Divorced from Reality

January 17, 2016

I spent a large chunk of the last week sitting in meetings with our Chinese partner talking about expansion throughout China over the next several years and one thing I was struck by was how all of the conversations were completely divorced from the macroeconomic reality in China.  There was no mention of China’s economic troubles, whether it be the falling stock market, an oversupply of housing, falling economic growth, overcapacity in the manufacturing sector, or any number of statistics that point to a rapid deceleration of the the Chinese economy.  The only thing that came up was the devaluing the the Chinese renminbi and its mention was prompted by the Americans in the room.  Equally absent was any discussion of the current political situation in China, though that is slightly less surprising.  However, on the whole if we were sitting in a roomful of American or European business executives, the economic climate would have certainly been a part of the discussion and even maybe one or two political quips, including some comment about how unfathomable Donald Trump’s candidacy is and the sad state of American politics.  But there was none of that in these meetings.

It’s often something I wonder about when I see people wandering the mall or around me at a restaurant – what do they think about what’s happening in their country?  Do they even know what is happening in their country?  It’s very likely they may not be fully aware of what is going on since they would need a VPN to read foreign news sources and the Chinese media is largely silent as to the country’s economic doldrums.  Plus most people are too busy watching tv shows and movies on their phones to pay attention to the news, whether it’s CCTV or one of the many government publications sitting untouched in the newsstands around the city.  My meetings last week confirmed for me that there is a disconnect between what the reality of what is happening in China and how people are engaging with that reality.

Much has been written about the housing glut in China and no matter what city I travel to, I’m usually greeted with too many cranes to count as I drive into town from the airport. So many cities seem to be all about building new central business districts replete with malls, office buildings, and more apartments.  And yet the question is the same – who is going to move here?  If the government is seeking to continue its drive to urbanize and move the rural population into the cities, I cannot imagine that they are going to be re-settled in these luxury housing developments that continue to rise all over the country.  The malls are a whole other phenomenon.  How many luxury malls does a country need? Apparently there is no limit, but when I was in Chengdu I walked through a few of these new malls and some were eerily empty, both of people and stores.  Apparently the SCMP and I went to some of the same malls.  In Shenzhen the malls seem to be more for strolling than shopping with most people just wandering the mall, taking pictures, eating and drinking, but not really holding shopping bags.

I think at this point there is no disagreement that the Chinese economy is slowing down. The problem is that nobody quite knows how much.  The official statistics are less telling. It’s more about reading between the lines or anecdotal evidence of such a slowdown. It will be interesting to see what number the government announces on Tuesday for 2015 GDP growth.  There is so much gray when it comes to this country and not only on the economic front.

Over two weeks ago, Lee Bo, a publisher of books critical of the Party disappeared in Hong Kong. He was the fifth person to disappear in connection with this particular publisher.  He was last seen at his warehouse in Hong Kong before New Year’s and since then there have been a series of odd occurrences including phone calls to his wife from a Shenzhen number where he is speaking Mandarin rather than the Cantonese he uses at home and a letter to his wife that he is going to be away for awhile taking care something on the mainland.  The Hong Kong government has asked Beijing where he is and over two weeks later they still have not received an answer.  The issue at stake is that because of the whole “one country, two systems” between HK and China, Chinese law enforcement officials are not supposed to be coming into HK and taking away HK residents.  They are supposed to go through proper legal channels if they have reason to want to interrogate someone.  Coming in and secretly ferreting a HK resident across the border is a serious violation of the principle behind “one country, two systems”. It’s more than problematic that Beijing has not given the HK government an answer as to  Lee Bo’s whereabouts and shows a serious lack of regard for HK and its autonomy.

So I digress.  The point of all of this writing was that I still wonder if Chinese people actually know what’s going on with their own country or simply do not care.  I don’t know if I will ever be able to get a straight answer.

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Another Day, Another Mall

December 27, 2015

I don’t want anyone to come away from my blog thinking all I do in China is walk around malls and sit in Starbucks drinking coffee, but if I didn’t spend any time doing this, I’d be missing out on a big part of what’s making modern China tick.  These luxury malls and the shoppers who frequent stores purveying these premium brands (yes, Starbucks is a premium brand here when the average drink costs RMB30 or a bit less than US$5) are the future of this country, especially when the leadership is hellbent on reorienting the economy away from manufacturing and infrastructure investment towards domestic consumption.  It’s places like the IFS and today’s mall, Taikoo Li (太古里), that represent the way going forward if China is to ever make that transition.

So yes, I am sitting here at a Starbucks in Taikoo Li, which was built by the Hong Kong developer, Swire Properties.  A good friend of mine in Hong Kong who lives in Taikoo Shing, a family-oriented neighborhood on Hong Kong Island, told me that anything with the Swire name is going to be a quality property and this mall is no exception.  Built around an ancient temple, Daci Temple,  where you can still partake in a traditional tea ceremony, Daci Temple (大慈寺), Taikoo Li is filled with your usual luxury shops including Gucci, Burberry, Max Mara, and Cartier, as well as the Chengdu flagship stores for Apple (which with its two stores in Chengdu has more here than in Shenzhen) and Muji and the first stores in China for brands like Victoria’s Secret and Hollister.  It’s quite the complex laid out as if it was a warren of traditional Chengdu alleys, similar to Xintiandi in Shanghai or even Sanlitun in Beijing, which is another Swire property.  And the place is hopping with people eating, drinking, taking pictures, and even doing some shopping.

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One of the main squares in Taikoo Li

The Christmas decorations are still out in full force and effect, but so are the after Christmas sales with some stores offering discounts up to 40 or 50% off.

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Entrance to Taikoo Li as coming from Chunxi Lu (春熙路) Metro stop

I blogged recently about the “real” China and malls like this one are the new “real” China.  What’s neat about Chengdu is that you can walk from your hotel to the Metro station in Tianfu Square and pass by little hole-in-the-wall or “fly” restaurants (苍蝇馆), wet markets, and people playing mahjong in the streets, so not all of the old “real” China is lost.  It’s perhaps this blending of old and new that Chengdu seems to still do so well, whereas a city like Shenzhen which did not exist 40 years ago is all new and will continue to be that way going forward.  I don’t know if Chengdu will be able to survive the onslaught of modernization and the power of the new “real” China, but at the moment it seems to have found some sort of equilibrium, however tenuous.

Having now been here for a few days, I still really like the city.  It’s hard for me to put my finger on it exactly, but this trip is my first time to the interior of China.  When you think of Chengdu, and Sichuan province in general, it’s the last extremely developed area of the country before heading off into the wilds of western Sichuan and Tibet.  Chengdu feels less like a frontier city and more like an experiment in modernizing the interior.  It’s no secret that the government has spent considerable time and money spreading growth from the eastern coast to the interior and Chengdu is something of a showcase city, much like Shenzhen was when it became China’s first Special Economic Zone.  Chengdu has not received so formal a designation, but walking around the city and taking it all in, it’s hard not to feel that there is something special about this place and it’s not just all the panda advertising.

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Panda ad outside of my hotel

Nor is it all of the amazingly spicy food that I have been eating, which I will write about another time.  Perhaps it’s what China could be, though without the pollution that has rendered today a rather smoggy day (though nothing like Beijing) or the fact that signs are still posted on the street reminding people not to smoke on buses and in the subway reminding parents not to let their kids go to the bathroom on the train. Chengdu, like most of China, is moving quickly to catch up to the rest of the world in terms of development, but it feels a little more comfortable taking it’s time doing so and making sure it’s being done the “Chengdu way”.

Of course I wonder how many Gucci or Louis Vuitton stores a city really needs and who actually fills all of these new office towers going up, including the top floors of the Evergrande Huazhi Office Tower, which sit there all lit up and empty at night.

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The vacant and well-lit floors of the Evergrande Tower on the left

Those are questions for another day, but one that China unfortunately will have to reckon with as it continues working through it’s breakneck growth and reorientation to a consumption-driven economy.  These malls and buildings are part of the infrastructure and property investment that has driven growth in many cities around the country and if towers like Evergrande remain empty, one has to wonder what the means for future development and growth in these cities.

On that note, I leave you to get back to the hotel and get ready for a night of sampling Chengdu’s many street snacks.

The Real China?

December 1, 2015

“Where is the real China?”

Since I’ve been here, I’ve been asked variations on this question from the American teachers at our school for which this stint in Shenzhen is their first time in China.  I struggle to come up with a good answer because I am not sure I actually know the answer.  Depending on the day and my mood, I recommend checking out Beijing for a good contrast between the old and new China with a bunch of government formality thrown in for good measure.  Or maybe I extol the history in Xian with its terra cotta warriors and ancient city walls still standing.  Or even Yangshuo (阳朔) for its beautiful scenery and Yongding (永定) with its tulou (土楼).

Maybe Shenzhen is actually the best representation of the real China. 30 or so years ago it was nothing more than a 50,000 person market town through which the Guangzhou – Hong Kong through-train passed.  Now it’s a metropolis of over 15 million people, depending on how many of the surrounding towns you include in that count, and home to an endless supply of high-end malls, one of China’s two stock exchanges, and extreme wealth on display throughout the city.   This dramatic transformation, which at this point has been noted by anyone who has spent time here or in any number of China’s other Tier One and Tier Two cities, is almost a given when speaking about China. However, the teachers for whom Shenzhen represents their introduction to China, something rings hollow about the city and the experience.  It’s not that it’s not pleasant or convenient, but it almost feels too easy and not what they expected of China.  But I have to wonder what they expected China to be if not a temple of consumerism and capitalism with very little in the way of apparent angst about the country’s problems and where it’s going.

Just an aside to note that I must give props to my dad for bringing to my attention Andrew Jacobs’ “Notes on the China I’m Leaving Behind“, which was published in this past Sunday’s New York Times.  In short, it’s his take on where China is at after spending almost eight years on the ground.  It means more to me that my dad brought it to my attention because I’d like to think that it’s my being here on the ground that caused him to stop and read it whereas if I wasn’t here, there might have been the chance that he would have skipped over Jacobs’ piece.   Thanks, dad.

Jacobs notes this disconnect between the shiny veneer of consumerism and deeper problems that lurk beneath this surface.  He writes, “[T]he Communist Party, largely through fear and intimidation, seems to have trained much of the population to channel their energies into the pursuit of consumerism.”  This sentence gets to the heart of what is so strange about China, especially to Americans who are so used to the constant bombardment of negative news that makes it hard to enjoy Black Friday or Cyber Monday.  Most Chinese people seem rather oblivious to the problems around them, including a slowing economy, rapidly degrading environment, disadvantageous demographics, and the detention of anyone who dare challenge the regime.

Shenzhen is even more of a conundrum because it should embody the idea that the further one is from Beijing, the less reverence they have for the government and its policies.  That actually may be true to an extent in Shenzhen, which is richer and freer than most other parts of China, but the vacuum that exists from seemingly not caring about social and political matters is what makes the city feel so strange.  Its proximity to Hong Kong and relatively porous border only heightens the strangeness. Shenzheners cross quite regularly between the two cities, but it’s mainly to shop in Hong Kong because of its better selection of Western good and lower prices.  Yet, Shenzheners bring little else back with them except bags and suitcases full of purchases.

To an American like myself who goes back and forth quite frequently and have been doing so for over a decade, I still marvel at the feeling of how different Hong Kong is from the moment I step off a plane, train, or boat. I don’t know for certain, but would guess that most Chinese people crossing the border just see the city as a giant shopping mall.

Foreign Policy is running a special series on education and the relationship between the U.S. and China.  Zara Zhang, a Chinese student at Harvard, writes about her experience there and acting as a bridge between the U.S. and China.  Her experience at Harvard is a fascinating read, especially as someone who has taught top university students in China.  Among her many observations, one stood out for me at the end of her piece, “If China will one day become a more democratic and open society, it will probably be a result of the effort of this large group of culturally hybrid individuals whose heads are now used to Western thinking — but whose hearts are unchangeably Chinese.”

I have thought about this point a lot and I think it’s what any Western country that hosts a large number of Chinese students at its high schools and universities thinks, too – that by welcoming Chinese students into the halls of Western education, they’ll be imbued with ideas of freedom and democracy and bring those ideas back home to clamor for change.  The question that is not answered is whether those ideas will be subsumed upon returning home once those same students start working and realize that the current system is better set up to reward those with degrees from top universities.   Another way of thinking about it is this – will coming home and joining the existing system prevent these idealistic students from carrying out the reforms they may have been so excited to see through when sitting in a classroom in New Haven, Melbourne, or Oxford?  I don’t know the answer, but I would like to see where the Zara Zhang’s of China are in ten years’ time.

Jacobs’ point that the government has so successfully turned people’s frustrations and desires for change into a force for consumerism could mean that even successive generations with more exposure to people and ideas from outside China might not be enough to correct the social and political problems that China faces if it’s to make that jump from purely an economic juggernaut to a true global power.  For those who wonder if Chinese people actually care about these social and political problems, Jacobs makes it clear that there are people who are disgruntled, but they’re powerless against the huge tide of people who would rather shop than think about what ails their country, especially since there are a lot fewer restrictions on spending money than doing other things.

And for those looking for the real China, if you’re in a city like Shenzhen, you’re probably experiencing it every day.  Just walk to any one of the many malls on a Saturday afternoon and wander around taking in the people milling about and there you have it.  Happy shopping.

 

Houses of Cards

June 27, 2012

A short while ago, an email came in with a link to an article that is an interview with Chen Guangcheng on the New York Review of Books’ blog.  Chen is the blind dissident who left China recently to study at NYU Law School in New York and is actually from Linyi.  To be more accurate he is from Dongshigu, one of the villages that is overseen by the Linyi city government.  When I write about all of these new high-rise towers that keep sprouting up further and further from the center of the city, the land for the towers were formerly villages annexed and cleared by the city government to continue the city’s growth.  Before Linyi grew into the city that it is today, it was really a collection of small villages with the town of Linyi at the center.  To fuel economic growth and boost the profile of local leaders, villages began being annexed and the high rises you see in my pictures are the result of the city’s growth.

There were some things that really stood out in the interview because of the fact that I am sitting here writing from a hotel that was probably built on part of a village that no longer exists.  The massive Linyi University campus was probably also one or more farming villages at some point in time, but are not part of the city proper.  The interviewer asks Chen if he thinks urbanization is beneficial because then people can move off the land to get jobs in the city and earn more money.  This was his response:

No, I don’t think it’s beneficial. Right now it’s a blind urbanization. Cities grow up naturally over time. Now they’re trying to do it all at once. The main thing about urbanization now is to make the economic statistics look good—to build and pump up economic activity.

Chen basically backs up a lot of what I have been thinking and writing about when I look at Linyi’s development, especially versus cities like Shanghai or Beijing that have a more solid economic foundation because they are home to headquarters of large companies, the creative classes, or are seats of government power.  He continues on saying that many times when these villages develop into towns and cities, the people who resorted to more traditional ways of making a living are often left out in the cold as the real estate developers, banks, and government officials profit:

I think for those who go to the city and work there’s a benefit. But the current way of villages being turned into towns—I don’t think there’s an advantage to that. People in the village often rely on ordinary kinds of labor to earn a living, like working in the fields, or raising geese or fish and things like that. So now what happens? They turn a village into one high-rise apartment building and that’s all that’s left of the village. Then the land is used for real estate projects controlled by the officials. Where are the people supposed to work? How is that supposed to function?

I often wonder what people do in a city like Linyi.  Aside from the typical service jobs that exist in any city – salespeople, waiters and waitresses, tellers, barbers, etc. – there are only so many people who work in offices who would earn enough money to be able to afford the thousands of new apartments being built.  Others I have spoken to here say that businessmen who travel to Linyi for work will purchase an apartment to stay in rather than stay in a hotel and those people with enough money will buy two or three apartments as investments.  Fine.  Even with those people purchasing apartments, the fact remains that such housing remains out of reach for many who used to live in a village and are now having urbanization shoved down their throats.  I think of the manager in the Binhe Hotel, where I stayed last time I was in Linyi and his tale of how he works multiple jobs and still did not have enough money to buy an apartment.  There must be many more like him than the people who can afford two or three apartments or the businessmen who fly in from Shanghai or Beijing and would rather stay in an apartment than hotel.  I read Chen’s words as a warning that this haphazard urbanization without the necessary jobs to support it could be a disaster as people become increasing disgruntled about being shut out of life in the place where they are supposed to be living.  

The corollary to this point is the number of shopping malls being built.  If people cannot afford apartments, how are they going to shop in all of these luxury malls that are springing up all over the city.  Just coming off a weekend in Shanghai, my mind is boggled by the amount of conspicuous consumption in that city, but at least the jobs are there to support that consumption to some extent.  I am not saying that there is not money in Linyi, just not the type of money to sustain the level of future development envisioned for this city.  I even wonder if Shanghai can support all the new malls that are going to come into existence in the coming years.  As my friend Paul put it, part of the gamble as a retailer is picking the mall that is going to be a success.  With more and more malls that increasingly look alike, we begin talking about high-stakes Vegas odds because the development is not being carried out with any thought to the local population and what the people may want.  It’s still very much a “build it and hopefully they will come” mentality.  

The building of malls divorced from what makes business or economic sense is a problem in the Chinese economy at large and something I’ve thought about since college.  Many economic decisions made at the top are divorced from what may be good for the macro-economy.  Rather these decisions are made because of political forces that trump the economic, thus there is a heightened likelihood of a degree of failure.  At the most basic level, the need to maintain a certain level of economic growth to ensure that the population remains happy, the implicit social contract that drives China’s economy, is a policy for political survival that does not always jive with economic realities.  How many new airports, coal mines, highways, and train stations does this country need?  The Linyi airport is lovely, but barely has any flights to justify what I am sure was a hefty price tag.  However, the airport is a fixed asset investment and can be counted in the GDP numbers reported by local officials, which in turn get reported up the chain to Beijing and make the economy look like it is humming along.  We were actually joking at dinner last night that the speed and quality with which these projects are constructed ensures that they will have to be rebuilt in a few years so then the government can just count the project again.  That statement was made slightly tongue-in-cheek, but it’s kind of true.  It may take ten years or more for a new airport to be built in the States, but at least when that airport is up and running, it is built to last 50-75 years or longer.  In China, so many new buildings begin to look like they should be condemned only a few years after going up.  I think of the campus of the university here.  It was only a built a few years ago and already the fixtures outside the buildings are rusting, the doors inside are warped, and there are cracks in the walls all over the place.  I can only imagine what a lot of these new apartment towers look like, especially those that are half empty.

Economic policy divorced from economic reality is not sustainable.  It’s easy when you have money to pump into capital improvement projects, but it’s much harder when you need to affect rational human beings.  It’s why the authorities in Beijing have been more successful at building high-speed trains (success in building them, but not necessarily in operating them safely) than getting consumers to open their pocketbooks and re-orient the economy towards more domestic consumption and away from export-led growth.  Having the government build an airport or train line that is eventually going to be run by the government does not require rational policies because all the players’ interests are aligned by the desire to make money, which travels in a vicious circle and rarely trickles down to the average person.  However, getting people to change their shopping behavior requires rational thought because for all of the government’s attempts to control the people, some things are so intrinsic that they cannot be controlled by a higher power.  A person worried about having enough money for health care, retirement, education of their children, and to put a roof over their head and food on the table is not going to automatically start buying more discretionary items just because the government tells them to do so.  For that to happen, rational policies are necessary like state-subsidized health care, better education at a lower cost, safeguards for retirement, and the like.  While the government talks about such social safety nets and academics write papers urging the government to begin using some of its largess to build such programs, they are still not being being created.  Why?  Because such programs will not bear dividends until much later in time and the government thrives on short-term gain in the form of easily obtainable economic growth to justify its existence.

Chen is spot on when he points out that the development path China is currently on is not sustainable because for all the wealth sloshing around in Beijing, Shanghai, Guangzhou, and other large cities, there are huge swathes of the population unable to partake in this life and the government is not taking the necessary steps to bring them into the fold because they are blinded by their own desire to protect their positions of power.