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Introduction
This is a paper about my
experiences on a recent month-long trip to China. This report is not intended
to be scholarly – merely impressions after spending a very short time in China.
Most of the things I will discuss are either things that I saw, or things that I
learned while in China. Where I have used sources, I have referenced them in
footnotes. When Alexis de Tocqueville wrote about the United States in the
1830s, he had spent 18 months here in the 1830s. I spent 1/18
of that time in China, and my observations are considerably less informed than his. However,
I hope this will give the reader a feel for what one might find in
China. Recognizing that the Chinese economy and
society are among the most rapidly changing on the face of the earth, many of
these observations will be obsolete by the time this paper is published.
To summarize my experiences
in China, I found China to be a very interesting country, and the people were
uniformly warm and friendly to me. They often took pity on us poor dumb
Americans by keeping our groups out of trouble when we didn’t recognize the
potential for problems. One of these instances involved our Beijing tour guide,
Ms. Tan. During our first day’s lunch, one of the students said that he would
just drink water. Ms. Tan shook her head vigorously, and said, “No! No! No!
You don’t want to do that!” We found out later that Chinese tap water is not
drinkable for westerners.
I
begin this paper with a blatant “plug” for our China Internship program, and
then move on to discuss some general observations about China’s society. In the
remaining parts of the paper, I discuss the government’s role in the Chinese
economy, the impact of economic reform, and conclude with a series of
observations about specific topics in no particular order.
But
First, a Word from our Sponsor: UWSP’s China Internship Program
In
June 2005, I had the privilege and pleasure of leading 7 students on the China
Internship Program. As part of this program, students spend an entire month in
China. The first few days are spent sightseeing in Beijing. Then the students
fly to Chengdu, a city of approximately 11 million people, which is considered a
medium sized city by Chinese standards. This city has few tourist attractions
although Chengdu is the city that most tourists going to Tibet pass through.
For the 3 weeks the students are in Chengdu, they are essentially “working
stiffs” who have to deal with the day-to-day challenges the average person has
to deal with in China: getting to and from work, eating, getting their laundry
done, etc. At work, students must try to get things done in an extremely
foreign environment. This is a near total immersion into the Chinese business
world.
This
program is virtually unique. Though there are many study abroad programs in
China, most of them are historically and culturally oriented. Our program gives
students who speak little or no Chinese the opportunity to understand the nature
of Chinese business, the Chinese economy, and the Chinese people. I believe
that any student who will work for a company that does business in the global
marketplace should participate in one of the many international programs.
Further, I believe that businesses should consider hiring students who can help
them compete in the global marketplace. UWSP ranks in the top 20 nationally in
percentage of students who engage in an international experience. Personally, I
believe this is an underutilized resource for Central Wisconsin’s business
community.
Now that the advertisement
is complete let’s discuss my experiences in China. I will begin with a few
observations about China’s society in general.
Society
in General
There
were two things I thought I was prepared for when I went to China: the number of
people, and how foreign things would be. Unfortunately, I discovered that I was
not ready for either. Although one can visit major cities in the U.S., it is
difficult for a westerner to be prepared for the population density in China’s
cities. Doing anything in a Chinese city is a very competitive exercise. In
merely moving from point A to point B, people have to fight the
crowds and jostle for position. Traffic is a truly fluid thing with little
regard to the normal rules of the road. Although the Chinese normally drive on
the right-hand side of the road, the left-hand lane, ordinarily reserved for
oncoming traffic, is viewed by the Chinese driver as simply another option for
forward movement unless confronted head-on by a larger vehicle. Additionally,
the westerner is unprepared for the sheer volume and variety of the vehicles
available for transportation. These range from human-powered rickshaws to large
diesel trucks and luxury Mercedes automobiles. However, the greatest number of
vehicles I encountered were bicycles and electric-powered scooters. I found the
scooters the most dangerous because they are virtually silent, and they are fast
– with a top speed of around 25 miles per hour. All this occurs in a setting
that is extremely alien to the average westerner.
Spoken language is very
different to western ears. In Chinese, each “word” has its own intonation which
can change the meaning. Also, the Chinese language uses words in combinations
that may change the meaning of a given word. Add to this the apparent
requirement that Chinese must be spoken rapidly and forcefully, and the average
westerner gets the impression that everybody is arguing all of the time.
Exacerbating the problem for westerners is that very few people in China speak
English. Not only is this true in smaller cities such as Chengdu, but it is
also true in Beijing. In Beijing, we stayed in a four-star hotel catering to
foreigners, and we found that about one person in five spoke English.
The written language is
also unintelligible to westerners. In western languages, there are letters in
an alphabet that are combined to make words. As a result, westerners can often
understand things on a basic level. In Chinese, the language is made up of
pictographs that are combined to convey concepts. You can rarely point to a
pictograph and say that means, for example, Subway the way you can in
French or Spanish. Also, to be fundamentally literate
in Chinese requires knowledge of at least 3,000 pictographs; such literacy does
not occur until the early teenage years.
Although English is not in
common use, virtually every street sign is translated into English. As someone
who spoke only English, it was far easier for me to navigate in China than it
would be for a person who spoke only Chinese to navigate in the U.S.
Unfortunately, many of these signs are literally translated from Chinese into
English. Westerners have, somewhat arrogantly, named this type of English
Chinglish. My favorite translated sign was at the home of a famous poet in
Chengdu. It read, “Here water is making very deeply! Be Carefully!” I am sure
English translated directly into Chinese would produce similar humorous results.
One interesting aspect of
China is that the people have a generally positive view of Americans. This is
especially true in Chengdu. They still have memories of World War II, which
they call the “War of Japanese Aggression,” and of the Flying Tigers stationed
in Yunnan province just south of Sichuan province where our students worked.
They are also very interested in our political process. I have never been asked
as directly who I supported during the 2004 presidential election. I generally
responded with jokes such as “One of our cherished liberties is the right not to
talk politics.” My friends in China found this very puzzling.
Smoking is much more
prevalent in China than in the U.S. If you ask for
a nonsmoking table at a restraint, the waiter will simply remove the ashtray.
People smoke all of the time everywhere. Finally, most westerners think of
China as a very ancient society. In many ways this is true, but most of the
things people think of as typically Chinese were built at the time of the
European Renaissance or somewhat earlier. While the Great Wall was begun more
than 2,000 years ago, the Forbidden City was constructed in the late 14th
and early 15th centuries. Although these are interesting
observations about China’s society in general, the manner in which the Chinese
practice free enterprise in the context of its Communist governmental structure
is even more interesting.
Communism versus
Capitalism: the Chinese Government
The
government in China is a communist, one-party state. Only Communist Party
members are allowed to have any kind of governmental position, and this
requirement means that quite minor governmental officials must subscribe to the
ideals of the Communist Party. In China, the news is censored, information is
suppressed, and governmental officials must be atheists. In contrast however,
the Chinese economy is extremely capitalistic.
The
safety net we associate with governmental programs is virtually nonexistent in
China. There is enough support to provide the basic necessities such as food
and shelter, but not much else. During our last weekend in Chengdu, I had the
“pleasure” of arranging the medical care for one of our students at 1:30 a.m. on a Sunday (it’s a long story), and the hospital wanted cash on the
spot. I thought that this was because I am a westerner, but my tour guide
explained that all medical care must be paid for in this manner. She told me
about how angry her parents were when she helped to pay for an aunt’s surgery.
The
anger of the tour guide’s parents is understandable because China is just now
beginning to experiment with social security. Currently, parents expect their
children to support them in their old age. Due to the “one child” policy in
China, there are looming demographics imbalances. In the future, there will be
relatively very few young people to support a large aging population. This
could be further exacerbated by potential future gender imbalances due to such
things as allegedly more frequent adoption (by westerners) of female children
than male children, and the alleged choice of parents to end pregnancies that
would result in the birth of girls more frequently than those pregnancies that
would result in the birth of boys. China may need to implement more safety net
programs for its society, or these future demographic imbalances, coupled with
such problems as income inequity (discussed later), may put pressure on the
Chinese society that could lead to serious future consequences.
In
summary, China exhibits a seeming schizophrenia between the way its government
operates and the way individuals operate in their private lives. This is
explained by the 1962 quote from Deng Xiaoping,
"It doesn't matter whether your cat is black or white, as long as it catches
mice." This shows China’s extreme commitment to pragmatism. In the next
section, I will discuss how well China’s free-enterprise cat works.
Capitalism versus
Communism: Some General Observations about the Economy
One of our first
experiences in Beijing was our Hutong
tour. This is a tour of some of the backstreets of Beijing to see how the
average Chinese person lives. It is probably more accurate to say that this is
how some Chinese people lived in Beijing a number of years ago because now most
people in Beijing live in apartment buildings. However, as an economist, the
most interesting things I saw related to the entrepreneurial nature of the
Chinese economy and culture. Every second or third door had a small shop
selling virtually everything someone would need – meat, electronics, clothes,
produce, etc. Further, every sale is a negotiation. There is a clear tradeoff
between the price spent on an item and the time spent negotiating what the buyer
will pay, and most Chinese people are willing to spend their time negotiating
for a lower price. Virtually all transactions are cash transactions. This
combination of widespread entrepreneurial activity combined with the “cash is
king” attitude of the Chinese consumer makes government regulation of the
Chinese economy virtually non-existent.
This lack of governmental
influence even extends to such things as paying taxes. For example, China has
implemented a tax collection strategy that is part lottery and part public
service campaign. When you receive the bill for dinner in a restaurant in
China, there is a scratch-off portion. If you scratch it off, and reveal a
number, you receive the amount listed in Yuan, the Chinese currency. If there
is no number, the bill says, “Pay Your Taxes,” and you receive no money. From
my discussions with friends in China, my impression is that the Chinese
bureaucracy has virtually the same capabilities (technology, impact, etc.) as it
did 20 years ago. Thus China has the paradox of a communist government with a
very small impact on the marketplace. At the same time, the U.S. government’s
impact on our economy is growing with such regulatory measures as
Sarbanes-Oxley. In China, there either are no regulatory agencies such as the
EPA,
FTC, and FDA. Other agencies are unable have much of an impact on the economy.
As a result, the commercials on Chinese television offer an amazing variety of
products and make extravagant claims about the products advertised.
By far, most of these
products are purported to improve physical appearance. Such products include
breast augmentation products (pills, ointments and electrical devices), and even
a product, similar to the rack (the medieval torture device), which is supposed
to make the user taller. However, more products are offered for weight loss
than for anything else. Weight loss products include pills, exercise equipment,
and electrical devices designed to melt fat. This concern about obesity can be
traced to the way China’s economic reform was conducted.
The first beneficiaries of
economic liberalization were farmers. Rather than having the government control
their output, they could grow their crops in the most efficient manner possible
in order to make money. As prices were allowed to increase, more farmers began
producing more efficiently, and as agricultural output increased, prices
dropped. Consequently, food became abundant and relatively cheap. Combine this
with the fact that China has living memory of famine, and China may fall victim
to a future obesity epidemic similar to our current obesity epidemic. While I
was in China there were several English-language government-controlled news
reports about the growing obesity problem in China.
Resource Prices and
Currency Exchange Rates
China is a very inexpensive country by western standards. In part, this due
to the exchange rates maintained by the Chinese government. When I was in
China, the exchange rate was 8.2641 RMB
(Yuan). This was recently reduced to about 8.08211,
a reduction of approximately 2 percent. It is generally conceded that the
Chinese currency is undervalued relative to the rest of the world’s currencies.
In part, this is clearly governmental policy, and represents one of the few
areas of effective control by the government. However, the other reason prices
are cheap in China is due to the nature of the labor market. They have a large
workforce, and this has the effect of lowering wages..
The impacts of low Chinese
labor prices are easy to see. For example, if there is a water main break in a
city in Wisconsin, a backhoe is dispatched with at most 2 or 3 workers. If
there is a water main break in Beijing, 20-30 workers are dispatched with picks
and shovels. When you eat at a restaurant in China, you will be greeted by 4 or
5 people, and be served by 2 or 3 different people, and have a waiter or
waitress stay at your table during your entire meal. Finally, when you go
anywhere in the major cities, you will find people directing pedestrians, and
other people sweeping the streets by hand with very large brooms. These public
jobs are a Chinese version of W2, and the people doing these jobs are very happy
to have them. As Thomas L.
Friedman says in his book The World is Flat, “People in India and China
are starving for your job.”
This hunger for jobs
produces a remarkable competitiveness in the Chinese workforce that is
translated into China’s economy in general. The notion espoused by some in the
U.S. is that children should play games and not
keep score is an idea that finds little resonance among the people I met in
China.
Interestingly, many of the
Chinese people I talked to considered western businesses unfair competitors due
to their reliance on capital for production. Their view was, “Yes, we don’t pay
our workers much, but we do pay them. Machines work essentially for free, are
more precise than human workers, and aren’t subject to fatigue, old age, etc.”
These conflicting views confirm the economic view that resources prices
(governed by supply and demand) have the power to exert a great influence on the
economic landscape. So far, this paper has surveyed the Chinese economic
landscape. In the following paragraphs are some general observations presented
in no particular order that flow directly from the information presented above.
Finance – Cash is King
The one industry heavily
regulated in China is the financial services industry. The types of transactions
U.S. consumers regularly perform (e.g.,
electronic payment, debit card payment, wire transfers, simple checking
transactions, etc.) are extremely rare in China. As I stated before, “Cash is
king.” Consequently, people must go to elaborate means to protect their cash.
Under my shirt, I wore a money belt and a purse that went around my neck and
under my arm.
When I paid my Chinese counterpart in Chengdu, we had to find a bank that would
cash a lot of traveler’s checks. Then, my colleague had to go home to put the
money in a safe. I asked my counterpart why UWSP couldn’t simply send a wire
transfer to Sichuan University. He responded that the foreign student and faculty offices preferred
cash. As you can see, these kinds of cash transactions are very difficult to
regulate.
State-Owned/Controlled
Businesses
Western
analysts often state their concern that there are many Chinese businesses that
are either wholly owned by the government, or enjoy large governmental
subsidies. For example, there was considerable concern about the attempted
merger with Unocal by the Chinese National Oil Company (CNOOC). Although we are
correctly concerned about the governmental subsidies to some Chinese companies,
I believe this concern may cause us to ignore the real risks associated with
competing against Chinese businesses. The real powerhouses of the Chinese
economy are the small and medium-sized enterprises (SME’s). These businesses
are highly competitive, and when coupled with the entrepreneurial spirit of the
Chinese people, there is the potential for serious future competition.
Guan
Xi, and the Importance of
Relationships
In order to get along in
China, everyone practices Guan Xi. This concept is generally translated
as developing relationships prior to doing business. The idea is that first we
become friends and once we develop a level of trust, then we can do business.
This approach was developed
due to historic inefficiencies in the flow of information within the Chinese
economy, and because contracts were very difficult to enforce. Traditionally,
there were no Chinese credit agencies. Also, ancient Chinese courts practiced a
severe method of tort reform; if a plaintiff brought an unworthy case, the court
might punish the plaintiff. Such punishments might include beatings, forfeiture
of property and execution. Because of these factors, the potential for fraud
was rampant. Thus, guan xi is a way of protecting the parties by
exacting a cost to the reputation of any party who reneged on the contract.
At its most benign, guan
xi is similar to our concept of networking. However, at its least benign,
it may force partners to engage in such things as bribery and nepotism, and can
result in patronage schemes worthy of Tammany Hall. Also, your competitor may
have a relationship with a patron more powerful than yours, and this gives your
competitor an unfair advantage. Finally, consider the costs associated with not
having a relationship in such a business environment. The unspoken implication
of not having a patron is that you are fair game. Our students observed this
when they went shopping, and they tried to bargain with the vendors. One
student said, “I need to go consult with one of my Chinese friends.” Upon
hearing this, the vendor dropped her price by more than 100 Yuan. However, this
approach didn’t work in all situations. One vendor responded, “Oh, you have
Chinese friends? So do I,” and summoned a large tough-looking man. Our student
beat a hasty retreat, and the vendor lost his sale.
Income
Inequity
One
side effect of China’s economic liberalization is income inequity. The Chinese
are very concerned about this. There are many plans under consideration about
how to reduce income disparities. However, the ineffectiveness of the Chinese
government makes these plans unlikely to come to fruition. A government that
cannot collect its taxes is unlikely to redistribute income or wealth. During
the Cultural Revolution, income, wealth and occupational redistribution were
attempted using the severest methods possible. These attempts at redistribution
resulted in the widespread disruption of the Chinese economy and social
structure. I believe that this kind of disruption to Chinese society is
something that few would be willing to risk. Further, it is impossible to
dispute the positive influence of economic reform in China, and few Chinese
citizens would want to go back to the days prior to reform. Consequently, I
expect that while there will be a lot of hand-wringing, very little real income
redistribution will occur.
Alcohol
In China attitudes toward
alcohol are very similar to U.S. attitudes in the 1950’s and 1960’s. It is not
at all uncommon to have alcohol served during the lunch hour. My counterpart at
Sichuan University was quite fond of rice “wine,” which was really more like rice vodka.
Its alcohol content of this liquor is 54 percent. The standard toast sounds to
western ears like the word Gambay, and is roughly translated as, “Bottoms
Up!” Although most people drink considerably in
China, I never saw anyone pressured to drink.
Additionally, Chinese laws concerning DWI are quite severe, and I never saw any
of my Chinese colleagues drive after drinking.
In addition to
their rice “vodka,” China produces many excellent beers. Everyone knows about
Tsingtao, but all of the beer I consumed in China was excellent. In China,
their view of beer is similar to the way Americans viewed beer during the
temperance era – beer was considered the drink of moderation. Sometimes, my
Chinese counterparts would drink beer to
sober up after drinking too much rice “vodka.”
Piracy
Our students found that
virtually all of the software used at their place of employment was pirated.
Further, product piracy is practiced in many different forms. Consumers can
purchase any kind of knockoff from Rolexes to fake ancient Chinese artifacts. I
warned our students against trying to make a killing by buying inexpensive
Chinese goods. A good rule of thumb is that if you like something, and the
price is acceptable, buy it. Westerners often become rather smug when discussing
the piracy of our products and software. However, one of my Chinese friends
pointed out that the western age of mercantilism, the renaissance and the age of
exploration were, in large part, fueled by Chinese inventions including movable
type, gunpowder, paper money, and large sailing ships.
Conclusion
In this paper I have
reviewed some of my experiences in China. These experiences have been so
different and varied that it has been very difficult to know what to include and
what to exclude. Several people have asked me if I would go on this trip
again. The answer is yes. I will lead UWSP’s 2006 China Internship Program.
If you know of anyone who is interested in going, please have them contact me.
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