SHANGHAI"Learn to live with contradictions" might be a good motto for the new U.S.
administration in its dealings with China. The Chinese live with them all the
time, which is why it is so easy for outsiders to be carried away with
enthusiasm for the nation's progress, yet also so easy to believe that China is
about to hit a wall.
Shanghai tells us that the Chinese
economy is still growing at a handy pace. Sure, things are slowing compared with
2000; exports are off the boil as the United States slows and Asian recovery
falters. But domestic demand is still strong, helped by government stimulus. So
the economy should expand this year by an official 8 percent and a genuine 6 to
Foreign investment is flooding into
Shanghai and adjacent provinces to take advantage, it fondly hopes, of China
joining the World Trade Organization. It adds to the financial services boom
that Shanghai has been enjoying. Much is from Taiwan. Who cares about
reunification so long as Taiwan invests? In Taipei, too, there is a growing
reluctance for politics to obstruct mainland investment.
The net result is that the office towers
which sprouted in the last five years are filling up faster than seemed
possible. Overt poverty is hard to see and mobile phones are almost as
ubiquitous as in rich countries. Optimism and initiative rule. The WTO is
opportunity, not threat. Making Hong Kong look provincial is a civic goal.
But do not forget how much public money
has been poured into the city's impressive infrastructure, and how much
political investment the "Shanghai clique" of Jiang Zemin, Zhu Rongji and Co.
have in its success.
The flip side of Shanghai success is the
ever widening gap between a handful of big cities and most of the nation. This
is not just between the coast and the interior.
Shanghai homes have refrigerators, but
elsewhere buying power is so low (and state planning is so poor) that nationwide
supply is double demand. Communism has created one of the world's least equal
societies, with the added insult that the rural poor are allowed into Shanghai
and Beijing only as temporary cheap labor. No favelas here. Keep the poor in
their place, on the farm.
The government is increasingly aware of
this divide. But in the short run most reform is likely to make it worse, as
subsidies dwindle and capital and bright people congregate in the bright spots.
Meanwhile, politics remains in command.
The one big thing that could be done, allow complete freedom of movement of
people, is anathema to the party's control instincts and to the spoiled citizens
of Shanghai and Beijing.
Is this sustainable? In the long run
probably not. But it is unlikely to cause major problems soon.
Big city opportunities are consuming the
passions of youth. The party and elders may be derided, but while moneymaking
opportunities exist, why challenge the political system? Once a hotbed of
radicalism, Shanghai is trying to put economics in command. The rest of the
country mostly agrees, so long as life slowly improves for most. Party
leadership changes next year will have modest impact.
Money madness and corruption often go
together, yet Shanghai is often viewed as the least corrupt place in China. Even
the politicians have figured out that corruption is inefficient, bad for the
image and bad for attracting foreign capital. Likewise, the city's courts and
administrators are somewhat less arbitrary than elsewhere in a China, where
power is routinely abused and legal concepts are only slowly taking root.
Shanghai households save furiously.
Either they get a low return from state banks which lend to incompetent state
companies or they invest in high-priced shares in poorly run state companies.
Chinese "people's capitalism" is the great Shanghai A share bubble, a product of
gambling instincts, financial sector immaturity, state control of share issues
and management greed. This will end in tears, with political consequences. When
and how, no one knows.
Will the bust cause a revolt against
share ownership? Probably not. More likely it will sweep away some officials,
further undermine the political structure and give a boost to private
enterprises. Large-scale private companies are still few and hobbled by
A nationalist and perhaps egalitarian
reaction against the wealth gap and openness to foreign products and ideas
remains a possibility, especially if global recession sours relations with the
United States. But for now, reaction seems containable.
China does not have a clever long-range
domestic plan. Even with a forceful prime minister, it is just muddling through
its contradictions. Meanwhile, it has limited desire or resources for strategic