China is enjoying an age of tremendous growth in both economic power and geopolitical influence. I was fortunate to spend 18 days there this month, during which I visited 5 major cities and saw firsthand how the central government is addressing the country's unique challenges.
My tour began in Beijing's Tian An Men Square for the National Day celebrations marking 60 years of Communist Party rule. The massive crowds of domestic tourists everywhere left little doubt about the auspicious occasion's importance to the Chinese. People were in a lighthearted mood as they enjoyed the festivities. I think I had my picture taken about 30 times by the locals!
Every city we visited had decorations and monuments set up for National Day, including the old walled city of Xian, Shanghai, Chongqing (a bustling central city of over 30m people that the west seldom hears about), and Hong Kong.
All tours in China for foreigners are sanctioned and run by CITS - China International Travel Service, a state-controlled entity. Despite the obvious government influence on tour content, our guides were very frank about the challenges China faces as it develops. China is all business, but the country is very concerned about the effects of rapid urbanization as underemployed farmers seek better paying factory jobs in the city. To that end, the government has a complicated system of controls in place, such as special ID cards that are required for anyone to move into an urban area. Automobile license plate are restricted and are auctioned off every month for thousands of dollars each. Farmers also receive subsidies and perquisites to stay on the land and keep growing food, albeit in a awkward, constrained farm system where each farmer is alloted, on average, 1/5 of an acre. From afar, these controls may seem to the west like government fiat based on ideology. Yet up close, it seems more like the government is very afraid of it's sprawling cities becoming crowded and congested, with two feet on the brakes to avoid the social problems appurtenant to rapid urban migration. From where I sat, it seemed that half the policies were to slow urbanization for the benefit of cities, and the other half were to keep people employed on farms, where they can feed themselves and stay busy.
During a cruise on the Yangtze river we saw the impressive Three Gorges Dam, a US $28b project, which the government reports it spent 40% of to relocate over a 1 million people to higher ground and rebuild their cities. In Shanghai, China's obsession with development and cities is center stage. We visited the Shanghai Urban Planning Exhibition Hall, a temple to city development located prominently location next to the city hall and across the street from the Shanghai Museum of Art. It is a showpiece of architecture containing a massive scale model of the city along with a large exhibit on the Shanghai Expo 2010. Expo 2010 is a World Expo in the tradition of the World Fairs, and sanctioned by the Bureau of International Expositions. The scale of the Expo is enormous, with a full-blown planning campaign that rivals the planning for the Beijing Olympics. It seems to be just another example of the Chinese Government's willingness to expend huge sums pursuing high-profile projects, and perhaps, trying very hard to impress the rest of the world.
Yet with all the impressive results of these massive undertakings, critics complain that China should invest more money in its people, rather than public boondoggles. Despite the insistence of our guides to the contrary, it was apparent that social services and entitlement spending are inadequate. Perhaps worse, underemployment was visible almost everywhere as people worked inefficiently on tasks of questionable importance. From a big picture economic point of view, China seems so busy with simple growth that it ignores the finer aspects of development such as productivity gains and capital utilization.
But another way to look at those large public projects is as economic risk-taking. The Chinese government has a long tradition of limiting it's economic innovation to well defined areas such as the liberalized special economic zones in Shanghai and Shenzen, for example. Consider it public sector venture activity. Viewed from this perspective, these large development projects can be seen as consistent with other current Chinese economic experiments, such as the country's first antitrust laws, enacted just in 2008, and ChiNext, the NASDAQ style electronic exchange that opens in Shenzen this year. The new exchange is an important development for finance and venture activity in China. It's intended in large part to fund technology startups in China and provide an exit for early stage investors. So far, 28 firms have signed up to IPO when ChiNext opens for business next Friday, October 30. The government also hopes ChiNext will give China a more efficient small-cap marketplace to compete directly with Nasdaq and London's low-regulation AIM exchange.
We fittingly ended our tour in Hong Kong, which remains a dynamic city and the economic lynchpin of greater China. Overall, I had a great time, and I highly recommend for anyone who can to make it over. I found one of the best things about China was that the business environment is very pro-networking. There's a sense that the opportunities are so big and people need to collaborate to take advantage. I quickly made contacts in hotels and businesses with people who encouraged me to visit when I come back, which I hope will be soon.
Michael Mullins, TLP Fellow '10
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