November 9, 2001
Risk
and Promise
China Braces for WTO Membership
China is just days away from WTO membership and the problems forecasted by many analysts, including this young hack columnist, show no signs of disappearing on their own. Chinese peasants still rely on animals, ancient utensils and sweat to till their fields, urban unemployed still prowl the streets hoping for a yuan or two, the Chinese banks are still far from being able to provide the services most European and North American banks can and I can still buy pirated copies of anything.
"So how's business in Xinjinag these days," asked the cabbie.
I suppose the fact that I don't have blonde hair or blue eyes rules out the possibility that I am a foreigner. My Chinese is decent enough that I went ahead and told him about "my father's kebab business." He bought it....
"Just look at all these shops," he exclaimed. "There isn't any space to squat anywhere in Chongqing, but not one of these people is making any money."
The cabbie may be right. The first thought that went through my mind when I arrived in Chongqing was "China's more capitalist than the US!" What I was seeing was the mad rush to make money after the restrictions on business and migration were collectively ignored and/or abolished by the Chinese in the 1980s. Every man, woman and child set up a stand selling something, hawking something else. Setting up shop and making that shop profitable are two different things – walking through the streets of China's most populous municipality, one sees card games and cigarette plumes in front of most shops.
Of course, China's growth has provided opportunities to make money. Designer clothes, cell phones, VCDs and DVDs all sell well, and there is no dearth of shops that sell these items. Downtown Chongqing, Chengdu and Kunming are great places to watch beautiful people strut their stuff.
But behind every department store is a crowd of peasants waiting for the next shipment to come in. When it does they drop their cards and smokes and sprint after the truck in order to be the first to be able to haul boxes of fake Nikes and new Braun coffee makers up and down the streets. The cheapest coffee maker I saw was 149 yuan. A peasant makes 0.5 yuan lugging six of them up three flights of stairs....
The department stores are the new rave in China. Carrefour, a French chain, has 26 stores in 14 cities and is considering opening 10 more in Shanghai, according to the Asian Times. Wal-Mart has already invested 900 million yuan and is planning to open 18 more stores around China. The department stores are packed all day, every day and they sell everything, from dumplings to deodorant to coffee makers to Chinese traditional medicine. Old Wang and his shop of assorted low-quality "stuff" doesn't stand a chance against these giants. Look to American streets to see a glimpse of China's future: Mom and Pop selling out to the Man. Unfortunately, there are many millions of Moms and Pops in China who can't afford to sell out. When they do, the urban unemployment may reach ridiculous heights: Chinese government statistics place the number at around 12 million. So multiply that by three and that's the probable number in a couple of years' time.
Another problem China will face is intellectual property rights "disagreements." I bought Gladiator in Beibei, a small town in the sticks, the day it came out in Minneapolis, where my family lives. Same story applies for Pearl Harbor and any other movie you can name. I sat back and listened to American audiences laugh as I laughed (most of the time anyway) and when the movie ended I watched their heads silhouetted against the screen as they left. Music is separated in two columns in most stores: pirated (12 yuan) and not-so-pirated (30-50 yuan). Books also have price discrepancies which baffle me. Until I found out that they too are subject to sticky fingers.
The Chinese government recently reviewed "53 out of 56" stipulations of the original 1991 copyright law, but what is written on paper and what happens in reality are inevitably incongruent. Pirated stuff is a huge market force in China. For Hollywood executives to impose a waiting period while their movies make 15 yuan per person in the theater would take an act of God to be successful in China. People here are used to being able to watch movies as soon as they come out in the comfort of their own home. Theaters are a novelty item, a place to take your girl every now and then. And little side streets have showings of the latest movie in a comfy, glowing little room. Pirates run the show, either in your home or in their makeshift theaters.
Clothes are considered serious booty as well. I have an Independent jacket, Tommy Hilfiger sweatshirts and "Qiaodan" (Chinese for "Jordan") shoes. They're all fake. They cost a fraction of the Real Thing, and so what if they fall apart in a few months? – I just go to the huge bazaar selling North Face, Reebok, Nike etc. and haggle like a toothless old woman. I make my price. Now that's what I call market economics. And this huge bazaar also sells anything anyone could ever need for their computer. Anything.
For anyone who does business with a Chinese bank, I sympathize with you. And I salute you, for you must be a soldier. All banks are evil as far as I am concerned, but the Chinese people's sincere, deep love of bureaucracy makes banking a nightmare. But things are getting better. Last year, I had to pull money out of the bank where I set up my account, no matter where I was. But then they developed the Card. After the Card, all machines did not work. But then – after two weeks of "Sorry for the inconvenience..." – the machines began acting right, and now I can slip in and out of a bank fearlessly; I even swagger.
Previously, 50 tellers would lounge behind the window and yap, look at their nails, sip tea, and sleep while one harried, young, half-blind, rookie took care of rush hour traffic. Infuriating. But now, banks have discovered the concept held in the highest esteem by foreign bank CEOs: downsizing. At least that is the only explanation I can come with for the lack of tea-sipping, bored-to-death "workers" in my bank.
Foreign currency and wire transfers and such are still bewildering to the average Chinese bank teller, unless you're at Bank of China, where bewilderment on their part is replaced by bewilderment on my part as I am directed from one desk to another to another to another....
At "face" value, China's WTO entry looks like a momentous opportunity for everybody to make money. But for those who hawk in the market and for those who sell the Real Thing and for those whose bank tellers smile and operate with both hands, it could be ... eye-opening.
TAIWAN IS SLIDING
I know this because Vic and I still smoke cigarettes in our underwear watching reruns of China vs. Oman every night. He grumbles day and night about the deal to buy this building, the deal to open up that hospital, the deals he made in Shanghai years ago.
"Ten years ago, we Taiwanese couldn't spend enough money," he says, with an expansive wave of a skinny arm. "We would drink bottles and bottles of the most expensive whiskey, buy the most expensive cars, laugh loud at the poor Chinese."
Now he sits in one of China's poorer cities, trying to make a buck. Taiwanese are swarming all over China, investing money in golf club manufacturing, tea houses, educational centers, pesticides and anything else that will make a little money. Taiwan has reached a pinnacle of sorts. Like Japan, all the goodies are available, all the streets are paved, universities have enough computers and even if they didn't, Taiwanese all own a home computer. So where to they look for a place to put their money and expand even more? Next door. Where goodies, paved streets and university computer labs (let alone home computers) are still relatively rare.
Taiwan lifted a ban on direct investment this week, but still requires a review of any investment over 20 million USD and any investment that may damage "national security." Dangerous investments seem to lie mostly in the electronics fields – semiconductors, microchips etc. Taiwan's living standard is light years ahead of the Mainland's, but the opportunities the Mainland provides can be found nowhere else.
Vic still grumbles, though, because he doesn't trust any Chinese businessman as far as he can throw him (Vic is 62, he can't throw much) and the Chinese know that for all of Taiwan's vaunted cash, the Taiwanese businessman needs to invest in Xinjiang as much as the Chinese government needs money to construct those pipelines. Speaking of which...
OIL INDEPENDENCE
China's main supplier of oil is – surprise – the Middle East. But with the war on and China's oil supply/demand curve reaching a critical point, the need for domestic oil reserves is great. The US claims "freedom of the seas" and thereby controls the South Asian route, and a pipeline through the -stans doesn't seem likely anytime soon, so Xinjiang and Qinghai are China's best bet.
Or as Antoaneta Bezlova puts it in the Asia Times:
"China's oil security faces great challenge because of the country's growing appetite for oil and a widening gap between domestic oil production and demand. China today imports about 30 percent of the oil it consumes, two-thirds of which comes from the Middle East. With economic growth seen holding steady at around 7.0 percent in the foreseeable future, the country's need for oil could only rise. China's oil demand is expected to reach 390 million tonnes by 2020, with domestic production estimated at around 180 million tonnes."
China is busy building a 4,000 km pipeline from Xinjiang to Shanghai, but the cost (15 billion) the logistics (12 Provinces and 50 cities) and the lack of a market along the pipeline (no one lives in the West) have kept foreign investors away and the project on the shelf. The issue of oil and the pipeline will be of great importance in the future as Central Asia and the Middle East face instability. A pipeline from Shanghai to the Western Provinces could theoretically link Osaka and Frankfurt, and both Europe and the Far East could use a little boost given the current slowdown throughout the world.
With this in mind, the war takes on a familiar perspective. China's support for a US-led coalition in Afghanistan, which Bush praised this week, is a step toward a superpower-regional power domination of the oil fields in the name of oil independence (or dependence, depending on how you look at it), and not in the name of freedom from terrorism or freedom for the women of Afghanistan.
As if we didn't know that freedom wasn't the goal anyway.
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