[A-List] Culture Matters

["Henry C.K. Liu" <hliu@xxxxxxxxxxxxxx>]

This report deals insightfully with the problem of cultural mismatch
between Chinese civilization and both market and centrally planned
economic systems.

The Communist Party of China is faced with a dilemma. After 5 decades of
relentless revolutionary effort, it is forced to face the fact that
centralized planning is less than sucessful.  Market economy has been
tried by the KMT and failed also. Now the CPC is poised to give market
economy another try, albeit in a socialist context.  Notwithstanding the
contradictation between the reson d'etre (dictatorship of the
proletariat) of one party communist rule and a market economy,
traditional Chinese culture is not sympathic to WTO style market
fundmentalism.  The CPC will fi

The CPC needs to stopped looking at China as a disease and tradititonal
Chinese culture as an obstacle to progress.  Its time Chinese leaders
begin to devise an economic systems that is in possitive consonance with
Chinese culture, and stopped imposing alien system to change China.

China will not change according to artifical ephemeral fads.  Those who
try to mold China into unnatural models will not succeed.  The sollution
is to take China for what it is, and adopt systems that will work "with
Chinese characteristics".   There are more options that imported models.

Henry C.K. Liu

Title: Tradition Said Keeping China Out of Step With WTO Rules

Beijing Liaowang in Chinese 07 Jan 02 No 2, pp 11-13

Article by Quan Xianzuo: "Seven Major Traditional Concepts that Keep
China Off Track" -- all boldface as published

[FBIS Translated Text]     The biggest problems China faces after her
WTO entry are the incompatibilities of feudal thought, small farm
economic concepts, and the concepts of a planned economy with the rules
of a market economy

Seven Major Traditional Concepts that Keep China Off Track

    China has already become a member of the World Trade Organization,
and this means that China must change the rules of her market
operations, her model of government management of the economy and
her methods of business administration in accordance with the WTO.
After 22 years of reforms and liberalizations, fundamental changes have
already taken place in China's economic system, but the influence of
several millennia of feudal history and natural economics and several
decades of a planned economy, whether in terms of government,
enterprises,
or consumers, has left behind a rather heavy layer of feudal thought,
small farm economic concepts and concepts of a planned economy. These
ideas, concepts and consciousnesses are incompatible with the rules of a
market economy, and hinder China's economic system from getting on track
with the rules and
regulations of the WTO. This is damaging to China's participation in
international competition and division of labor.

    The vestiges of feudal thought, with concepts of lords fighting for
hegemony and separatist rule by feudal lords is the historical source of
certain localities engaging in market foreclosure and local
protectionism. These are contrary to the basic WTO principles of market
liberalization, treatment of citizens and facilitation of trade, and
directly impact the construction of a unified, liberalized market.

    Currently, some localities reject the notion of outside business
coming into the local market, and set up roadblocks in the form of
administrative approvals and investigations; in order to make local
businesses more competitive, some places refund a set proportion of tax
income, or give financial subsidies; when local businesses produce
counterfeit or shoddy goods, engage in smuggling, or steal or evade
taxes, some localities turn a blind eye to such illegal and criminal
behavior, allowing it to run rampant; in still other
places, the judicial organs are unable to handle their work according to
law, and are deliberately partial to and protective of local business.

    The above phenomena of local protectionism are not only related to
China's current political and economic system, but also have deeper
causes that lie in China's historical and cultural tradition. China has
had several thousand years of feudal history, and feudal lords battling
for hegemony and separatist warlords are the hallmarks of this
social-political system. A natural economy with closure to the outside
and domestic self-sufficiency is the basic model of feudal economics.
This is the historical and cultural source of the local protectionism
that exists today. The center and the localities share the
responsibility here on different levels, with the fiscally implemented
"eating from different places" and "make the place you are responsible
for wealthy" is the systemic reason for the protectionism. If we do not
thoroughly change this situation, we may well see cases of foreign and
domestic companies suing local governments for violations of the
regulations.

    Local protectionism

    The Jinlongquan Group, a outstanding key supported enterprise in
Hebei province, has this kind of entries in a thick "market foreclosure
diary": market in Xuancheng City, just 84 kilometers from the
Jinlongquan Group, 27 June 1997, Liao Renshou and Wu Xingxue, managers
of Jinlongquan's Xuancheng Sales Department, were beaten up; 21 August
1999, attack on a dealer's dormitory resulted in loss of a
portion of the workers; 16 November 2000, sales client Zhang Jianbo was
beaten up by youths who knocked at his door; 14 March 2001, He
Rongliang, a dealer, had his head beaten in and his left shoulder hacked
at...

    On the streets of Xuancheng, the local restaurants in principle sell
only beer produced locally that brings capital to the area. Of outside
beers like Jinlongquan or Xingyinge there are few traces. The boss of
one restaurant, a Mr. Sun, said that Xuancheng is a traditional market
for Jinlongquan beer, but after the local beer factory brought in
capital and expanded, no further sales of outside brands of beer
were allowed.

    The small producer concept leftover from the natural economy
pervades every field and every facet of today's modern economic life. It
forms the source of the production concepts of "small and complete" and
"large and complete," which are very harmful to China's enterprises in
participating in international competition after her WTO entry.

    As early as the 1980s, all over China there was a rush to bring in
production lines for household appliances and Western clothing. By the
1990s, automobiles, ethylene, and VCDs were added to
the list. These enterprises were small and the costs were high; by now,
the vast majority of these items have been made obsolete. Now, the
majority of companies in China that have a bit of scale are moving
toward the road of diversified development, forming   a "small and
complete" and "large and complete" product structure. The core
competitiveness of these enterprises is not strong, and the companies
cannot compete with foreign multinationals.

    In terms of the question of the development of the rural economy,
the small farm economy consciousness is even more marked. Transformation
of agriculture to a production model, the construction of irrigation
facilities, and similar tasks are all quite difficult for individual
farmers to realize. They must move down the road of coming together
voluntarily in autonomy, but right now most farmers
lack the will to cooperate together based on basic common interests.
They are willing to split up, but not to come together. "Be contented in
poverty and devote yourself to spiritual things," "happiness comes from
being content with what you have," "being comfortable is enough, do not
think of struggling for more." The majority of peasants are content if
they have a place to
live, are able to take wife, and have food to eat. Right now, setting of
prices for the major agricultural products in China by the government,
subsidies, and controlled imports all serve to protect
agricultural production. Prices for major agricultural products are
higher in China than outside, and the quality is generally not as good
as that of foreign products. According to the promises that the Chinese
government made to the WTO, the Chinese domestic market for agricultural
products must be opened up to the outside, and government subsidies for
agriculture must be limited. This means that Chinese agriculture is
going to feel an impact from incoming foreign agricultural products, and
agriculture will
face a serious challenge.

    Chinese people generally place emphasis on relatives and friends,
and there is but a scanty idea about the concepts of modern legal
systems and credit. This has created an extremely complex network
of social relationships and an "interpersonal emotional economy" which
has no place among the rules of a market economy and a society ruled by
law. This will directly impact China in getting her economic system on
track with the WTO.

    Placing emphasis on ancestors, the clan, relatives, friends,
classmates, people from one's hometown and so on is a traditional
Chinese cultural characteristic. Even today, people are accustomed to
rely on
their friends or relatives to get things done, and very seldom think
about what the law might say about a matter. The feelings about one's
relatives and friends permeate to all levels and all facets of the
social
economy, and to the distribution of a very considerable portion of
social resources. This forms the "interpersonal emotional economy," the
"relationships economy." For example, in a company's
registration to do business, their offer of shares on the market, their
establishment of items for investment, approval of real estate
transactions, competition for bank loans, or the handling of a court
case, as
soon as interpersonal emotions come into the equation, they directly
attack and destroy the order of the market economy and the legal
process. This leads to the very serious phenomena of a lack of reliance
on the law, lack of rigor in administrative regulations, and a lack of
penalties for those who break
the law.

    Traditional Chinese morality said only that "the man who cannot be
trusted is not a man," and people were taught to be trustworthy.
However, China has been an agricultural society for a long time, and the
product economy is not well developed. The means of exchanges of
products are largely barter or cash for goods. People have a weak
concept of contracts, and even more lack a modern economic concept of
credit. Moreover, after the founding of the New China, a planned economy
was implemented for a long period of time, and economic resources were
allocated by the state. People mostly lacked the concept of modern
contracts and credit, which has caused the current strange phenomenon in
Chinese economic life: no one talks about credit, no one complies with a
contract, people maliciously fail to pay back loans,
and there is even a very low rate of exercise of civil legal decrees.
There is no way to undertake normal transactions and clearing under the
rules of a market economy, which destroys the most basic underpinning of
the modern market economy's operation.

    The idea that "officials act for themselves" and "official
departmentalism"   and that the government is
"all-knowing and all-powerful" have led to a lack of separation between
business and government, and the idea that the government has a hand in
everything. This is in complete opposition to the basic principles
of the WTO and of the economy, and will directly impact on opening up to
the outside and on establishing a modern enterprise system.

    Since China has such a long history of a natural economy, the
concept of official departmentalism is very deeply rooted among the
people. The concepts of the nobles and the people such as "the thinker
rules, the laborer is ruled" and "acting as a lord for the people" are
reflected in enterprises, particularly in state-owned enterprises.
Every matter must be submitted to the government for a decision. Among a
few public servants whose concept of feudal autocracy is particularly
strong, there is always the feeling that the "public right" is
greater than the "private right", and the government's power is above
all and is not constrained by law. When carrying out government
functions, they always want to ride over organizations or people. Some
government departments set administrative regulations from the point of
view of their own benefit. They are very detailed in the regulations
that have to do with the power of the government, but speak very vaguely
indeed about the duties of the government. They view the law as
something to rule the
common people with, a tool to obtain a benefit for the government or for
a small group, which leads to the current plethora of administrative
fees, approvals, and fines. There are government and random fines that
seem unstoppable, and the idea that "to manage is to collect fees, to
administer regulations or laws is to collect fines" has emerged. There
are still other government departments that, in order to obtain some
benefit for the department, use their administrative power to exercise
departmental monopoly, obtaining monopolistic profits or illegal income.

    Based on the results of cleaning up related departments, right now
among the State Council's 75 departments which have authority for
administrative approval, there are a total of 2800 items for
administrative approval. Of these, many approvals are completely
business matters, such as items of investment for a business, business
purchasing regulations, personnel systems or allocation systems.
The interesting thing is that most reports from all levels of the
People's Congress mention the business administration problem, that
consciously or unconsciously the provincial governors, mayors and
county heads are acting as "factory managers." We must recognize that in
the modern market
economic life, the government is not in any higher position than
enterprise, nor is the government as effective as the mechanisms of the
market.   We should greatly simplify the items for government review and
approval, and the functions that belong to business or society should be
returned to business or society. We should thoroughly eliminate the role
of the government as "business leader" or "business
decision maker."

    Official Departmentalism

    In Ningbo City, Zhejiang Province, at a large meeting to attract
capital to businesses, Professor Wang Zhidong of the Ministry of Foreign
Trade and Economic Cooperation's International Trade Institute asked the
mayor, who was in the audience, "About solving the problem of outside
firms having problems finding the mayor -- when the mayor is not in,
whom should they see?"

    Hu Yichen, who works in industrial investment at the Singapore
embassy, having made an appointment at several government departments,
often sees this sort of strange phenomenon: when he goes to a department
to handle some procedure, someone will tell him whom he must see to do
his business. When that person is not in, the other people working in
the very same department will tell him to wait until the
person comes back and see what can be done.

    In the bilateral negotiations between the US and China, the issue on
which the US side was most pressing in its inquiries was how our
businesses are operated. Is it the government that has the final word,
or the business?

    Leading economic work as though it were a large-scale mass movement
clearly is not in line with the demands of a modern market economy. It
is not suitable to the new situation facing the Party and
the government after China's entry to the WTO.

    During the long revolutionary struggle, our Party formed itself into
a political force   that could mobilize the masses, organize the masses,
and carry out mass movements. However, if we use the method of
large-scale mass movements to carry out the work of economic
construction, it is very easy to have formalism and bureaucratism occur,
and often it is impossible to do business according to the rules of
economics. The history of China has seen the Great Leap Forward, the
post-Mao era,   the fever to bring things in from outside, the fever for
local liberalization, and the lessons these bring us are very deep.
Right now, everywhere in China there is still a feverish confusion of
events, this month, that movement, and so on. The workers' prosperity is
hindered and efficiency is very low. In the relatively economically
backward areas of central and western China, the "slogan economy" is
still in full force. "Super development," "breakthrough progress,"
construction of "international metropolises," "public works projects to
enrich the people and strengthen the province," "the project to increase
peasant income by
100 yuan a year," and so on are all shouted feverishly. All that results
is formalism, a lovely but empty exterior. Even some of China's poorest
provinces with very bad conditions are bringing forth
the slogans for development of high tech industry. Whatever projects
they see others doing, they follow right along. They completely ignore
the limitations in terms of human resources, capital, technology and
markets. There are still other provincial governments that undertake the
so-called "projects to enrich the people" in the villages. Taking a
conclusion from the results of individual cases, they do not consider
the
market demand, but force the people to plant fruit, vegetables, or
tobacco or raise cows according to the demands of the provincial
government.
The result is that no matter what they grow or raise, they cannot sell
it. This leads to many "projects to enrich the people" turning into
"projects to burden the people."

    The benefit of the market system is that it is independent from the
government. Its productive and operational activities are
self-determined, legal activities need no interference from the
government, and the government has no right to meddle in the productive
activities of the companies and the people. No matter what kind of
productive structure a country or region establishes, the government can
plan and guide, but it cannot interfere in the investment activities of
the companies. The productive structure is precisely the objective
proportion established by the companies' autonomous investment
activities.

    The value system and way of thinking of Chinese intellectuals still
contain some traditional, backward concepts. Society's view of personnel
and capital sources also contains some errors. These influence the
progress of technology and technological innovation, and are detrimental
to China's international competition after her entry to the WTO.

    The Nobel prizes for science have never come home to a Mainland
Chinese scientist to date. There are systemic reasons for this, apart
from the influence of traditional concepts. "A man is good at his
studies," and those who participated in the civil service exams and
entered careers in government as officials
participated enthusiastically in politics and the governance of the
nation, viewed science and technology as a trifling skill and took a
disdainful attitude toward them. This was the most prevalent value among

pre-modern Chinese intelligentsia. This kind of traditional concept is
still seen today among the Chinese intelligentsia. Many outstanding
scholars give up their own specialties and strengths and move into
various
levels of government organizations from the research organizations, the
universities and companies. They place the highest value on being in the
government, which creates a large number of people doing things they
never studied. The outstanding scientist, businessman or educator who is
successful wants to
move into the government to be a leader, or at least wants to get a
title that tastes of leadership. It seems that the only way to be valued
is to be this way, and that this is the only emphasis placed on the
intelligentsia. Once they have become the factory head for a business,
or a manager, they want to be department heads or the Vice Chairman of
the CPPCC or something like that. This is really a mistaken perception
on the part of those people, and it is a terrible waste. We should
eliminate the traditional view that "the only high positions are in
government," and we should recognize that in today's China, the
resources in the shape of scientists, educators, and businessmen are
scarcer than those of bureaucrats. The cost to nurture an outstanding
scientist or educator or businessman is by no means higher than that of
a government official.
Competition between nations and competition between businesses is always
based on competition between people on their most basic level. The
shortage of personnel, particularly in the areas of
high-level managers for business, economics, law, accounting, finance,
and insurance will be the most crucial challenge of all before China
after her WTO entry.

    Right now, on the one hand the traditional concept of "unwillingness
to spend money even though you have it" is still widespread; on the
other hand, there also exists a very odd phenomenon of high
consumption. These two concepts of consumption and behaviors will impact
the progress of
economic modernization.

    Supporting the family through hard work is a very good tradition.
Before reform and liberalization, China was situated in a phase of
"shortage economy," and for a long time, people's lives were in a
situation of being tolerably well off. Chinese people generally stuck to
the idea of "new this year, old next year, patched I can use it another
year." This concept of consumption means that the level of savings in
China is higher than in other countries, and a large quantity of
consumer funds were converted into constructive capital, which hastened
the pace of economic construction. However, as China's economy
got out of the "shortage phase," and the seller's market turned into a
buyer's market, this traditional concept of consumption and this sort of
behavior led to insufficient consumer demand, which clearly limits
economic growth. In the past few years, in order to expand internal
demand, the state has
implemented many measures to encourage consumer loans, but with this
traditional concept of consumption still in place, the effectiveness of
this policy is clearly limited.

    Owing to the influence of the Western lifestyle, right now there is
an irrational consumption phenomenon operating in China. A few rich
people, and people spending public funds, have sunk
into a very hedonistic quagmire, putting huge sums of money into eating,
drinking, whoring and gambling. This has caused an abnormal development
of the current domestic service industry, and restaurants,
dance halls and bathhouses are popping up everywhere. Still other places
are mired in feudal superstitions, and are building temples and shrines
at a frantic pace.

    The market economy is an economy guided by the consumer. Social
consumption patterns decide the scope and pace of social production.
Social consumption structure determines the productive structure of
society. The market economic order also relies on consumer behavior for
its regulation. After WTO entry, China's businesses must participate in
international division of labor and competition, and foreign firms will
enter Chinese markets. All this will require changes to the traditional
concepts of consumption, consumer behavior and consumption structure in
China.

    The Outstanding Scholar Becomes a Gentleman

    Media accounts report that of 59 second-year junior high students in
Chengdu who are in an "Innovative Experiments Class," more than 40 have
official titles. This class also brought out the
slogan, "Everyone has something to do, each has an official role to
play." This innovative
experimental class has stirred up hot controversy among educators and
parents. Some teachers say that this kind of method is very helpful in
stimulating students' desire to learn and making students autonomous
learners. But even as they approve of the method, some experts and
parents also say that they have doubts and worries about the method,
that it is not necessarily beneficial for growth.

    Lack of Credit

    The Fujian Provincial Department of Finance organized a sampling
survey of businesses during the first half of 2001. The businesses
reported that late repayments and use of other businesses' capital was
very commonplace among them. In a few companies, the capital used by
others or the capital that firm was using that actually was owed to
another company reached one-third of the firm's total capital flow. A
clothing company in Pujiang needs nearly 20 million yuan in capital, but
apart from a 4 million yuan loan and some 2 million in their own
capital, "occupied capital" belonging to other companies' accounts for
10 million or so. The responsible person of the company told reporters
that they generally want to "squeeze" the capital of middleman
companies, and the middlemen "squeeze" the factory capital in their own
turn. The factories then "squeeze" the upstream suppliers' capital, and
a chain reaction of debt is thus formed. The responsible person from
that company said: the minute there is some problem in this "chain," all
the companies are in trouble."

[Description of Source: Beijing Liaowang in Chinese -- weekly general
affairs journal published by China's official news agency Xinhua,
carrying articles on political, social, cultural, international, and
economic issues]