An Economic Dynasty in the Making
NOTEBOOK
by Roger Bloom
In a country with a past stretching back 5,000 years, I have seen the future.
It is a future in which China is the dominant economic force in Asia by a wide margin, and a toe-to-toe rival of an integrated Europe and a NAFTA-ized North America.
And I think it will happen not just in my lifetime, but probably well before I hit retirement age in 2020.
I say this because three months ago I was in Guangzhou,the former Canton,marveling at the changes that had occurred there in the less than three years since my first visit to that sprawling city.
For one thing, the people were better dressed. The drab Mao suits are long gone, of course. But three years ago, most people on the streets seemed to be dressed in nondescript hand-me-downs. This time, in many parts of the city, the bustling sidewalk scene could have been any Western downtown, minus the piercings, bare midriffs and other flamboyances of our Gens X and Y.
It’s true that the stylish jeans and suits are probably knockoffs, but nevertheless they are a visible illustration of this macroeconomic statistic: China’s middle class, defined as those able to afford such things as cars (I also saw a lot more private cars this time) and leisure travel, has burgeoned and now numbers about 110 million people. By comparison, the U.S. middle class,defined somewhat differently, to be sure,has about 170 million members.
The Chinese government says its middle class (officials don’t actually use the word “class” in describing this group because it is a politically loaded term) will grow to 200 million by 2005 and 400 million in 10 years. Other observers think those are highly optimistic numbers. But most agree there is a fast-growing group of relatively well-off Chinese. And that is fueling the development of a consumer economy in China’s cities.
Guangzhou boasts scores of upscale restaurants that look like they were lifted out of South Coast Plaza, along with several South Coast-like (or at least MainPlace-like) malls dotted with shops like Versace and Louis Vuitton. One is seven stories, with a huge basement supermarket to boot. And it was packed.
Oft-cited caveats are that this middle class is still just a small percentage of China’s 1.2 billion people (compared with the U.S.’s 60%). And they are concentrated in urban areas, with much of rural China still in poverty.
But so what? 110 million consumers are 110 million consumers, no matter the total population. And, at the risk of sounding cold, China’s rural areas have been desperately poor for all of recorded history, including the country’s golden ages. The cities are and always have been where the economic action is.
Here’s another statistic: Last year, when the gross domestic products of the U.S. and European nations barely eked out gains and Japan’s lost ground, China posted 7.3% growth, down barely a tick from the 2000 number. Projections for 2002 are in the same neighborhood.
Then there’s China’s entry into the World Trade Organization. A lot was written at the time about how this will cause economic dislocation in the short term as China restructures various sectors,notably banking,to meet the requirements of membership, and that the country’s potential still is a long way from realization.
China indeed did commit to some major changes, but they are reforms that the country would have to make in any event to continue to grow,and the leadership is using the WTO membership to rally the people around them. What I saw and heard in China was an almost universal determination to move forward, sooner rather than later. Entrepreneurial spirit is even more widespread now than when I noted it in 1999, fueled no doubt by economic gains in the meantime.
Take the case of one of our tour facilitators, who had us call him Martin, a local hired by our agency to shepherd us around. He had performed the same role for the group I was part of in 1999. But this time Martin had added thriving side businesses exchanging currency and selling phone cards and souvenir “chops” (carved stone ink stamps engraved with our names rendered in Chinese characters). Similar energy is evident everywhere.
Are there problems ahead for China? Certainly. One is maintaining its social safety net. Even Martin acknowledged that “the problem with the free market is that nothing is free.” And one reason China was able to grow through the economic downturn of 2001 was a level of government spending on public works and higher salaries for government workers that is driving up the national debt and facing diminishing returns.
But the world economy seems to have turned the corner just in time to keep China’s export market out of a tailspin. Meanwhile, foreign manufacturers, lured by China’s huge educated work force and new WTO status, can be expected to come in increasing numbers. Similarly, the makers of consumer goods,especially electronics,are becoming more aware of not just China’s potential, but its current reality. Newport Beach-based Conexant Systems Inc., for one, has inked a string of deals with Chinese partners in recent months to get its chips into Chinese computers, cell phones and other goods.
Then there are the potential social strains of the widening gap between an urban middle class and the rural poor, and the dislocations caused by reforms, particularly in agriculture. But right now, China has a broad political consensus in favor of progress on a market track.
To bring up Martin one more time, in his younger days he led a student march on his hometown’s City Hall in the heady weeks before the Tiananmen massacre. Today, he supports the government, saying that many of the goals of the student movement,though not all,have been achieved.
“I can talk to you and say whatever I want, without fear,” Martin said, dancing around the free-press and free-election issues. “And we have much more now than ever before.”
