China

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Enter the dragon

China is growing with bewildering speed. When Tony Blair arrives for a
historic visit, he will find a country undergoing social upheavals on the
way to becoming an economic superpower, reports Jonathan Fenby

Sunday July 20, 2003
The Observer

Conventional wisdom insists that nations ruled by Communist parties are
regimented, unimaginative failures. Yet nowhere on earth is changing so
fast and on such a scale as in China, where market economics and rampant
consumerism meet the remnants of Maoism, throwing up paradoxes with
profound implications for its 1.3 billion people - and for the rest of the
world.

Tony Blair will arrive tomorrow for a two-day visit, during which he will
hear evidence of the change from politicians in the capital, Beijing, and
businessmen in the fast-expanding commercial centre of Shanghai.

It is not clear, however, if even the leadership in its heavily guarded
Beijing compound knows exactly what is going on in the 3.7 million square
miles between the booming development zones of the coast and the huge
deserts and mountains on the doorstep of Central Asia.

China is racing to meet its future, confident it will grow into a
superpower within a couple of decades, with all that implies for the West
and for its Asian neighbours. Yet it remains stunted under the
authoritarian hand of a Communist Party for which the retention of power
has become an end in itself.

It is the main motor of international expansion, but it contains an
uncomfortable expanse of shady zones and, owing to its size and diversity,
is very hard to control.

China's gleaming airports put Heathrow to shame. The size of construction
projects have led to the joke about the crane being the national bird.

The tycoon class has expanded so substantially that the American business
magazine Forbes produces an annual list of China's 100 richest. Car
production is rising by millions of vehicles a year. There are about 300
million mobile phone users. Shopping malls are crammed with designer
clothes, real and counterfeit. Top tickets for Real Madrid's forthcoming
game against a Chinese team are priced at £125 each.

Figures issued last week showed that, despite a dip last spring because of
the Sars epidemic, China's economic growth should still hit the 7 per cent
target for the year, with industrial production up by 16 per cent in the
first six months. Though there are doubts about the precision of official
figures, this rate is even higher in the special economic development
zones where big, modern factories ally automation with low-cost labour

Having started by making cheap goods, Chinese firms are moving on to more
profitable ones as their country's membership of the World Trade
Organisation guarantees them access to world markets.

>From toys to computer chips, just about everything seems to come from
China these days. Despite Sars, exports in the first half of this year
bounded by 34 per cent to the equivalent of £120 billion. Foreign
investment, bringing money, technology and expertise, rises by the year as
Western and Japanese executives put the country at the top of their plans.

A recent article by an American economist was headlined: 'What happens
when everything is made in China?'

That raises concern about foreign jobs being exported to China - as in the
decision by Waterford Wedgwood crystal to close British factories and
shift production to China for lower costs. But, while international
pressure on Beijing to revalue its currency upwards grows, economic
expansion is making the mainland a major importer of raw materials,
machinery and factory components. Its purchases of crude oil rose by a
third in the first half of this year and it could be the salvation of the
world steel industry.

On his drive from the airport, Blair will see Beijing engaged in a huge
building programme running up to its staging of the 2008 Olympics. In
Shanghai, a new business district has gone up on marshland, and gleaming
blocks of flats line the eight-lane roads into the city. A German magnetic
levitation train whisks passengers in from Shanghai's new Pudong airport
at 250mph, and a Japanese 'bullet train' is likely to link the city to
Beijing.

Shenzhen, a pioneering economic development zone across the border from
Hong Kong, has grown from a small town into a city of millions attracted
by work in its fast-growing factories. Chongqing, capital of the biggest
province, Sichuan, is being transformed from a shabby city notorious for
its nasty climate into what aims to be a model of growth in a special zone
containing 30 million people.

The Three Gorges dam, with its enormous hydro-electric potential, has gone
into operation, and there are plans for a mammoth waterway across the
country to check the recurrent pattern of droughts and floods. Visit city
centres from the once-isolated Kunming in the lush south-west to Manchuria
on the border with Russia, and you find the same lines of glass and
concrete offices, shops and flats on proud display as signs of modernity.

A middle class is emerging and, this being China, it is numbered in
hundreds of millions. Artists and writers challenge tradition in a major
way. The 'iron rice bowl' of cradle-to-grave welfare promised by Mao
Zedong is being smashed. Beijing's development is demolishing the alleyway
hutong houses that were a characteristic of the capital for eight
centuries.

Modern life is eating away at the traditional family: 14 per cent of
households now consist of either a single adult or a childless couple who
both work. Older people are deeply worried about the future, as their
children save to pay for health care and private education. At a lunch in
Beijing, the Education Minister spoke to me enthusiastically about the
model set by Warwick University for attracting paying students.

A lot of dark areas lie behind the bright lights on the Yangtze cliffs of
Chongqing and the Shanghai Bund, where the huge Hong Kong and Shanghai
Bank building from before the Second World War has been restored as the
headquarters of a local development organisation.

Income inequalities are enormous. Factory modernisation has boosted
unemployment, and there are periodic demonstrations by workers who have
not been paid. Outside the city centres and modern apartment blocks,
China's urban areas are dirty, unhealthy and overcrowded. Workers newly
arrived from the country sleep out around train and bus stations, and
drive down the already tiny wages paid for manual labour on all those
building sites.

Low health and safety standards are highlighted by repeated industrial
accidents and the recent spread of Sars. Pollution and environmental
destruction are high. Floods kill an average of nearly 4,000 people a
year.

The government has launched a series of high-profile crackdowns on major
offenders, but corruption is embedded. Badly paid officials exploit their
position - in one city, police stopped motorists to tell them their cars
contravened cleanliness regulations: they had a friend standing by to wash
vehicles for a small fee.

Much of rural China, which contains most of the country's people, is left
behind. Depending on the criteria adopted, upwards of 100 million Chinese
live below the absolute poverty line. Though cities are linked by a
fast-expanding motorway network, rural communications remain poor. Farmers
stage periodic protests about local officials levying 'special taxes' for
their own enrichment.

Many villages are age-old huddles of mud or adobe huts without sanitation.
One villager joked that, if the government really wanted to reduce the
number of children, it should lay on electricity so people could watch
television at night rather than having sex.

Foreign financial houses have started trading in Chinese shares, but the
stock market is run largely for speculation and to direct capital to well
connected firms. The banking system is shot through with huge bad debts as
a result of channelling money to politically favoured enterprises rather
than those which could best use the cash.

The reform of state enterprises seems to be taking longer than expected.
Corporate accounts often bear little relation to reality. An inquiry found
recently that most state firms cooked the books. No wonder some
commentators see as inevitable the scenario outlined in a recent book
called The Coming Collapse of China.

Some of the highest-flying businessmen have crashed to earth - the
second-ranking person on the Forbes list for 2001 has just been jailed for
18 years for fraud. Huge smuggling rings involving local dignitaries have
been uncovered. Municipal officials in Manchuria's main city were found to
have been in cahoots with the local mafia.

This is partly the result of such rapid development in a country with no
independent legal system, where favours that bring the chance to make a
fortune are bought and sold. But the way China is developing poses a
distinct problem for the organisation that sits obstinately on top of that
system and has used its ability to hand out favours and punishment, as the
glue that holds it together. As an old Maoist once said, if the Communist
Party does not get rid of corruption, it is done for; but, if does get rid
of corruption, it is doomed anyway.

Since the move to the market launched by the patriarch Deng Xiaoping two
decades ago, individual liberty has grown enormously. Walking in the
streets of Chinese cities, you do not feel the oppression that
characterised eastern Europe under Communism. Taxi drivers joke about the
leadership, and only the politically ambitious pay much attention to its
ideological forays.

That is, in its way, what the leadership is after. Its basic gamble is
that growing wealth will provide a legitimacy to replace the tenets of
Maoism. After the first, second and third ways of politics, welcome to
China's fourth way where the prospect of getting rich means that politics,
in the conventional Western sense, can be pigeonholed for so long as the
economy roars ahead.

So, though there have been some electoral experiments at local level,
democracy is far away, as it has been throughout China's history. For the
new leadership of President Hu Jintao, as for his predecessor, Jiang Zemin
stability is paramount - the Cultural Revolution is held up as a terrible
example of what can happen when things get out of hand.

Crossing the political line is perilous. Dissidents are out of the
headlines in the West, but they are still persecuted relentlessly. Members
of the deep-breathing Falun Gong exercise group are arrested as a security
threat. Tibet remains tightly policed, and the war on terrorism is a
convenient pretext for cracking down on the mainly Muslim population of
the vast western territory of Xinjiang.

China has put on its best face for the world, particularly since it
realised the benefits to be gained from 11 September. Blair and the other
leaders beating a path to Beijing should realise, however, that, useful as
foreigners are, China has never set much store by them. The round-eyes can
provide technology and money, but the country will go its own path, making
temporary alliances that suit it while increasingly using its clout as it
chooses, in its bid to displace Japan as Asia's economic and political
motor.

To do that, the leaders Blair will meet this week have to maintain the
breakneck momentum of 'socialism with Chinese characteristics' to
demonstrate that 'It's the economy, stupid'.

· Jonathan Fenby edited the 'South China Morning Post' in Hong Kong from
1995-1999 and is the author of 'Dealing with the Dragon: A Year in the new
Hong Kong', published by Little Brown