Development with special Chinese characteristics

 

BY METTE HOLM

Being rich in China today is glorious; capitalists are members of the autocratic Communist Party. The number of dollar billionaires more than quintupled in less than a year. Economic gaps have become enormous, and only because they cannot afford the treatment, poor people die from diseases that could have been cured.

Most Chinese are finding it very difficult to keep up with the development of their country; China – the country where, until about 25 years ago, everybody walked in step, dressed alike so it was difficult to distinguish between men and women, their front and back, everybody was actually paid the same wages, and crime was almost non-existing because everybody was equally poor so there was nothing to steal. The good old days…..

Then small, free markets emerged; peasants would bike to these markets from a far to sell the crop they had been permitted to grow in certain quantities and sell at their own discretion: a bit of fatty pork, a handful of tomatoes, a skinny chicken, a couple of cucumbers or a pumpkin. The times, they were a-changing …..

Yet, the changes also brought about inflation, which had been completely unknown since the Communist revolution in 1949. For 30 years, rice, wheat flour, cooking oil, cotton – you just name it – had cost the same. All these goods were rationed, but prices remained the same. The everyday lives of the Chinese now became increasingly difficult.

Politically China was ruled by its last emperor, Deng Xiaoping. A professed Communist, he was loyal to the ruling Communist Party of China to the very end, yet he also declared that in China Socialism was undergoing a historic transformation to a unique variety with “special Chinese characteristics”. As of 1979, Deng’s will was law to the Chinese. After 30 years of dyed-in-the-wool Communism, he declared that “to be rich is glorious” and “it is okay for some to get rich before others”. His successor, Jiang Zemin, actually had the Communist Party’s constitution amended so it now also allows Capitalists to become members.

In March 2007, China had 20 dollar billionaires. And in November at least 106 – officially, that is. Most likely a few score more are hiding behind abundant, yet anonymous companies pursuing inscrutable activities. 

When the ”Iron Rice Bowl” was crushed

The abolishment of traditional Communism has, however, also had the implications that health insurance, kindergartens, schools, job security and pensions are no longer the responsibilities of the State and the public authorities. In 1992 the so-called “Iron Rice Bowl” was crushed. Each Chinese must now pay for everything. However, school fees were abandoned in rural areas late 2006 as the authorities realised that quite simply the peasants could no longer afford sending their children to school.

In China, the elderly should be provided for by their children; people must themselves pay for unemployment insurance, health insurance (WHO ranks the health care system of China among the most unfair systems in the world) or their child’s education. Such expenses require substantial savings, and Chinese who can afford it have large savings - in US government bonds, among other things. The US deficit vis-à-vis China amounts to almost USD 200bn.

There will always be winners and losers

The Chinese stock exchanges were closed down most suddenly and in one go in 1949; speculators were imprisoned, re-educated, some even executed. Stock jobbing was antisocial, dangerous, etc. - until the re-opening of the Shanghai Stock Exchange in the early 1990s, which was followed by the opening of several new stock exchanges. Suddenly it had become acceptable to speculate, and more than 40 years of propaganda had left the majority of the Chinese with the impression that you could only make money on the stock exchange – never lose.

As a result, a few small savers committed suicide as they had staked and lost the family fortune. The State published warning pamphlets telling people that they may get rich on the stock exchange, yet they would definitely also run the risk of being fleeced. A lesson they are experiencing yet again in early 2008.

In China, the primary aim of listing and selling shares is to get hold of small savers’ money. The fact that that most Chinese are naive and lack experience when it comes to speculation is being grossly exploited, and the activities of many large companies are as impenetrable as pea soup.

November 2007 turned out to be the worst month in 13 years for the Chinese stock exchanges. An observer at Morgan Stanley in China puts it this way: “Mainland investors are learning the hard way that what one hand gives, the other can take away.” When it was listed on the stock exchange on 5 November, the oil giant PetroChina took over the position as the world’s largest company from the US Exxon Mobil Corporation. By the end of the month, the shares had fallen by 20%. According to many international observers, China’s skyrocketing equity market rests on hot air and therefore is bound to crash.

China on multiple tracks

As a nation China boasts its new wealth, resulting in international recognition. However, it should also be pointed out that the average annual income in 2006 of the peasants – the majority of the Chinese population – amounted to less than a third of that of the urban population.

The fact that the average income in China is no longer computed for all Chinese as one group but for the urban and the rural populations is very much in line with the shift in China from following a "single track" in practically all respects to diversifying into "fast lanes" and "crawler lanes". On the one hand, you have the IT and oil billionaires, six of the world's ten richest, self-made women and the young and rich who will offhand spend DKK 5 million on a wedding; on the other hand, country bumpkins and migrant workers of whom 130 million live on less than DKK 5 a day and die from diseases that could be treated just like that – if they could afford it, that is.

Reportedly, fears of a stock market crash cause Chinese Premier Wen Jiabao to wake up at night in a cold sweat. One thing is that the wealth of the billionaires will vanish. Easy come, easy go. But, the Chinese middle class comprises some 250 million people, and a stock market crash may very well rob them of their savings intended to cover expenses relating to illness, education and pension.

The Chinese economic reforms, which have been in operation for 25 years, have caused much inequality and misery. But, above all, they have lifted 400 million Chinese out of poverty and they should hopefully stay there while, in their wealth, they are joined by the remaining poor people of China. The times, they are a-changing - for the better...

This article was printed in the investor magazine Fund News no. 1, 2008, published by Jyske Invest International

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