.S. is currently the world’s oil hog, guzzling down the incomprehensibly enormous volume of 20,800,000 million barrels per day (and that was back in ’05). The shocking and scary thing is that this number looks like it’s just gonna keep on growing: between 1992 and 2004, the country’s level of oil consumption rose by 22.2%! Lets see how long the country—and the world, for that matter—can sustain that extravagant rate of consumption. Though China’s economy is moving forward at a far faster pace, it is using substantially less fuel to do so: 6,700,000 barrels per day back in 2005. Over that same 12-year span, however, due to the breakneck speed of the country’s development, China’s oil consumption levels showed a horrific 152% growth. For the planet’s sake, I hope China’s doesn’t develop a U.S.-style addiction to oil anytime soon.

The U.S. economic system has recently developed an additional addiction that strengthens its ties to China: cheap labor. There are roughly 755 million people in this country hoping to break into the urban labor markets. The desperation of these rural dwellers and the disparity between their economic status and that of their urban counterparts means that there are a lot of people willing to work for what we in the U.S. would consider a pittance but is often sufficient to support a whole household in the countryside. The masterminds behind multinational corporations (or companies with hopes of taking operations abroad) and large manufacturing enterprises are not blind to this state of affairs and often not averse to taking advantage of it.

Apart from just cheap labor, there are a number of other factors enticing CEO’s to set up a branch in China: international companies can take advantage of the huge (and cheap, and efficient, and industrious, and well-educated) labor market and also sell to China’s huge consumer market while they’re at it. Furthermore, opening up operations here often means less strict regulations and more support from the government. Part of this government support includes an intricate physical infrastructure. During the past few decades, to encourage the country’s economic development, the Chinese government has basically taken the attitude, “build it and they will come”; in other words, use a little foresight to construct roads and airports and railroads and bridges before people will think of using them. Then, once people have reasons to use those routes, its there. This means of improving infrastructure wouldn’t work in just any country, however. It takes that special kind of socialist environment with a lack of regard for private property and political leaders that see no scruples in destroying a few (hundred thousand) homes and displacing a few (million) people in the process. Its rather convenient that no one officially owns anything: “It’s not your house, it’s the People’s house.”

One not so convenient aspect of the communist system here has been a lack of economic incentives, which leads to a rather inefficient production system. Privately owned companies are a relatively new phenomenon here in China: before era of economic reform started in 1978, all enterprises that existed in the country were State Owned Enterprises, or SOE’s. Take the First Auto Group as a classic example: with a population of 250,000 workers and dependents, the First Auto Group is, to this day, the biggest employer in Jilin Province. The company town—or city, more like—built up around the factory contains 23 schools, a hospital, and its own TV station. Job security and benefits are the priorities in a venture like this. Efficiency kind of falls by the wayside: the average employee of First Auto Group produces a whopping 2.5 cars per year (compare that to GM’s 20). Recently, a consulting firm suggested firing 7 in 10 employees to see if that improved the company’s productivity. The suggestion was shot down. Even though there would be no way for such an inefficient enterprise to stay afloat without government subsidies and support, such an SOE apparently can’t go back on its promise of security to its employees.

Though the “iron rice bowl,” a metaphor for the kind of job security that Chinese got accustomed to under Mao’s leadership, has shattered beyond repair, there’s not much more to lose but a lot to gain (from an economic standpoint at least) by following the current trend of privatization. With market forces at work, levels of productivity and profit have skyrocketed and led to an enormous increase in exports ($1.35 trillion in the past year and growing). Just visit any supermarket in the U.S. and you can see the evidence. 92% of Wal-Mart’s products are manufactured in China, after all (gag…).

The trends of privatization, increased production, increased trade: all are factors feeding the formidable machine that is China’s economy. And though is moving further and further away from a socialist-style planned economy, that doesn’t mean that its up to the “invisible hand” of market forces to pull the strings. China’s remarkable economic growth is certainly not due to some blind faith in capitalism. The government has been behind the screen pulling the strings all along. To pull off the kind of economic progress that China has experienced in the past few decades, a government as to do so many things right at the same time. In a sense, contemporary China is being run like a corporation.

Furthermore, many feel that today’s leadership is ideal for the economy. Actually, a recent poll (and this one conducted by a private U.S. polling firm, so its not just some party propaganda) shows that China’s current President Hu Jintao has a 70% approval rating (compared with George W’s 30%, last time I checked). Why is a government that thinks it can get away with bulldozing peoples’ houses—or should I say The People’s houses—met with such favorable public opinion? It’s all about the economy. The recent regimes have been doing things right and, as I mentioned before, have lifted more people out of poverty in a shorter span of time than any other instance in history. The economy here is blossoming. Within days of my arrival in China three months ago, I could feel it. Just biking a few blocks on my way to school, the energy of the expanding economy is tangible.

So how does this fit into the global picture? Well, considering the size of China’s population (and now the size of its economy and the volume of its exports, too) the impact on the world scene is huge. Just one piece of the puzzle: the U.S.’s trade deficit with China has recently reached $201.5 million! In today’s interconnected world, however, economic impact is a two—or multi—way street. Which means that the economic crisis the U.S. is currently suffering through can be felt all the way here in China. While on the one hand China’s economic development is truly tangible, the current global economic crisis is also tangible.

The crunch of the economic crisis was tangible today when I accompanied a Nanjing U student friend of mine on his weekend business excursion and a simultaneous tour of the countryside surrounding Nanjing. To help pay his way through college, Dengfeng works weekends as an itinerant salesman of household appliances. Every weekend, and this one was no different, he makes the rounds to a long list of shops selling his company’s (Haier’s) washing machines, microwaves, stoves, etc. in the city of Zhenjiang and the surrounding area. We set of early in the morning in a company car with a professional driver, stopping at shop after shop to sip tea while Dengfeng talked business with his clients. Without exception, every single one of his clients, the owners of the dozen or so shops we visited that day, complained that business has been unusually bad lately. People just aren’t buying household appliances these days in the way they were in the era before the recent economic crisis. All of the shop owners traced effects back to the U.S. economic crisis. It’s a flat world after all.