What China Can Teach Europe - Daniel Bell via NYTimes.com

Daniel Bell tells us that we shouldn’t think of China as a conventional Westphalian nation-state. It might be more profitable to think of China as a network of competing — and cooperating — semi-autonomous cities. And these cities might be a harbinger of what other cities elsewhere need to become:

Daniel Bell via NYTimes.com

[…] when it comes to economics, China is more a thin political union composed of semiautonomous cities — some with as many inhabitants as a European country — than an all-powerful centralized government that uniformly imposes its will on the whole country.

And competition among these huge cities is an important reason for China’s economic dynamism. The similar look of China’s megacities masks a rivalry as fierce as that among European countries.

China’s urban economic boom began in the late 1970s as an experiment with market reforms in China’s coastal cities. Shenzhen, the first “special economic zone,” has grown from a small fishing village in 1979 into a booming metropolis of 10 million today. Many other cities, from Guangzhou to Tianjin, soon followed the path of market reforms.

Today, cities vie ruthlessly for competitive advantage using tax breaks and other incentives that draw foreign and domestic investors. Smaller cities specialize in particular products, while larger ones flaunt their educational capacity and cultural appeal. It has led to the most rapid urban “economic miracle” in history.

Bell contrasts two very different cities — Chongqing, the size of Austria and with 33 million citizens, 23 million of which are registered as farmers, and Chengdu, 14 million people in the heart of Sichuan — stating that Chengdu has worked on a bottom-up basis with very clear property rights and Chongqing the reverse, with sweeping land grabs displacing millions.

China, it seems, is trying out different models: an evolutionary experiment. Bell fails to mention that Chengdu was the last city held by Chiang Kai-shek and the Kuomintang before fleeing to Taiwan. The Kuomintang had brought a large number of business people to the area as the slowly were pushed out of other regions in China, so it makes sense that the city would be a locale to test a ‘gentle’ approach to urbanization’s dislocations.

Economists say that for China to continue serving as one of the world’s few engines of economic growth, it will need to cultivate a consumer class that buys more of the world’s products and services, and shares more fully in the nation’s wealth.

But rather than rising, China’s consumer spending has actually plummeted in the last decade as a portion of the overall economy, to about 35 percent of gross domestic product, from about 45 percent. That figure is by far the lowest percentage for any big economy anywhere in the world. (Even in the sleepwalking American economy, the level is about 70 percent of G.D.P.)

Unless China starts giving its own people more spending power, some experts warn, the nation could gradually slip into the slow-growth malaise that now afflicts the United States, Europe and Japan. Already this year, China’s economic growth rate has begun to cool off.

“This growth model is past its sell-by date,” says Michael Pettis, a professor of finance at Peking University and senior associate at the Carnegie Endowment for International Peace. “If China is going to continue to grow, this system will have to change. They’re going to have to stop penalizing households.”

The Communist Party, in its latest five-year plan, has promised to bolster personal consumption. But doing so would risk undermining a pillar of the country’s current financial system: the household savings that support the government-run banks.

Here in Jilin City, where chemical manufacturing is the dominant industry, the state banks are flush with money from savings accounts. The banks use that money to make low-interest loans to corporate beneficiaries — including real estate developers, helping fuel a speculative property bubble that has raised housing prices beyond the reach of many consumers. It is a dynamic that has played out in dozens of cities throughout China.

- David Barboza, Households Pay a Price for China’s Growth

So, Chinese ‘growth’ is a new ponzi scheme: using the savings of the frugal Chinese workers to inflate the value of real estate, making speculators and officials wealthy, and of course, making the country ripe for the real estate bubble to collapse.

China Consolidates Control of Rare Earth Industry - Keith Bradsher

China produces nearly 95 percent of the world’s rare earth materials, and it is taking the steps to improve pollution controls in a notoriously toxic mining and processing industry. But the moves also have potential international trade implications and have started yet another round of price increases for rare earths, which are vital for green-energy products including giant wind turbines, hybrid gasoline-electric cars and compact fluorescent bulbs. General Electric, facing complaints in the United States about rising prices for its compact fluorescent bulbs, recently noted in a statement that if the rate of inflation over the last 12 months on the rare earth element europium oxide had been applied to a $2 cup of coffee, that coffee would now cost $24.55.

I read in Wikipedia that rare earths are distributed globally, but it will take years to build up the infrastructure to process them in reasonable quantities.

China Consolidates Control of Rare Earth Industry - Keith Bradsher

China produces nearly 95 percent of the world’s rare earth materials, and it is taking the steps to improve pollution controls in a notoriously toxic mining and processing industry. But the moves also have potential international trade implications and have started yet another round of price increases for rare earths, which are vital for green-energy products including giant wind turbines, hybrid gasoline-electric cars and compact fluorescent bulbs. General Electric, facing complaints in the United States about rising prices for its compact fluorescent bulbs, recently noted in a statement that if the rate of inflation over the last 12 months on the rare earth element europium oxide had been applied to a $2 cup of coffee, that coffee would now cost $24.55.
I read in Wikipedia that rare earths are distributed globally, but it will take years to build up the infrastructure to process them in reasonable quantities.

Waidi Ren and Hukuo: The Two-Tiered Society in China

Waidi ren, or ‘outsiders’, are the rural unskilled who migrate to China’s booming cities illegally, and are forming a permanent underclass:

Andrew Jacobs, China Takes Aim at Rural Influx

According to the Beijing Bureau of Statistics, more than one-third of the capital’s 19.6 million residents are migrants from China’s rural hinterland, a figure that has grown by about 6 million just since 2000.

Numbers like these worry the governing Communist Party, which has a particular aversion to the specter of urban slums and their potential as cauldrons for social instability.

[…]

Known derisively as “waidi ren,” or outsiders, the migrants are the cut-rate muscle that makes it eminently affordable for better-off Chinese to dine out, hire full-time nannies and ride new subway lines in places like Shanghai, Guangzhou and Shenzhen.

“The middle class hates to see that kind of poverty, but they can’t live without their cheap labor,” said Kam Wing Chan, a professor at the University of Washington who studies China’s rural-migrant policies.

To manage the huge population flows — and its own fears — the government relies on an internal passport and registration system dating from the Mao years that ties access to education, health care and pensions to the birthplace of a person’s parent. The hukou system, as it is called, has created a two-tiered population in many Chinese cities: those with legal residency and those without.

Though urbanization is a central tenet of the party’s latest five-year economic plan for the country, Mr. Chan says, the 250 million rural migrants who are expected to move to cities in the next 15 years could become a source of social unrest unless the hukou system is reformed. “Having that many second-class citizens in Chinese cities is dangerous,” he said.

Obtaining an urban residence permit, called a hukou, is possible only for those with deep pockets or top-notch connections, so struggling migrants live in a gray zone of pay-as-you-go medical care, dingy rented rooms and unregistered schools where the education is middling at best. Byzantine property ownership and bank-loan rules mean that most rural hukou holders are frozen out of the housing market even if they can afford a down payment on an apartment.

[…]

In a rare act of coordinated defiance, more than a dozen newspapers across the country jointly published an editorial last year calling on the government to take on the nettlesome process of reform. “We believe in people born to be free and people possessing the right to migrate freely,” the editorial declared. Within hours, however, the editorial was pulled from the papers’ Web sites and several editors were punished.

Since then, some Chinese scholars have been reluctant to speak out on the issue — indeed, a half-dozen experts on the subject each declined to comment for this article. Others, who were willing to discuss the matter, warned that the status quo was producing the very situation China’s leaders want to avoid.

As income gaps widen and inflation takes its toll on the paltry incomes of big-city migrants, many workers are becoming increasingly bitter. “The system as it stands now is only feeding instability,” said Jia Xijin, a public policy expert at Tsinghua University. “Rural and urban residents contribute to our nation, and they both pay taxes. But they don’t equally benefit. The injustice is glaring.”

One of the problems inherent in China’s urbanization arising from the desire to slow the migration of rural citizens to the cities, but factory owners need low-cost workers. The Chinese leadership is caught in a dilemma of growth. If migration is unfettered, the rural countrysides would be hollowed out even faster that they are now, with 25% of Beijings inhabitants are waidi ren. Inevitably, these outsiders will demand higher pay, and the cost of Chinese products will climb. 

In terms of urbanization, Beijing has two sides: the legal districts, with middle class and upper class Beijingers, and the illegal zones, where waidi ren live in substandard housing, with their kids denied access to subsidized schools, and no access to health care. But these have to be relatively close together, since the waidi ren work as nannies, cooks, and factory workers, coming into daily contact with legal citizens, their bosses and customers.

This is a frail system, and will fail, especially when the kids come of age. They won’t tolerate being shut out.

emergentfutures: China inches ahead of US in PC sales for the first time We may be living in a “post PC” world according to some, but PCs are unquestionably still big business, and they’re now a bigger business in China than anywhere else. That’s according to the latest report from market research firm IDC, at least, which found that both PC sales and shipments in China inched ahead of those in the US for the second quarter  Full Story: EndGadget This is perhaps the bellwether of the Fall of the West. The Internet is the crowning achievement of western technology — the largest, most expensive, and most significant innovation of all time — but now China is growing its own branch of the web as fast as the US. A turning point.
Zoom

emergentfutures:

China inches ahead of US in PC sales for the first time

We may be living in a “post PC” world according to some, but PCs are unquestionably still big business, and they’re now a bigger business in China than anywhere else. That’s according to the latest report from market research firm IDC, at least, which found that both PC sales and shipments in China inched ahead of those in the US for the second quarter 

Full Story: EndGadget

This is perhaps the bellwether of the Fall of the West. The Internet is the crowning achievement of western technology — the largest, most expensive, and most significant innovation of all time — but now China is growing its own branch of the web as fast as the US. A turning point.

Davos Dispatches: Brin defends Google’s China move

Sergey Brin equates Google’s acquiescence to China’s request for censorship about democracy and freedom to blocking Nazi content in Germany and child pornography in the US. Please.

[Davos Dispatches: Brin defends Google’s China move - Jan. 25, 2006]

Brin: […] We ultimately made a difficult decision, but we felt that by participating there, and making our services more available, even if not to the 100 percent that we ideally would like, that it will be better for Chinese Web users, because ultimately they would get more information, though not quite all of it.

[…]

And we also by the way have to do similar things in the U.S. and Germany. We also have to block certain material based on law. The U.S., child pornography, for example, and also DMCA

Fortune: You actually actively block child pornography?

Brin: No, but if we got a specific government request. If a third party makes a DMCA (Digital Millennium Copyright Act) claim that another party is violating copyright, and that party is not able to counter, then we are obligated to block that.

In France and Germany there are Nazi material laws. One thing we do, and which we are implementing in China as well, is that if there’s any kind of material blocked by local regulations we put a message to that effect at the bottom of the search engine. “Local regulations prevent us from showing all the results.” And we’re doing that in China also, and that makes us transparent.

Oh. By saying that you are censoring something, that makes it alright?

[Update: Noticed that Businessweek is running a poll about Google’s actions: it’s very close, pro v con.

Tom Zeller on China Still Winning Against The Web

The hue and cry about Microsoft’s acquiesence to China’s censorship of blogs will not die down, and Tom Zeller’s piece in the Sunday NYTimes attempts to present a balanced view, but ultimately, that falls apart:

[from China, Still Winning Against the Web - New York Times by Tom Zeller]

The company said it was simply facing reality. “Microsoft does business in many countries around the world,” said Brooke Richardson, a group product manager for its MSN division, in an e-mailed statement. “While different countries have different standards, Microsoft and other multinational companies have to ensure that our products and services comply with local laws, norms and industry practices.”  Microsoft was only the latest technology company to be criticized for cooperating with the Chinese government. Yahoo, Cisco and Google have all been accused of helping to maintain what the United States-China Economic and Security Review Commission, a Congressional investigatory body, has called “the most sophisticated Internet control system in the world.” 

The reality is that these companies are more interested in profits and future competitiveness than they are in human rights.

In the spirit of Martin Luther King Day, we should use non-violent protest — such as withholding access to tools like MSN Spaces — so that China moves toward a better human rights stance. If the mega companies are not willing to use their leverage to do so, we should protest until they do. So I continue to call for a boycott of Microsoft until they stop doing the work of the censors.