Urban Renaissance Institute

Lawrence Solomon
National Post
September 25, 2005

China is a Third World country – poor, backward apart from the odd showcase city, and, all told, an economic failure. Those who see in this tyranny of 1.3 billion an economic powerhouse that may soon overtake the West don’t realize that this dragon has been blowing smoke and manufacturing mirrors.

Over the course of a month-long visit to China’s interior this summer, travelling by train, bus and boat, I saw a land little changed over the centuries. Back-breaking agriculture dominates in the countryside – almost no draft animals, let alone tractors or other mechanized farm vehicles, were in evidence. Even in cities, the reliance on human labour was startling. In Chongqing, a mountainous municipality of 32 million, some 200,000 porters with strong backs carry the bulk of the municipalities’ goods on foot, at the end of bamboo poles.

Yes, China does have awe-inspiring cities and yes, Chinese manufactured goods do flood world markets. China’s GDP, depending on the measurement used, now places the country’s economy as the world’s seventh or even second largest.

But focusing on the few gleaming cities that command-and-control the nation’s wealth, and on the cheap-labour goods that leave the country’s shores, blinds us to the dumb dragon that is China.

This is not a newly industrialized country with immense technological prowess, but a country of peasants and manual urban labourers such as the bamboo-pole porters. China’s per-capita income of US$1,269 places it 110th in the world, according to the International Monetary Fund, just below Angola and the Republic of the Congo. The economy of Kazakhstan produces, on average, more than twice as much per person as does that of China; the economy of Belize more than three times as much; the economy of Gabon more than four times as much. Those who are in thrall of the Chinaman’s economic success – the OECD yesterday joined the ranks with an upbeat assessment – should first pay obeisance to that of the Belizian and Gabonian. Those governed by the People’s Republic of China cannot be characterized as businessmen, or entrepreneurial, or innovators. Only as numerous.

Much is made of China’s sustained economic growth since Mao’s death, and in this there is much truth – the country has climbed a very great deal, out of a very deep hole. Mao had sunk the Chinese economy to a historic low, a mere 4.5% of the world’s GDP in the early 1970s, down from 12% or so in 1900 and as much as 33% in 1820, according to a 2003 OECD study. A dictatorship less destructive than Mao’s reign of anarchy could take the country far, and it did. Today, after 25 years of relative order during which millions became factory workers rather than mere political pawns, China’s share of world GDP has climbed to its 1880-90 levels.

China’s share of world GDP may continue to climb, but the country is unlikely under dictatorship to become an economic powerhouse in our information age. This is a country of hard-working but ignorant souls, isolated from the world, kept in the dark about their own history, frightened because there is no rule of law, and insecure because there are no property rights. Financial markets cannot function inside China because information cannot flow freely. Neither can businesses invest without securing political protection. Neither can researchers in universities and elsewhere perform useful R&D. In this business environment, China can only pump out more product from factories copying developed-country creations, invest the outsized share of its savings abroad, and hope that foreign investors will keep coming in large enough numbers to maintain growth and job creation, and keep the country from imploding.

That will be no easy task. To keep a lid on its unemployed – estimated at 20% of its work force – China tries to keep its population put by punishing migration to the cities. Peasants who leave their land without permission to relocate have it seized without compensation. In the cities, they lose rights to health care and education. Nevertheless, the peasants come in search of work, and in large numbers.

The estimates of those who left the rural areas and who now roam the nation looking for work range between 100 million and 200 million people. Many migrants did not leave their homes voluntarily, but were driven off, with little or no compensation, to make way for hydro dams (the Three Gorges dam alone has displaced more than one million people to date), golf courses (some displace tens of thousands of residents), and other development schemes cooked up between government officials and their friends.

To maintain order, China regularly parades its military through the downtowns of cities, along with other police-state reminders for the populace. Even university students must pass through security checkpoints to gain entrance to their campus. Yet despite the authoritarianism, disorder pervades. On two occasions, I saw civilians being taken away in handcuffs. On two other occasions, I saw what appeared to be corpses on the street. Outside railroad stations in major cities, seas of migrants camp out in the open. Beijing alone has a government-estimated “floating population” of four million migrants, many of whom sleep out in the open. The government’s security minister acknowledges 74,000 demonstrations and riots in 2004, up 27% from 2003 and 700% from 10 years ago. Some are by those who were evicted from their lands; some are by victims of corruption; some are by secessionists in Moslem regions; some are by urban workers fired by employers capitalizing on the cheap pool of illegal migrants.

China’s Communist party is unlikely to risk a Russian-style perestroika, which led to the collapse of the Soviet empire and resolve among China’s leaders to crack down hard when students demonstrated in Tiananmen Square in 1989. The fall of the Berlin Wall later that year, followed by Ceausescu’s grisly overthrow in Romania, confirmed for the Chinese government the need to ruthlessly quash dissent, lest its leaders meet the same fate.

China’s leaders will not meaningfully liberalize the economy to keep popular unrest at bay. Yet without an opening up, the dragon economy that many dread will live in an imagined, and not a real, world.

Lawrence Solomon is executive director of Urban Renaissance Institute; www.urban.probeinternational.org

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A reader responds

Re: “A glimpse behind Third World China’s smoke and mirrors,” Lawrence Solomon, Sept. 17

Larry Solomon’s article provides an approach that should be used at looking at another developing country that you have been romanticizing for a few months in FP Comment and elsewhere in the National Post: India.

Remember, India’s GDP per person and growth rate are much below that of China’s. So just rewrite Larry’s article with a bit more strife added and you have an article ready for India. Then compare it with what you have published in the last few months on it.

Jayant Bhandari, Vancouver
National Post, October 1, 2005

Lawrence Solomon
National Post
September 10, 2005

Globalization, and Chinese-style corporatism, are profoundly affecting China’s environment. China’s smokestack industries are booming like never before, China’s roads are clogged with private vehicles for the first time, China’s air is cleaner than it has been in decades and the Chinese people are better able to voice their preferences than at almost any other time in their 4,000-year history. Totalitarian rule can do good when turned to a good cause.

Twenty-one years ago, during a month of travelling in China, I was struck by the appalling state of its environment. The air was foul, the urban surroundings all but devoid of greenery, the health of the population compromised by almost comical conditions. To heat their city homes, for example, Chinese residents burned coal debris compressed to puck size, and then exhausted the soot through stovepipes that exited the front of their homes into the faces of passersby.

CREDIT: China Photos; Getty Images Smog is still visible in China, but conditions are immeasurably improved.

Twenty-one years ago, storms carrying dust from distant erosion, along with coal soot and other pollution, was so severe that hundreds of thousands – if not millions – of Chinese routinely wore surgical masks when out in public. In that era, when the Chinese government touted forest conservation, it ordered that not one twig be left behind in a national drive to harvest merchantable wood. In that era, Chinese males were extraordinarily heavy cigarette smokers – indoor spaces reeked of tobacco.

This last summer, during another month in China, I saw an environment, and a people, transformed. Smoking in China’s major cities is in great decline, perhaps comparable to smoking in the cities of Europe today and those of North America five years ago. In local restaurants, for example, although smoking is not banned, only one table out of 10 might have smokers. Like North America, smoking is banned in buses, elevators and many other confined spaces.

The city air is far cleaner, too, thanks to growing bans on coal burning and the growing use of clean fuels such as natural gas and cleaner techniques such as district heating. Greenery abounds in many major cities, which now have budgets for landscaping. To arrest the erosion, the result of desertification following deforestation, the government has imposed logging bans and is investing in reforestation.

International trade is behind much of this improvement in the environment: China, as a signatory to the World Trade Organization, is required to comply with pollution-prevention regulations. Multinationals execute much of the improvements: Typically, a Western multinational will purchase a decrepit and polluting Chinese plant and upgrade it to Western standards, in the process slashing its emissions. In some cases, especially in the case of curbs on the automobile, the Chinese are ahead of the West. Shanghai runs a weekly auction in which owners of new private vehicles now bid some 45,000 yuan ($6,550) for the right to drive their car on Shanghai roads. After a public hearing next week, Shenzhen will decide whether parking fees should be higher during peak hours and in congested places.

China’s environmental performance still lags far behind the West’s – the surgical masks haven’t entirely disappeared and ruinous megaprojects still get built more often than not. But for the first time, the public has a right to bring complaints about a government project to public authorities, improving the chances that grievances will be addressed and compensation paid. That forces a project’s backers to incorporate these otherwise hidden costs into their cost-benefit analysis. The ability of developers to ignore hidden costs is among the chief reasons that uneconomic developments are commonplace throughout China.

For the first time, too, environmental groups are beginning to flex their muscle. Earlier this week, 61 of them signed a petition demanding the release of an environmental impact assessment for a proposed dam. “Dam builders should not externalize the huge costs of dam construction on affected people, the public, the nation’s finances and future generations,” they wrote. Had they dared do so in the past, they would have been quickly jailed.

China’s great advances in environmental protection are unlikely to continue for long, however. The government’s toleration of dissent is limited to the environmental sphere, narrowly defined, and then only to a point. Without dissent in all areas of society, the feedback required for informed environmental and economic decisions is distorted, leading to waste and environmental harm.

China’s environmental progress to date, in fact, is impressive only in comparison to China’s recent past. The country had hit rock bottom following Mao’s Great Leap Forward, a time of immense failures in agriculture and elsewhere that led to environmental ruin and widespread starvation. Almost any approach would have led to improvement.

Mao’s successors, for their next round of environmental miracles, plan to rely on exhortations to convince the citizenry to conserve energy. The exhortations, in energy and elsewhere, will count for naught if they don’t relax their grip on society and let people through free markets and the rule of law replace decisions by state fiat. The environmental miracle workers, in the end, can only be the public at large.

Lawrence Solomon is executive director of Urban Renaissance Institute; www.urban.probeinternational.org

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A glimpse behind Third WorldChina‘s smoke and mirrors