What follows contains shocking images made public here for the first time. Sensitive readers are advised to close this website now before reading on.

The laowai phenomenon

Everyone familiar with China has heard of this phenomenon. When a person with non-Asian features wanders in the country he gets hundreds of local fingers pointed at him, as he is promptly and thoroughly informed that he is a foreigner (“laowai !”). Even in the 21st century, after 30 years of reform and opening, this behavior is prevalent in most areas out of the foreign-populated centres of Shanghai and Beijing.

Although some foreigners still take offense, it is by now widely acknowledged that the “laowai call” is just  a neutral form of expressing curiosity in a country that is almost entirely uni-racial. It has also been explained as part of a socializing device that consists of stating the obvious to each other, like “Hey, you are back from work!” or “hey, you are a laowai”.

Fig1: Standard testing equipment: “laowai has come!” – “laowai has left!”

But enough theory now. This Summer we took a completely different approach and decided to test the Chinese people’s humour by entering some of the most dangerous bumpkin infested areas of the country wearing the garment in Fig 1. The sampling areas selected were: the tourist village of Zhujiajiao and a fake market in Shanghai.

The challenge was phenomenal, and the reaction of the public was correspondingly massive and spectacular, with whole streets turning their heads or popping out of windows to share in the excitement. It was a great performance of what I believe is called “Kazakh humour”, its main characteristic being that nobody is sure who is laughing at who.

Among the passers-by we discerned and duly registered in the log book the 3 following attitudes:

1. Conspirational –  Those who were laughing with us.
2. Malicious –  Those who were laughing at us.
3. Annoyed – Those who felt they were being laughed at.

Fortunately, the Chinese passed the humour test remarkably well, falling mostly into category #1, with some children and local lowbrows accounting for the #2s. We didn’t encounter any crazy patriot accusing us of hurting people’s feelings, which confirms my previous notion that those people can only be so silly when under the anonymity of the internet. In any case, this T-shirt is a must if you want to be famous in a mid-size Chinese town in the first 5 minutes of your arrival.

Some more pictures of the experiment:

In the fake market

Relaxing facial muscles after hours of being pointed at

The next challenge

If you liked this performance stay tuned for the next experiment. We have obtained the necessary gear to boratize this time an altogether different social group. Equipped with the 7” mangy moustache and the genuine garment in Fig 2, this specimen will make its appearance at the next fashion show in the exclusive M1NT bar. How will the high society in expat Shanghai (more than 50% clad in fake Paul Smith) fare in our test?

Fig 2. Whiskered specimen used for laboratory testing

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.

Expectations are high on the meeting that will change the World. The trouble is, it will not. Xinhua has just published a first official explanation from NDRC, containing no news. The 40BRMB for “healthcare, education and cultural undertakings”, or the 280BRMB for housing projects were already announced before the meeting. If anything, note that now they have added the “cultural undertakings” for extra flavour.

What about all the rebalancing of the economy that we were supposed to see?

Wishful Thinking

What began as a series of advice by some economists has evolved into a streak of generalized optimism, as  more people started to believe that Chinese leaders will take the chance now to rebalance the economy. I suspect this very optimistic and profusely quoted World Bank report is partly responsible for this state of mind.

But the rebalancing of China’s economy, including a social safety net, health care, and all sorts of measures to bring into the economy the 900 milion rural residents that have been left out is not going to happen now.  Because it doesn’t make sense.

Here is why:

1- Hu Jintao hasn’t been able to implement his rebalancing policies during the first half of the 11 year plan. It is difficult to imagine that the development hawks in the CCP will allow him to implement them precisely now. Especially considering that things like a health care system are costly and someone needs to finance them. How much power do Hu and Wen really have to oppose the immediate interests of business?

2- Chinese like to save money, that is just the way they are, it is a trait of character. No amount of health care or land reform is going to make them spend more in 2009. How would it make sense that the same people who were saving during an economic boom decide to spend more now that there is fear of crisis?

3- All the social rebalancing and Scientific Development of Hu might be great for the long term, but they will not help China weather a difficult 2009. The real worries of the leaders now are: How well will the system resist the social and political tensions that will arise? And how well will Hu Jintao and an already fragile Social Wen resist them in the Party?

An emergency package

But there is a more fundamental objection to the notion that the stimulus package will implement any serious structural change: it is not its role. It is an effort to save an emergency situation and avoid the worst aspects of the crisis (notably unemployment) getting too serious.

And the sad fact is that great restructurings are not done in advance of crises, they are done afterwards. Hard times comes first, then reform. As an example, a quick look back at one of the historical cases that is most fashionable these days: FDR started his famous New Deal only in 1933, well after the crash of 29. In the meantime what was Hoover doing? Investing in infrastructure, like the Chinese now.

“Social” Stimulus

So will the package improve the livelihood of the peasants? Well, if you consider that buying a new color TV at a discount price is going to change their lifes, then yes. But otherwise, not.

The subsidies to buy home appliances that WSJ mentions here are clever measures, and they will probably be effective to boost the consumption of some farmers in the short term. Which makes sense, because the factories producing those TVs have to keep running, unless someone imagines that a legion of jobless manufacturing workers can be set to construct roads and railways overnight.

But nobody should be fooled: these are no social measures. They are measures to help the manufacturing companies to find a substitution market for the failing exports.

Another related “social” measure which might be hidden in the stimulus budget is an emergency fund to cover the possible cases of layoff riots. Victor Shih estimates it in his blog to be around 120BRMB in the worst of cases. I don’t think the government would be announcing this fund publicly, as it is a signal for disaster. But if 120B are missing in the 4Trillion package, now you know were to look.

Conclusions

It is all very healthy to dream, but I am afraid the largest part of China’s money in 2009 will go to help the companies resist the crisis and to mitigate the effects of it. The leaders are nervous, and the time is not for experiments.

But enough of stimulus already. Too much has been said, and I have the feeling that there are more important things to watch right now. Namely: Unemployement and Currency.

I have done enough tea leaf reading in my posts as of late, so I will leave these two subjects for next time. But if you want to know what 2009 is going to bring us in China, make sure keep an eye on them.

I didn’t know exactly what it was, but something in it looked very familiar. Very Chinese. I saved it in my Obama bookmarks, and didn’t think of it again until Sunday evening.

That was the evening when I went to the barber’s to have my hair uncut.

I like the barber down the road, I’ve been going there every month since I came to Shanghai, and by now he knows exactly what I like. This is a great advantage, because I am always at a loss when giving instructions to a Chinese hairdresser. I feel even more embarrassed when they proceed to show me pictures of men supermodels, and rather optimistically ask me to point at one of them.

But Wu Shifu will do none of that. He is a no nonsense professional, and he delivers 20 kuai worth of real styling value. A true perfectionist, he takes care of every detail and will not give up until every single hair is at the right lenght.  Every now and then he stops cutting and reaches for the little mirror with which he shows me around my own head, asking eagerly if all sides are well shaped, and secretly hoping that I will request some virtuoso manoeuvre, perhaps a re-balancing of my temples.

Like usual, last Sunday the man was doing a great job. When it was almost finished and he came up with the little mirror for the 5th time, I thought I might as well give him some little bit of satisfaction for the trouble. And, since we are at it, why not test him for Chinese characteristics.

- Is it OK this side? And here? And the top?

- Um, no, no. Too short over the top, I will have it a bit longer this time.

- Uh, er… longer what, here?

- Yes, please, can you do that?

- Yes we can!-  Snap, snap, snap.

And there he goes snapping away with his scissors, cutting the air close to my head in his efficient fashion, and probably thinking that if he goes on for long enough, my hair will have actually grown longer by the time he is done with it. After 5 minutes of cutting the air thin, while I watched the ultra boring Shenhua-Tianjin  on his TV, I decided that my hair was long enough already, and informed him thus.

- Thank you, master Wu, it looks much better now.

“Yes we can” is the magical phrase that’s always ready in the mouth of the Han. It has the extraordinary power of making the impossible possible.

The “yes we can” phenomenon is one of the most remarkable Chinese characteristics, and one that few Westerners fail to notice. Some explain it as a consequence of the Chinese constant obsession to save face. I take the view that it has more to do with their culture of group and consensus. In such cultures, the only way to obtain something from a discussion is to be extremely cautious with the other party’s sensibilities, and make sure that nothing is said to arouse even the slightest bad feelings. Feelings tend to get in the way of consensus.

Now, I know this kind of behaviour is found at the very least annoying by most Westerners dealing with Chinese, but this is only a consequence of the clash of cultures and the aggressive rationalism that characterises us. The interesting question here is: is this an effective way of conducting human activities, and in particular business and politics? I think it is. By humouring the other party and managing its sensibilities, the Chinese negotiator can slowly erode its position, and end up getting an upper side in many difficult situations. I strongly recommend the reading of Carl Crow for some funny anecdotes of table-banging devils in China.

Some day, when I am allowed to speak about my work here, I will tell some funny stories about negotiations held with a Chinese company by the extraordinary and exhausting method of achieving consensus. Remind me also to speak about the longest meeting in my life, which I am submitting for Guiness book approval. It lasted 12 days non stop, weekends included, during the first weeks of July 2008 in Beijing. Panda eyes, flocks of Kaoya and Litres of baijiu were the price to pay to be able to reach a common understanding on whatever it was that they wanted us to understand.

All this being said, Iet’s remember some of the memorable moments of yes we can-ism in China that have happened in recent times:

• When asked if they could deal with the developing SARS epidemic, local officials reportedly answered: Yes we can.

• When asked if they could ensure free press during the Olympics, Chinese government officials said: Yes we can.

• More recently, now that the financial crisis is being felt hard in the world, Russia, USA and many other countries ask China if it will guarantee the world’s stability. Yes, we can!

• One of the most scary and best documented cases in the history of yes we can-ism: In year 59, Mao asked the Party cadres that he met at the local Communes: can you produce tons of high quality steel with these makeshift backyard furnaces? Yes we can!!  In case you are not familiar with the history of China, you can read about the disastrous consequences of this answer here.

It is easy to see the bad side of a consensus culture when we look at these examples, and I can understand that you may have mixed feelings about it. But it might be as well to remember that, without this characteristic, China would probably have never managed to create the strong, united country that is preparing to rule the world of tomorrow.

In the meantime, the rational, table-banging inhabitants on the other side of the world have been too busy arguing and fighting endless wars, and even today are not capable of taking any consistent decision in their precarious European Union.