In World politics time is measured in decades, and many will call the 00s the decade of China. It is just a simplification, these 10 years are nothing but part of a longer process started in 78, and probably still ongoing for another decade more. And yet, if we have to choose one event that marked the decade in World politics, like the end of the Cold War marked the 90s, the rise of China is the most reasonable choice. No other event is likely to be be more decisive in the history of the World.

In the first post of this Year End edition we proved that, within the general growing trend of the decade, 2008 was a peak for China’s presence in the World media, and 2009 has gone back to relatively normal levels. This peak cannot hide the general trend: that China is growing inexorably to become a World superpower and that it is already changing the power balance of humanity.

Measuring the Chinese decade

If we have to chose one single parameter to measure this rise, it is the economy that can give us the best clue. There is no point in going to the decimals when analyzing decade trends, so the calculation is simple: China has grown roughly 7% faster than Western countries in the last decade, and all seems to indicate that this will continue into the 10s.

The calculation* is straightforward:  1.07^10 = 2

At a rate of 7% differential a year, the size of China’s economy relative to the Western economies is doubling every decade. Today most estimates of GDP place China between 1/4 and 1/2 of the USA economy, depending if it is measured in nominal GDP or in PPP. This means that, if nothing else changes in the next decade, Chinese economy will be the biggest in the World anytime between 2020 and 2030.

The consequences of this calculation are enormous, and they are already operating today. That is because in politics we behave like in the stock market: decisions are made taking into account the foreseeable future rather than the present. China is already displacing the EU in World politics, even if it is a fraction of the European economy, even if it doesn’t want to be the protagonist. The media and the politicians are betting on the future value of China.

The Question of the Decade

Of course, nothing guarantees that the growth patterns of the 00s will continue in the 10s. There is one important school of thought that insists on the unsustainability of the Chinese system. They mention corruption, growing inequality, lack of civil rights and a civil society, repression of creativity and free market, the inability to build World class brands and a financial system in disarray, among other problems, to justify their prediction that sooner or later the Chinese economy is bound to crumble.

Those of us who live and work in China know that these problems are serious and very real, and that somewhere down the line there is bound to be a serious readjustment. And yet, the same predictions have been made regularly almost every year in the last three decades, and the collapse has not materialized.

The real question of this decade is When?

Will the Chinese economy stop growing before or after it has become a superpower as large as the USA? Will the Chinese seriously demand more rights and liberties before or after China has become a developed country? Will the economic and political readjustments be done progressively with the new generation of Chinese leaders, or will there be a dangerous explosion in this decade?

We don’t have the answers to this today, and you should not believe any China expert who claims to have them. All we can do is frame the question above, and watch out for early signs to answer it in the coming years.

There is however one statement we can make today. Looking at the World, it is obvious that many important players are already betting on the rise of China, and this view is gathering more support every year. As we have seen above, to the extent that the majority in the World believes in the superpower scenario, China is ALREADY a superpower. The political power comes years in advance of the GDP, and the new World order is already a fact today.

Photo: Eric Risberg

*This is an engineer’s calculation, the nightmare of any serious mathematician. And yet, most bridges we do are still standing, and when we speak of decade trends anything more accurate than this is a joke.

Whatever we make of the phrase, the fact is that it comes up every time, whether we are speaking of language, media or politics,  all seems to point in that direction.  The pictures below are my attempt to draw a World Map of the Internet to illustrate this insularity, using the data from the site Internet World Stats.

Here is the first idea I had: I got the statistics of all countries with more than 10 Million internet users, that makes 32 in total, from China to Morocco. Then I did an Excel chart where each bubble has an area proportional to the internet users of the country, and crucially, I filled the bubbles with code from the Matrix. Result: the World Map of the Matrix:

The World Map of the Internet Matrix

One interesting thing in the map above is that Asia is already the largest internet area in the World. Amazing—but not really, after all, it has by far the largest population. And this is nothing compared to what is coming: with the growth of India and China the internet is going to be an Asian joint in the next few years. No hit will be really global on the net without them. Up to now, most people on the net were from developed countries, from now on the majority will be from developing ones. The close contact between our societies will have important consequences online and off. That is, supposing we really manage to connect.

But when we speak of the internet, it doesn’t make much sense to look at political boundaries. There is no such a thing as border controls online, what really unites or divides the peoples is culture. An in particular, the most important parameter is language: regardless of your national origin, what defines you as an user is the language you surf in. That is the reason why my browsing habits look more like this blogger’s than like anyone in my country: ESWN and I have completely different backgrounds, but we have in common our surfing languages.

So I looked up the statistics of the 10 most used languages on the internet, from English to Korean. This time I coloured the bubbles with flags, and I placed them roughly on the center of gravity of their community of speakers. The result is the map of Surfing Languages:

The World Map of the Surfing Languages

Still, the map is not great. Many of the speakers in the massive English bubble are actually Indians, Spanish should be both in America and in Europe, and Australia is completely out of the picture. Physical distance has no meaning on the net, even less than political boundaries. It becomes clear that geography is of little use for my purpose, so we might as well dump  Gmaps and stick to the bubbles.

My new diagram looks like this, where all the major internet communities are represented together in a Cloud. We are all interconnected, and the only solid differentiator is language. Two people might share a hobby, like soccer , but they don’t go to the same websites if they surf in different languages. Most of the media and resources on the internet are not translated into other languages, but rather re-written and re-interpreted by native bloggers/journalists, who function as border control among the communities.

Improved World Map of the Internet: the Cloud

One of the things we see on the Cloud is that all the communities are touching each other. But I’m afraid this is not a very precise picture. Normally Russians don’t translate Japanese content, neither do Portuguese translate Arabic. The English language has a crucial role on the internet today, because in most cases it is through English that the rest of the languages communicate: Most content is translated first to English and from there to the other communities. The English bubble, including users from all over the World, is the Center of the Internet.

Another problem with the Cloud is that it shows all the communities equally interconnected, which is not very realistic. Users who speak European languages are much more likely to read English. The Spanish community, for example, includes many Americans who surf English sites as much as their own language. Actually, most of the language bubbles share a significant part of their pixels with the English bubble, so we can represent the Map as a sort of Venn diagram:

Second Iteration: the Venn Diagram Map

We see the new Map is very different from the previous one. Now there is a cluster of Western languages that share a lot of content with English, two more languages that share a bit, Russian and Arabic, and then the three languages that form the core of the Asian internet today: Chinese, Korean and Japanese. And you may have noticed that I have drawn Chinese at a distance from the rest.

For various reasons that we will see, Chinese don’t use Facebook, or Twitter, or Youtube, or MySpace, or eBay. They don’t read Boing Boing or the Huffington post, and they chat in their own QQ chatrooms. They rarely receive the viral emails that we receive, and instead they get others like this one. They have all the things that we have and some more, but they built them in parallel in their separate parcel of the internet.

Whereas the sizes of the bubbles above are based on quantitative data collected by a respected source, the positions are only decided by semi-informed feeling. Any reader could argue that China should not be so far right. There is Hong Kong,  Chinese-Americans, even mainland Chinese who do surf in English. And I will be forced to admit that the Venn Map is flawed, because it fails to show this.

But in such a fast changing World like the Internet, position really means nothing. What holds today may be different tomorrow. What is really significant is the dynamics: which direction is China going, and how will the internet look in 10 years? Everybody agrees that China’s internet community is growing very fast, and that is natural. The worrying part is that it might also be moving away from the rest.

Third iteration: The Dynamic Map

Because in Western countries internet penetration is already very high and India is still lagging behind, in the next 10 years the Chinese internet will become almost as big as all the rest together. If it continues to diverge, it may grow into a parallel network, like a dark side of the moon, a vast, self-sufficient island that the government can cut out at any moment and most people inside it don’t even notice the difference. This defeats the whole idea of the www.

Whatever the real magnitude of the problem, it is clear to most observers that there is a disconnect between China and the rest of the Internet, and there are powerful forces pulling them further apart. Fortunately, there are also forces working to balance this, and the results in the coming years will very much depend on how those factors play against each other. Here is how my new map looks now:

The Forces of the Internet

As we saw before in this blog,  some of the main factors that keep China separate from the World are the following, shown in red in the chart:

• Linguistic, as we saw in this post, where we proved that Chinese language is beautiful and unique in many ways, but it makes it very difficult for Chinese and foreigners to connect.
• Cultural, in the broad sense of the word, meaning that the communities have so different views and values that they cannot understand each other. This includes the problems with the Media.
• Political, the deliberate actions of the CCP in  multiple forms, including Nannies, the Great Firewall of China (GFW) and directly arresting people, as we saw here.

And in green the main factors that go in the opposite direction. Here they are in detail, for the optimists to rejoice:

• The growing number of bridge bloggers and other internet uses that work to connect the two communities. These include not only the English language Chinablogs, but mainly Chinese people who translate foreign media and other content on the Chinese internet. From this humble blog I also did my bit against the GFW.
• The post 90s and 80s generations that already dominate the Chinese internet. Their personal tastes in arts, music or cinema will probably be more international, and push them to connect with the World. This point is object of debate though, and some Westerners are very skeptical of the post 80s.
• Business is one of most important factors that link China to the World. Since the construction of the EU, it is no secret that commerce can achieve the most ambitious goals in World Peace, so whatever your take is on those business minded Chinese, they are probably the main force that is still keeping the Chinese Island connected and holding the World Wide Web together.

What do you think? 你有什么想法？

Do you think I am exaggerating? Or is the problem even worse than this? Any factor I missed in the Internet Maps? Internet friends: you are the pixels inside the coloured bubbles, you know all about this World because it is your home: comment and help me improve my Map!

你觉得这很夸张吗？还是认为问题写得还不够严重？你知道我在互联网地图里忽略了哪些元素吗？网友们：你们是小圈里面的像素，那里就是你们家，帮助我改进我的地图！  U5KMU63NGPP2

When it comes to Chinese economy I have always been a bit of  a pessimist. This year I am getting to understand better the situation of public finance – I recently read the informative Finance and Factions, by Victor Shih-  and now the outlook looks even bleaker. On the surface China is doing well, but the more you look into the details the more unsustainable it looks. Which is exactly how systems look when they are about to snap.

And yet somehow I will not be surprised if in 10 years time we look back and find that we are still in the same situation.  After all, there were experts writing similar predictions already 10 years ago…

Today for example, I completely panicked when I stumbled into one of the bugs of wordpress. For some reason, when you add a “click to read more” tag next to a section in bold, it goes and turns the whole blog to bold, including sidebar, titles and header. So yes, I think I have gone bold for a few hours,  but it was not intended. I hope I didn’t hurt any feelings.

The Goose Huggers

But this bolding effect is nothing compared to the vicious attack that this blog is suffering from an international band of Goose Huggers. 

I have been wondering for a while what is going on with my Goose post. It is attracting more clicking action than anything else around here, and by now it has become already the most popular of my posts. 

An embarrassing situation altogether, because, much as I am proud of my gaggling skills, I always fancied this post does not reach the heights of my otherwise highbrow blog. What will new visitors think? 

These days I have been spending some time  in the control room, tinkering a bit with my layout, and I’ve taken the chance to look into this perplexing phenomenon. There is not a single link on the internet to this post, and I have found out it is the image of the Goose that attracts all the hits. Perverts, I should have known.

Unfortunately, these rascals leave no trace of their dirty deeds, as they are coming from Google image search, so the incoming stats don’t show which is the search string in this case. But I would appreciate it if someone can give me a hint to find out why this simple image of a naked mother goose is getting so much attention.

The Books

And finally, in case you are wondering what has changed after all this tinkering. I have added a new book review section with the covers of the books on the sidebar, and I have taken the chance to go commercial with amazon. But fear not, this is for a good cause, and I am not abandoning my revolutionary principles to walk the road of capitalism. Amazon does not give me any money for this, but instead it gives me points to get discounts on their books. Considering the monthly expenses for books in this house, I am afraid this was a necessary measure.

Apart from this, I have decided to shift the attention of the blog from economy into literature. Most of my posts up to now have dealt with Crisis Watching, contributing no little to the general confusion of the Chinese internet. I will continue writing about that once in a while, but I think I can offer a more valuable contribution dealing with books. And even if my book reviews may be nothing to write home about, I am happy to bring to the people some interesting pieces that are far from amazon’s best sellers lists and might otherwise go unnoticed.

I take pleasure in reviewing books. It gives you a strange feeling of power when you can judge in a few paragraphs the hard work that a writer has taken months to complete. When I write about a book it is because I like it, so whatever I say,  you can take it as a recommendation. I admire all the writers  I review, and I hope I can be fair with them.

The Time

Economies don’t grow indefinitely.  Low cycles follow high cycles and after 30 years it is about time. China cannot break the laws of economics, so the recession must necessarily come in the next X years. The country hasn’t prepared itself politically and psicologically to face this period. In the end, we are sure to have trouble.

Of course, this argument is of little value without the X, and many proponents of a time limit have failed in the past. This is the field of technical analysts and other mystical thinkers. Mythology also plays a role:  In Chinese history, cataclysms mark the end of a cycle. An earthquake preceded this crisis, and a solar eclipse is coming in July, the dynasty has lost its virtue. These arguments tend to work better with a bit of hindsight.

The Markets

The World’s economies are interdependent today. China’s economy is largely dependent on exports and FDI. The weight of these external factors in China’s growth has been much discussed, but regardless of the exact numbers, few doubt that it is a significant motor of the economy. External motors failing, China turns to internal ones: investment and consumption. Today, strong public investment, mostly in infrastructure and energy, is making up for the loss.

But infrastructure on its own does not move an economy, an empty highway is dead weight. Its value lies in the economic activities that are created or improved by using it, and those activities need markets to get them going in the long term. Optimists have pointed out that the crisis might turn developed economies to cheaper products, but international markets are saturated with cheap Chinese wares, and the latest news are discouraging. This leaves the Chinese consumer.

The People

Since the urban consumer was already developing at full speed, it is to the masses of Chinese peasants that all the eyes turned when a new market was needed to replace the failing exports. The peasants had been left out of the economic miracle, and measures were announced to get them back in.  But few of those social measures have materialized in any significant way, and the government seems to realize that this is a long term effort, not to be mistaken with an emergency financial package.

 Chinese peasants don’t like to spend money. They like to save it.  Some argue this is an immutable principle of a post-confucian society, others attribute it to the lack of “safety nets”, such as  health care plans, and the fact that poverty is still seen as a very real option.  Perhaps Chinese have too much common sense, and in the face of all evidence, they continue to act as if working hard and being thrifty will make you richer.

Meanwhile, the optimists of internal consumption see hope in the low-tier cities, the segments of the population that have already abandoned the peasant lifestyle, but still have a long way to reach East Coast level. 

The Government

China’s authoritarian system has some advantages over Western systems. The executive can take strong, quick measures unhindered by parliament debate and popularity surveys. A good example is the stimulus package. China was the first major country to announce it, and it is has been the biggest  relative to the size of the economy. Government technocrats tend to know more of economics than voters.

But some see in the system the seeds of disaster. The Son of Heaven is human, and bound to the wheel of favours, factions, patrons and clients. The lack of checks and balances makes it easy  for personal interests to take precedence over the common good. Some have a stake in the stock market, others in real estate, there are ways to pump up these markets with the connivance of Beijing. One day they might all decide it is time to cash in, and the rest of the population will be caught by surprise, watcing the CCTV report with the 8% growth spreadsheet. Lack of transparency usually works well to bubble up crises. 

The Package

China has a good package, timely and sizable. Few doubt now that it has delivered the desired stimuli. The thrust in infrastructure and energy investment is spilling its effects over the rest of the economy, and the feared legions of the unemployed are still nowhere to be seen today. 

But the package can only be a temporary patch, as we have seen above, and its function is just to cover the gap until the economy gets back to normal. In the meantime, the investments should be preparing the path for the return of sustainable growth.

Optimists point at the positive parts of the package, such as social measures, education, or development of new sectors of the economy in biotech or renewable energies. Pessimists note that the bulk of the package is actually flowing into very few sectors related to heavy construction, and this will cause unbalances and excess capacities the minute the financial tap is turned off.  In their view, the package is just postponing/aggravating the consequences. Some mention the devastating and unpredictable specter of deflation.

The Chest

China has also a nice chest. It is a war chest, and it is full of foreign-exchange reserves denominated in dollars. Optimists and lovers of logic alike see salvation in these reserves. They like to point out that China has room to go on with its package for a long time, thanks to all the years that the country has spent saving saving money and acting as “Americas banker”.

From a plain logical point of view, this makes sense, but unfortunately financial logic is anything but plain. The specialists in the area are quick to remind us that these reserves are not unencumbered wealth, and not free for the government to use. The central and provincial governments finances are already under stress, and the banking system is channeling all financial resources to the package SOEs, with the consequence of drying up available finance for other sectors of the economy.

The Riots

One of the main subjects in the Crisis discussions has been the possibility of large scale riots caused by unemployment. These riots could have the effect of destabilizing the system, with consequences in politics as well as in the economy. Perhaps because of the political derivations, unemployment has attracted a lot of attention from Western observers. Around the turn of the year, when the Western Christmas season was over and many semi-seasonal workshops were closing, the discussion reached the peak of popularity.

But the package has kicked in, and for the moment unemployment doesn’t show signs of getting out of control. The riots have increased in number, but they remain essentially local in nature, directed to claim arrears from a particular company, or against local authorities. There is a climate of relative optimism among the Chinese, and it looks like the the propaganda package that came with the financial one is having the desired soothing effects.

Inflation/Deflation

Predictably, another high point will come when the investment package is left behind, or when the financial situation makes it unsustainable to continue pushing it. At this point, we might see more passionating discussions, with the added appeal of possible deflation risks. 

Inflation has historically been a major cause of riots and wars, so a logical mind would assume that its opposite -deflation- has opposite effects, forcing everyone to stay in at home reading self-improvement books and drinking green tea. I doubt very much the economists will let us get away with this theory. In the meantime, I will stay tuned to the blogosphere for any interesting development to add to this list.

And in the meantime, we have read so much about her that the debate gets old, the initial guessing game we merrily joined some months ago giving way to a phase of weary expectation.

So, finally, is there going to be trouble in China or not – Will the Wall Fall? I have my own opinions about this, but I’ll keep them clear off this post. Instead, I want to  summarize some ideas appeared in the sinosphere, list the main arguments from each side, and let the reader choose which make sense.  Luckily, this is the kind of discussion where the same arguments are fluently used to support all views, so the list can be made manageable.

But first of all, let’s examine the parties. In this business of Chinese Crisis Watching there are 3 main schools of thought,  which can be roughly classified as follows:

A. The Optimistic Executives:  Old China hands with long memories, bullish consultants with short ones. Optimistic people with or without a stake in the optimism of their clients. Just to list some recent ones.

B. The Academics of Doom:  Everybody knows the highest fulfilment of a dismal scientist is to announce doom and then have doom come. On the other hand, there might be something in what they say…  some examples.

C. The Rosy Men of the Republic: This 3rd group is endemic to China. It consists of a set of highly prepared bureaucrats who resolutely believe in the Feelings of the Motherland, in Santa Claus and in the Theory of Scientific Development. You can see here some of their latest achievements.

The English-speaking sinosphere is a little world, and we rarely see the big names that populate other provinces of the internet. But we do have a great advantage: debate here is relatively free from partisan politics.  There is not much in the way of left-wing China blogs, for instance, and American republicans don’t go about throwing  green tea parties just because grandpa Wen announced a healthcare plan. 

In fact, the left and the right in China are conveniently concealed behind the red walls of Zhongnanhai. There are few leaks, and the real data which analysts use is pretty much available to anyone with an internet connection and some notions of mandarin. This is a level field where you can browse around, draw your own conclusions, and enjoy your tea leave reading with Armstrong’s great cover of  ”La vie en rosy“.

But enough if the rosy chit-chat. Here’s the points.

I can understand these feelings. Nothing would make me prouder than to stick my picture and my name at the top of each page, because I am not ashamed of what I write and I am ready to stand for each of my statements. Nor is mine a full anonymity, as I know and I am known (with my real name) by many people in the China blogging community.

So why continue hiding behind a pseudonym? Simple:  I like writing about subjects that have the potential to excite large numbers of people. Today I represent a company in China, and this company is not mine to decide its political stance.  There is a real risk of clients associating my blog with my company if my name gets spread all over the Chinosphere – it has happened to other bloggers before-  and due to the kind of clients I deal with, I cannot allow this to happen.

So if you don’t mind, and until the next horde of fenqing decide to flesh-seach and chop up Uln, I will keep my semi-anonymity. But since we are speaking of “credentials”, I want to unveil the following points about me, just to make sure that nobody takes me for what I am not:

• I am an engineer, but I have a Master in Business and a Semi-Master in International Relations (Didn’t get the degree because I got a job and never found the time to finish the thesis, but I will be back).

• I like reading a lot, books. Sometimes even uni course books, like my famous brick: Samuelson’s economics. Because of my focus-challenged nature I have always learnt more from my own readings than from what I heard in a classroom, even when I had remarkably good teachers.

• I have been in China for 2-3 years, including Beijing in 2002 and now  Shanghai. I haven’t stopped for a day speaking about politics with all the Chinese I’ve meet. That probably explains my poor results with the “delicate” sex. On the other hand, it has taught me to be diplomatic.

• My experience and “achievements” include weird and unconnected points such as: winning a national poetry contest in France, writing and performing songs with guitar and harp, spending 1+ year living and coordinating a project in 5 different provinces of North Korea, and others even more irrelevant.

• And finally, the most exciting: my Chinese qualifications. My level is already enough to read books in Chinese, the last book I read was XiongDi by Yu Hua, and I absolutely recommend it. I am aiming at HSK 7,  signed up for  the next test session in April and then I will publish the results on this blog.

Voila,  I don’t think any of the points above provides a serious basis to support my comments on Chinese politics and economy, so I am safe from self-satisfaction. My posts will all need to stand on their own, and when they don’t please point it out. Same when I “invent” words and phrases that don’t exist in English.

And I will leave this info hidden behind the fold of a single post instead of updating my profile info. Because I only feel like telling these things to those readers that had the patience to come all this way.

BEIJING, March 8 (Xinhua) — China’s relatively fast economic growth has caught the eye of the world at a time when most of the countries are experiencing the full wrath of a raging economic slowdown.

As some Western media questions why China works, the world’s economic experts and scholars are also wondering the same thing: What tools China has to keep its economy resilient and why it is well-positioned to weather the financial crisis?

The answer lies in the nation’s unique growth mode featuring a “scientific outlook on development.”

Economists and bloggers of doom, read and learn.  For the sceptics, this editorial is based on the work of recognized specialists, such as:

• “Analysts”
• The vice president of Stellenbosch University
• The Colombian ambassador to China
• “The international community”
  
• Velia Hernandez, professor from the A.N. University of Mexico

And many other “economic experts and scholars”.

Finally,  science at the service of the community.  And the question is, what do I do now with my two months worth of canned tuna?

It is well known that Chinablogs* (defined as blogs about China in English) are only a tiny part of the Chinese internet, and their readership is insignificant compared to their Chinese counterparts. But it would be a mistake to dismiss them as irrelevant. For some time already, especially after last year’s  events – Tibet revolts and the Olympic torch saga were a turning point -  readers from all sides have questioned the media’s impartiality regarding Chinese politics. Just or not, the fact is that these accusations have cast a doubt, and many have turned to blogs to try to find an independent point of view.

Some things make me suspect that the influence of Chinablogs in shaping the World opinion about China is more significant than their size might suggest. The famous #cde affair, where a well known entrepreneur and blogger in China caused the RMB/dollar exchange to move after a post on his blog, forcing the Chinese government to issue an official notice, confirmed this idea. Also, the world media are sending some of their best writers to China, not to become correspondents as used to be the case, but to open a blog and speak about what they  see outside their window – among other things.  Blog sceptics might want to look at this Boston Globe article to see just how influential blogs can become.

And here is where my question comes in: what legitimates  Chinabloggers to give opinions about this country, its politics, economy and other fields that affect the well being of billions of people?  Where does our credibility lie? Are we misrepresenting ourselves as experts in China without any serious basis?

My take: Intelligent bloggers or intelligent readers?

Although there are exceptions, the majority of blogs commenting on Chinese economy and politics are not written by specialists with credentials in the field. In the same way as the majority of newspaper articles commenting on a wide array of subjects are written by journalists, not by experts.

It is precisely one of the missions of a journalist – and, I suppose, of a blogger too- to collect complex information, digest it and come up with a product that the general public cares to read and understand. Most of the news worth commenting cover many different fields of knowledge so, even if they wanted to,  specialists in one single field would be ill-prepared to write a good opinion article on current affairs.

There is a difference, however, between newspaper editorials and blog posts. The former are supported by an author and a company’s reputation, built over many years, and they have to follow certain rules of the trade. Bloggers are not subject to these restrictions, and, understandably, some readers are expressing doubts about their credibility.

Especially in China, where there’s a permanent imbalance in the market of experts – demand  growing faster than supply- and  it is enough to be a vocal writer to grab a slice of the cake and position oneself as a pontifying guru. Perhaps the best example is this recent fashion of predicting where and when the crisis is going, and how it will affect the Chinese political system. Forgetting to specify that it is just a guess or, in the best of cases, an educated “feeling”.

So it makes sense for an outside observer to maintain some healthy skepticism when looking into the multiple English-speaking sources coming out of China, and to avoid taking credentials at face value in a field where they are all too easily earned.  And it makes sense to keep an eye on the ongoing discussion on the internet, where nothing is taken for granted and every idea has to hold its own.

I am convinced that a reader with common sense can get a more accurate picture of the current events in China reading blogs than by any other means. Here is why:

• Precisely because there are no other credentials, a blog post has to stand on its own. It has to offer solid arguments and links to support itself.

• Links can be immediately checked; arguments immediately overturned.  A post is subject to the scrutiny of thousands of readers who have a special interest in the field. Errors rarely go unnoticed.

• China is too big a country to include in one discipline, and there is no such a thing as “China studies” that can cover the full range of  cultural, political, historical, and other intelligence necessary to understand the country. Only the discussion among diverse sources with experience in the country cancome close to reflecting the real situation.

• Chinablogs are the only place where people  with diverse professional backgrounds, with different experiences on the ground and sometimes with radically opposed political views discuss China affairs openly and (most of the times) peacefully.

• The blog has freed us of the tyranny of lifelong experts. No diplomas, contacts or years of experience can help you if you publish nonsense. On the internet, nobody knows you are a dog, but you are quick to become one if you write like one.

• A reader of blogs typically switches among more different sources and is able to compare far more different points of view more than a reader of any other medium.

That’s all for the moment, sorry for the longish post. Feel free to discuss here -and not in other posts- all aspects regarding credibility. Trolls are welcome as long as they stay on topic. The objective is to speak in general of Chinablogs, not necessarily about ULN (but feel free as well if you wish to discuss this passionating subject)

UPDATE: *Re “Chinablog”.  A commentator pointed out- rightly- that the definition of this term is ambiguous. I am afraid it cannot be otherwise, the term “blog” itself not having a clearly defined meaning. I want to clarify that, for the purpose of this post, I am counting as “Chinablogs” all the websites that participate in the online discussion about China using blogging methods (pingbacks, comments, links) to interact with each other. Some are based in China and some are not, see my blogroll for examples. Note that not all of them would necessarily agree to call themselves “blogs”.

And if you are still not tired of reading, some boring info after the fold.

Today I am starting my review section with one of the books on Chinese economy that has impressed me most in the last year, “Capitalism with Chinese characteristics”, by MIT professor Huang Yasheng. It is a book that clearly stands out from the recent China books, and it might be destined to become one of the big references in the field.

There is no shortage of good China books in the last years. Many are written from a business perspective, by people with first hand experience who will tell you exactly how things are done here. Others look at the available economic data and build interesting theories to explain them. Few go deeper than this, to look into the heart of the matter: the politics behind the Chinese economy.

The problem is:  it is so difficult to obtain reliable information on Chinese policy that most efforts in this field turn into circular arguments over the same limited data. Professor Huang breaks the circle by going back to the sources and questioning directly all the mainstream assumptions, leaving many of them upside down. The situation in China requires this approach, as he says in the preface:

In studies of American economy, scholars may debate about the effects of, say, “Reagan tax cuts”. In studies of the Chinese economy, the more relevant question would be, “Did the government cut taxes in the first place?

By going back to the archives of what, in his own words is “some of the world’s most medieval record keeping”, Huang Yasheng is able to come up with a whole new picture of Chinese economic policy in the last three decades. This book is the result of painstaking archival research into rarely examined files, such as a “22 volumes compilation of internal bank documents” or the archives of the Ministry of Agriculture.

A qualitative leap from the classic tea leave reading, and one that deserves some careful consideration, even if the conclusions drawn will not be to the taste of every reader.

The book

“Capitalism” is the work of an academic, it is published by the Cambridge University Press and it comes with all the scholarly bells and whistles. But the occasional reader should not let this scare him off it. It is a readable piece, with chapters drafted following the tested formula: attractive anecdote – presentation of the argument – easily skipped statistics – groundbreaking conclusion. Add to this some juicy celebrity bashing (including Nobel J. Stiglitz) for just the right spot of gore, and you get a read that you can thoroughly enjoy. Selling for a surprising  23$ (cheap for a Cambridge Uni hardcover) this is clearly a book designed to be read.

I will not do a detailed summary here, you can find some more in this excellent review posted last month on China Beat. Instead, what I will do is highlight some of the points that Huang makes that I find most relevant. These they are, as I understood them:

• China is much less capitalistic today than most observers assume it to be. The real miracle of private entrepreneurship happened in the 80s, but has since been deliberately suppressed, largely through financial repression.

• The 90s and 00s policies favour FDIs and large SOEs against privately owned Chinese companies on one hand, and the cities against rural areas on the other, with very negative effects on some aspects of the economy. These aspects, which are not represented in the sexy GDP figures, are essential to ensure the sustainability of China’s growth. They include: education, productivity, creativity, entrepreneurial spirit.

• The large developed cities, and Shanghai in particular, are Potemkin metropolis. The sparkling new infrastructure of Shanghai and Beijing, from the Maglev to the recently burnt CCTV tower, are for a good part “white elephants”. While these investments -mostly executed by SOEs-  have helped boost the economy in the 90s, they have questionable returns in the long term, and their opportunity cost will have to be paid dearly.

• China is failing to develop the necessary “soft infrastructure” to ensure a sustainable economy. Worse still, it has actually regressed in this field during the last decade. This spells trouble for the future. The “soft infrastructure” – a term used in many China books and which I suspect originates from previous Huang Yasheng works – refers to those immaterial conditions such as the rule of law, open financial institutions, a civil society and entrepreneurial spirit that many consider essential for the long term development of an economy.

Wrong Shanghai: Observations on the Ground

The book opens with a statement that is sure to catch the eye of many living in China: there is something wrong with Shanghai.

Yes, no less than Shanghai, the city that has been fooling us for years with its aura of dynamism and openness. Huang Yasheng arguments, with precise data in hand, that entrepreneurship has long been eliminated from the city.  Shanghai’s wealth is made of SOEs, FDIs and transfer of resources from other parts of China. It is in fact an economy of CPC members and risk averse “iron bowls”.

From my viewpoint of an observer on the ground, it is this statement that I found most exciting. I went straight to chapter 4 and then I went straight to ask all my Shanghainese friends what they though of it. The response I got almost unanimously: “No kidding, do you need to read a 300 pages book to see this?”

Which led me once again to this reflection:  We continue to pay too much attention to foreign experts, and not enough to the Chinese themselves. In spite of the growing efforts of bridge bloggers and media, there is still a massive divide between the two worlds. The successful China books are mostly written by foreigners who don’t read and write Chinese. It is still too easy for an old China hand to position himself as an expert in everything China. And the circle feeds itself.

And the sheer dismalness of it all

It is always amusing to read these scholarly works in social sciences, where findings are measured against some -ism pattern, and where partisans tear each other apart mercilessly.

Reading this book one cannot help feeling that there is an underlying model in all of its arguments. A conviction -some might call it an ideology- that free markets, a small state and liberalism are the fundamental bases upon which a healthy economy is built, and that there can be no long-term “China miracle” based on exclusive “Chinese characteristics” if it doesn’t follow this model. A line of thinking that is understandably very critical of the Chinese policies in the 90s and early 00s.

On the other hand, while this partisanship may lend the book a more unscientific feel than one might like -and what is so scientific about economy anyway- , it also makes for a more compelling reading, not unlike watching a football match where the author scores a spectacular hat-trick. Should anyone be ruffled by the treatment of authors like J. Stiglitz, I would suggest a read of his own popular book “Globalisation” to get a taste of what it means to tear apart your opponent.

Of course, the problem with all this is that it makes all works very vulnerable to world fashions. “Capitalism” was written before the financial crisis developed, and unfortunately for Huang Yasheng, the winds of economics are since blowing in the opposite direction. The moment marked last year by the fall of Lehman Brothers  and the crowning of some other partisans have tipped the scale to the Big State ideas. More importantly, China’s economy is still holding strong compared to the West, and this is feeding the side of those who feel that China’s miracles can save the World from the greedy free-market ideas of the Washington consensus.

While I am of the opinion that China has still a lot to offer to the World, and I certainly see some sense in the famous Beijing consensus in the field of international politics, when it comes to economic policy I tend to agree with Huang Yasheng’s point of view. Being based here and working daily with Chinese companies, it is just too difficult to believe in the soundness and “entrepreneurialness” of China’s economy.

In any case, and whatever the opinion of the reader, Huang Yasheng drives his points home with argumentative skill, and making good use of an admirable research work to shed light on some of the least understood aspects of China’s economic development. Moreover, it is to his credit that, based on the new data, Huang goes against his own previously held ideas -namely, that the 90s reforms were more far reaching than the 80s. It is always comforting for this humble, unenlightened engineer to see that, in social science too, empirical data can change a theory rather than the opposite.

Who knows, it is very possible that the economy’s Wheel of Fortune will turn again sooner than we expect. Then China’s  economic system might suddenly show all its contradictions, and people will need to turn to books like “Capitalism” to try to understand what has been going on all this time.

Still, on our return from the double New Year’s season, many of us are suprised to see the sky is not falling on our heads, and the dire predictions we did before the holidays have not quite turned true. Indeed, the Crisis in China seems to have a very annoying quality for bloggers: it is not happening. Yes, we’ve had bad news coming every week for the last months, we’ve seen experts we respect telling us how bad the unemployment is, how many factories are closing. And all of them are right, if we look at the numbers. Yet, on the street, no Crisis to be seen.

What is going on here? Who is taking our Crisis away, depriving the dismal scientists of their fair share of joy and fulfilment? And more importantly: is it not time to deem the whole affair a bluff, and go join the ranks of the optimistic, together with the guys at the World Bank and the CPC?

Where are all the Crises Gone, long time passing?

You might remember that post I wrote where I started out wondering about the different perceptions of the Crisis in China and in the West. 3 months have passed and this contrast is, if anything, sharper than before, as I have seen during my New Year’s travels. Right now Europe is bleeding, there is no question about this. China, on the other hand, looks to the casual observer like a normal, almost healthy economy. One cannot sense the Crisis.

In Shanghai, Zhejiang, Fujian, three of the engines of China’s economy, I have seen nothing going on but normal everyday life. The shops are full of people, “we hire” signs are on the windows, and taxi drivers remain for the most part optimistic – at least those who didn’t buy shares. One of them even told me: “Riots only happen in Guangdong, in Shanghai we are civilized”

Back to the office, in my work with industrial investors in China I see the same picture: while some Western clients have cancelled or postponed their 2009 FDI projects, not a single project has been stopped by our Chinese clients, which are all large SOEs.

The time’s for the Ox and don’t give me no Bull

Here are 3 reasons that might explain this strange gap between theory and observation: delay, transparency and inertia.

• Delayed effect: The crisis comes to China in a very different way than to the West. In our case it was a bursting financial bubble,  hitting us all with the speed of sound. In China, it is different. They didn’t have the “complex financial instruments”,  their financial system was relatively isolated. In China the Crisis is caused by exports and FDI, which is a far less explosive mix. Look at FDIs, for example: a typical project cycle to build a factory is 3 years, and there’s a point of no return somewhere in year 2, when the construction is mobilised and the equipment paid for. This introduces a long delay while the ongoing projects finish and until the absence of new projects cause panic in subcontractors. Same effect with the production of factories which had a large backlog in 08.

• Inertia: China is a massive system that has been moving at high speeds for 30 years. This doesn’t stop in one day. It is not only the phisical momentum of the thousands of ongoing projects, it is also psycological inertia. in the minds of many Chinese the system is strong, and there is no reason to believe in a Crisis that has never happened in their working lifetime. Behaviours do not reflect fear, and many go about their New Year’s shopping like any other year. Worse still, some seem happy to believe that it is America’s fault and this is an American Crisis; and mind you, not all agree that smart China need lend the old brother a hand.

• Transparency: This is the most important reason of the three, and the one that scares me most. For all the good things that one can say of CPC’s economic policy (yes, they did draw 300million out of poverty) there is one serious fault that nobody fails to notice: Lack of Transparency. With the largest part of the economy dominated by SOEs or following direct orders from the party, it is not unreasonable to think that there might be a bigger soup on the fire than we are led to believe.

I don’t want to cause alarm or instigate hoarding behaviours like that of our old professor, but this is not looking good. If there’s one single best way of making a Crisis more deadly, that is withholding information and letting it burst only when it is too late.

The two pillars of China’s growth in the 2000s were SOEs and FDIs. The FDI leg is seriously failing now, and the effects will be felt progressively. Even with all the financial might of the Chinese State, it is hard to imagine the SOEs taking the place left by the FDIs, let alone going out to take over the World. I cannot see the Chinese companies leading the effort, I can’t see their necessary creativity and initiative to open new markets to replace the lost export ones. All I can see is a bunch of Giant SOE’s which are better at leveraging their massive size and influence than at impressing us with their products.

There is something quite anomalous in this perceived calm of today, and this blogger thinks that he can smell a Rat. But the time is not for Rats anymore, it is for Ox.

Which is one 2 bits short of a Bull.

Global Risks 2009: a new report from the World Economic Forum, identifies a deteriorating global economy, a hard landing in China…

In the report , which you can download here, they go on to speak of China 09 GDP of “6% or below”, a point which the international media is quick to report. How’s that for the confidence. Ouch, one 2 good points below the waistline of the CPC’s 8% , and right in the family jewels.

Mind you, I am not writing this to pick on Wen’s predictions. First of all, the WEF’s report is only making hypothesis, to see their possible impact on the World economy. Second, I think Wen would be as likely to get it right for China’s economy as the gurus of the WEF. After all, the CPC prepares its predictions with the advantage of insider information, and it suffers less distractions than the vedettes at the Convention of Dismalness.

On the other hand, it is a long time already since the Forum passed the heigh of its influence and it looks this year more irrelevant than ever. In the end, the important decisions for the World economy will be taken by Obama’s team and the CPC, and it is unclear how either of them will listen to the WEF. Most importantly, the role of the Forum as a brainstorming event has largely been taken over by the econobloggers, as we saw in this fascinating article you might remember from last month.

Inexplicably, we have not been invited to Davos this time, so we’ll hit the road in Shanghai instead and see how the faith and determination is doing, and whether there are signs of  faltering in the good old Shanghai shopping spirit. A big part of China’s economic Wall is made of the faith of its consumers, who are the ones supposed to make up for the lack of exports. Here’s how they are faring in Shanghai:

Nanjinglu: The usual mobs of shoppers and sellers in spite of the biting cold.

Xujiahui: It is difficult to walk the Street, the shops are as full as ever and the official sign on the Bridge reads: “Do Well Your Economic Survey, capture the situation and the strengths of the District, and promote the development of XuHui.” This district is also undergoing an economic survey, like the one done by these funny villagers, but hopefully using more standard statistical methods.

Sitting 牛: Hordes of consumers worship the goddess of consumption, the Sitting Cow.

We Hire – I got this last night right next to my place. I haven’t been keeping track of the changes these last weeks, but all I can say is that we still see many signs like this. The red character means: We hire.  1200RMB a month plus extras. Searched: waiters, shop manager, dish cleaners, etc.

So there you go, in Shanghai, in spite of some people getting worried and a few foreign startups having a hard time to meet ends, it looks like the F and D are still holding stong. Let’s hope they stay right up there throughout 2009, and we might avert this one of the Global Risks.

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