The End of Cheap China: Economic and Cultural Trends That Will Disrupt the World (21 page)

All of these questions will need to be debated. This book has attempted to answer them by highlighting the Chinese people’s optimism and fears, which will influence China’s decision makers and force change upon the country. Any change that develops will be consistent with China’s needs and historical conditions, rather than repeating what worked in America and the Western world. The country’s internal problems will limit its ability and desire to become an ideological, hegemonic power like America—even as it clearly has become an economic one. China will therefore become a very different superpower than the world has previously known—one whose power will be rooted less in an ideological, militant base than in economic growth.

CHINA: THE WORLD’S NEW HEGEMONIC POWER?

As a new superpower, China likely will provide a helping hand whenever possible by taking a greater role in international organizations like the International Monetary Fund and the United Nations, but it will be a very different superpower than the United States has been. Unlike America, it is doubtful that China will try to save the global economy or become the world’s policeman. Instead, it will let other nations spend money doing these costly and painstaking things, while they seek out the business opportunities that these actions might produce.

Aside from a culture and ideology that is more focused on internal issues, instead of possessing a missionary-like zeal to convert others to how China thinks, the government still is fearful of internal instability, and will therefore spend most of its time on improving local issues. Moreover, because of strict regulations constraining party officials, government leaders will most likely continue to push their offspring to enter private enterprise to make their money. Most decision making will provide opportunities for well-connected individuals to leverage their relationships to better seize business opportunities.

China’s foreign policy will be an offshoot—in many ways, an afterthought—of how it deals with internal issues of stability, and the creation of wealth opportunities for the embedded elite, rather than a cohesive policy designed to shape the rest of the world to emulate China’s ideal form of government.

China’s laser-like focus on economic growth, and its greater adherence to free trade and capitalism than America’s, means China can provide a growth engine for many industries, from agricultural products and medical devices to the luxury sector, among many others. Companies that follow the path of Yum! Brands, Procter & Gamble, or General Electric by looking to China as their next major growth engine will join in the new Darwinian struggle; either they will evolve and become global winners for the next 50 years, or else they will go extinct.

Yet the country still faces massive challenges—brought about, as this book has shown, by the End of Cheap China—in providing adequate housing, stamping out corruption, ensuring healthy food supplies, and improving the educational system. These problems will not be easily solved, and they will force the government to devote funds and attention to finding answers.

ECONOMIC GROWTH HITTING A WALL

No amount of stimulus or smart planning can offset continued economic pain in the West. There is a very real possibility that a lost decade—or even two—overshadowing entire swaths of the Western world will also severely impact China’s growth. Its economy is not completely decoupled from the West, so economic pain there eventually will come to China as exports drop.

Concerns about eurozone debt remain high, as well as worries over a political or even military conflagration if the problem cannot be resolved. Even if more fiscally responsible countries like Germany and Finland try to bail out their neighbors, there are fears that the mounting problems are too large to be solved without defaults, a eurozone breakup, or even worse. Irresponsible bickering in the U.S. Congress has left many Americans angry and hopeless, as unemployment rates have remained above 9 percent despite loose monetary policies and stimulus programs.

In October 2011, hundreds of protesters were arrested in New York during an Occupy Wall Street march, which in its anger mirrored the London riots earlier that year. Their rage was less the product of a concerted, cohesive effort, but instead seemed more to be about frustration over the fact that nothing was getting better for everyday people, while the political and business elite seemed intertwined and corrupt. Similar protests have emerged across the United States.

In the midst of economic turmoil and protests in the Western economies, the balance of power is shifting toward developing countries. Aside from China, India and Brazil are emerging as new economic powerhouses. Yet an ascent to economic dominance is a foregone conclusion for none of these countries. Rampant inflation, red tape, and corruption continue to undermine their governments’ legitimacy.

Despite this, worries about an economic and subsequent political collapse in China are greatly overblown. Many analysts, like author James McGregor, argue that the government’s legitimacy derives solely from economic growth, and that the country’s system will topple if growth does not remain above 8 percent because the people will feel betrayed. That sort of Faustian bargain does not really exist. Rather, the arrangement was more that the government would create peace and stability, stay out of the lives of everyday Chinese as much as possible (unlike the early decades of the Party, when it infiltrated everything), and thus allow business opportunities to develop.

REFORMING THE POLITICAL SYSTEM

Many Westerners assume that continued economic growth and exposure to other cultures will lead middle-class Chinese to want democracy, and that the whole system will collapse if they don’t get it. They draw many comparisons to the Arab Spring, which toppled the Mubarak regime in Egypt and Gadhafi’s in Libya. The chief financial officer of one of the world’s largest companies asked me, skeptically, “Is the system ready to topple? Do the people support the leadership, and will it be able to accommodate changing wants in China?”

People like that CFO always ask me whether China’s government is unchanging, retreating on freedoms, or destined to collapse under the weight of corruption and a political system fraying at the edges. The reality is probably somewhere between the doomsday scenarios and the opinion that the government should never change. China has to continue to evolve politically in order to maintain its robust growth and stability, as Premier Wen Jiabao has repeatedly declared. He has pointed out the need for more transparency and accountability and an end to corruption. The leadership knows continued reform is needed, which is why new regulations are being implemented every day that not only make the country more economically efficient, but that also improve human rights. In 2011, the first capitalist was brought into the Communist Party’s Central Committee: Liang Wengen, founder of SANY and one of China’s wealthiest men, worth over $9 billion dollars.

Internally, it is doubtful that China will undergo an Arab Spring–like transformation, because the government is making the necessary reforms to ensure the voices of everyday Chinese are better heard. China’s population is relatively satisfied with the direction in which the government is taking the country, and there are no major internal forces that are pushing for change. That said, China’s government will necessarily have to evolve and reform for its citizens in the coming years, or else more challenges to the growth and happiness of the general population will emerge.

Every year, human rights for average Chinese improve. Their worry, however, is that the good reforms their leaders have put in place since the end of the Cultural Revolution could somehow come to a standstill. The process of improving information flow and transparency within the political system needs to continue. It is likely that the one-party government currently in power will do so.

The End of Cheap China is like a giant wave crashing down on the shoreline with full force. It is fruitless to try to dig in one’s heels to withstand the impact of the water, or to hope that life will be exactly the same before the wave came. Companies and people who do so will either get knocked down by the wave, or will remain standing but weakened. The best way to deal with a giant wave is to dive right into it, or jump on a surfboard and ride it all the way to land. Corporations and countries that understand the nuanced changes occurring in China today—and are able to hop on their boards—will have the ride of a lifetime.

EPILOGUE

October 2011

I said good night to a client and walked along Nanjing Road, Shanghai’s famed shopping street, where Louis Vuitton and Gap have their flagship stores in China. Glittering lights illuminated the evening skyline as I walked past bustling store after bustling store. Shoppers were in a festive mood, almost as if it were Christmas and the world were not stuck in a global financial crisis, as they toted paper bags brimming with newly bought goodies. The scent of roasting chestnuts wafted to my nose.

As I made my way home, I suddenly was stopped by a woman yelling “Hey, handsome!” at me. I paused and looked at her. Her faced was caked with makeup that seemed to bunch up on the crags lining her face. Unlike that perky young teenager who had knocked on my hotel room door in Changchun, and who easily could have been a cover model for
Teen Vogue
, this woman would fit better in a morticians’ magazine as an example of how not to dress. The aged woman told me what 100 bucks would get me and smiled a toothless grin. I shuddered and kept walking.

I glanced backward and saw the woman scurrying away to look for her next mark. China has really changed since that night in the dingy, grubby hotel room in Changchun 13 years before.

ACKNOWLEDGMENTS

Writing a book is often a solitary experience. Many people helped me figure out what I wanted to say and how to say it.

I must thank my editors at John Wiley & Sons, Inc., Shannon Vargo and Elana Schulman, for excellence in shepherding this project to completion.

I also must thank my colleagues Ben Cavender and James Roy at the China Market Research Group for shouldering more responsibility on client projects and internal operations while I was off writing, and for advising me on how to improve the book. Thanks too should go to CMR summer interns Arielle Sander and Jenny Pang for their help.

Last, I would like to thank my parents, Dad and Deb; my wife, Jessica; and my son, Tom, for their help, support, and love.

INDEX

A

Abby (Australian student)

Acer

adaptability, importance of

advertising

American anti-China political ads

China’s world image, ads to improve

affordable housing, lack of

Afghan war

Africa

anti-China rhetoric in

China’s drive to attract students from

Chinese infrastructure building in

Chinese investment in

oil in, Chinese demand for

problems in

Rwanda

students in China from

agriculture.
See
farming

Airbus

airport construction

Ai Weiwei

Ai Zhongxin

Ajisen Ramen

Alibaba

Alipay

America.
See
United States

American companies, in China

business practices of
vs
. China

failures and mistakes by

“Laura Furniture”

profits of

relocation, reasons for

Amerilink Wireless

Amodei, Mark

Amway

Amy (young woman)

Angle, Sharron

Angola

Anta

anti-American sentiments

anti-China rhetoric

in Africa

American investments losses due to

on American jobs stolen by China

American political ads showing

China as scapegoat for U.S. problems

increase in

renminbi, appreciation of

stealing American jobs, claims of

in United States

U.S.-based ad campaign to combat

in Western media

anti-free-trade sentiments

Apple

iPad/iPhone

Jobs, Steve

aquifers, depletion of

Arab Spring

ASD

Asia Society

Auchan

auction sites

Auschwitz

Australia

Chinese buying Australian firms in

Chinese investment in, uneasiness about

construction booms in

dollar, appreciation of

housing prices, increase in

mining companies in

natural resources in, Chinese demand for

automobile industry

B

Babela’s Kitchen

baby formula, fears of

Baidu

Banda, Rupiah

Bank of China

banks, Chinese underground

Barbie

BBC

Beaverton, Oregon

bedding-products

Beijing, China

descriptions of

subway construction initiatives in

traffic problems in

Ben Ali, Zine al-Abidine

Bentley

Bernanke, Ben

Best Buy

billionaires/millionaires, Chinese

Chinese business, descriptions of

female billionaires

Forbes
China Rich List

homes, descriptions of

Liang Wengen

millionaires

rapid rise of wealth for

Bird’s Nest Stadium

Bob (factory president)

Book of Five Rings, A
(Musashi)

Bo Xilai

Bo Yibo

B&Q

brand building, in China

adaptability, importance of

American companies activities

aspirations, emphasis on

buying
vs
. building brands

Chinese brands for

Chinese women, marketing to

consumer trust and

decision makers, understanding

economic inefficiencies, using

fear of, avoiding

in-store education

knowledge about, lack of by U.S.

launching first in China

localizing flavors by region

local preferences, emphasis on

long-term
vs
. short-term approach to

past barriers to

price, competing on in 1990s

product safety, emphasis on

reputation, importance of

selling into China
vs
. exporting

success of

success of by Chinese business

Western disregard for Chinese

Western
vs
. Chinese brands

young people, marketing to

brand imitations/fakes.
See
intellectual property

Brazil

breastfeeding

Bright Food

Brooks Brothers

brownouts

Buffett, Warren

Buick

Burger, Richard

Bush, George H.W.

business-to-business (B2B)

Butterfly Wu

BYD

C

Cai Fang

Cameron, David

Canada

China’s grab for commodities and

Chinese investment in

Chinese investment in, uneasiness about

construction booms in

food imports to China from

natural resources of, Chinese demand for

Carlyle Group

Carrefour

Carreras, José

Caterpillar

CCTV

censorship, in China

Centre for Research on Social Contradictions

Cerruti

Changchun, China

Changsha, China

Chanos, Jim

Chaplin, Charlie

Cheney, Dick

Chengdu, China

chengguan

Chen He Lin

Chen Liangyu

Chen “Mr. Chen” (billionaire)

Chen “Mr. Chen” (parent)

Chen Yun

Chiang Ching-kuo Foundation

Chiang Kai-shek

China

as changing
vs
. emerging market

debt of

as “factory of the world”

life spans in

People’s Republic, founding of

physical size of

China, rise and power of

American dominance
vs
.

anti-American sentiment and

barriers to

China as hegemonic power

China as superpower

competition, increase in

economic growth, stalling of

global power shifts and

global reaction to

negative views of

political system, reform of

pros and cons of

rapid growth of

soft power

United States, benefits for

See also
economic growth, in China

China Daily

China Market Research Group (CMR)

China Merchants Bank

China Mobile

China Power International Development

Chinese brands, in U.S.

future prominence of

knowledge about, lack of

Chinese Civil War

Chinese culture

Mandarin language training

openness to learning about

understanding, importance of

“Chinese Disconnect, The” (Krugman)

Chinese entrepreneurs

descriptions of

optimism among

risk taking by

intelligence of

Western disregard for skills of

See also
billionaires/millionaires, Chinese

Chinese government

bureaucracy, future changes in

Communist Party and

corruption in

criticism of, Western media

duality in

military actions, potential for

Ministry of Education

Ministry of Health

Nationalist Party

popular support of

Public Security Bureau

salaries of officials in

Standing Committee of the Politburo

Western lack of trust in

Western stereotypes about

Chinese government, central
vs
. local

approvals from, getting

central government model, benefits of

chengguan

competing interests between

corruption in

forced land appropriations and

local enforcement, problems with

on prostitution

on renminbi, appreciation of

Chinese government initiatives

affordable housing, creation of

dairy supply chain, regulation of

higher education, increased access to

manufacturing-based economy, changes to

security spending

social security and medical care

Chinese government policies

on energy price caps

on food production/food supply

housing benefits, control over

minimum wages increase

morality campaign

noninterference policy

rapid changes to

on retirement age

social media, blocking of

on travel

visas for foreigners, restrictions on

“Chinese Professor” TV ad

Chines renminbi.
See
renminbi, appreciation of

Chloé

Chongqing, China

CITIC bank

Citigroup

Citizens Against Government Waste

City Urban Administrative and Law Enforcement Bureau

Clarke, Richard

class sizes, China
vs
. U.S.

Club Med

CMR.
See
China Market Research Group

Coca-Cola

coffee bean prices

Committee of Foreign Investment, U.S.

commodities, demand for

China’s grab for

construction in China and

corn, rice, and soybeans

oil prices, increase in

See also
natural resources

Communist Party

competing interests in

heroes of

housing benefits, control over

Long March

vs
. Nationalists in Chinese Civil War

primacy of, marketing and

Qian Zhuangfei

competition

China, Western underestimation of

innovation, Chinese brands and

on price in China

rising wages and

Confucius Institute

connections, concept of

in Africa

foreigners, Chinese view of

pros and cons of

slow growth of branding and

construction, in China

benefits
vs
. risks of

campaigns to limits

commodities used for, global effect of

demand for

local governments, taxes from

shoddy quality of

construction of infrastructure, in China

airport construction

benefits of development

Chinese
vs
. Japanese

economic growth driven by

future ideas on

high-speed train scandal

Ningbo’s bridge

risks of too much

subway construction

superiority of

consumer activism

consumer electronics

consumer market, Chinese

growth of

taste preferences of

consumption

American’s addiction to

in China, optimism and

China’s economy and

Chinese women’s influence on

in U.S. fueled by cheap labor

wealth and increase in

See also
luxury brands

copper, demand for

corn, demand for

corruption, in China

as barrier to China’s rise

in central
vs
. local governments

China
vs
. Middle East

educational reform and

food production safety and

in government

government eradication attempts

high-speed train scandal

credit crunch.
See
debt; financial crisis

Crichton, Michael

CTRIP

cultural imperialists

Cultural Revolution

freedom and, perception of

government rules, reactions to and

impact on society

optimism in China and

Red Guards

scholars, harassment of

turmoil and pain during

universities closed during

Ye Xiangzhen, suffering during

younger
vs
. older generation, views on

currency

Australian dollar, appreciation of

Chinese renminbi, appreciation of

U.S. dollar, decline in

D

dairy industry

Mengniu Dairy

milk scandal

Yili Dairy

dairy scandal

Dalai Lama

Dalian, China

Danone

Da Vinci furniture

Davis, Bette

debit cards

debt

American’s addiction to

of China

Europe, debt crisis in

of Japan

for real estate, limits on in China

United States, downgrading of

young Chinese, acceptance of

See also
financial crisis

Dell

Dell, Michael

Deloitte

Deng Pufang

Deng Xiaoping

deportations, U.S.

DiMaggio, Joe

Disney

divorce, in China

Domingo, Plácido

dot-com bubble

Dubai

Duke University

Dunkin’ Donuts

DuPont

Du Weiming

E

eating habits, Chinese

descriptions of

higher protein diets, shift toward

U.S.-grown meat products, demand for

eBay

ECCO

economic growth, in China

driven by construction boom

infrastructure spending as driver of

natural resources and, depletion of

rapid rise of

retail sales, growth of

See also
billionaires/millionaires, Chinese; China, power and rise of

economic growth, in U.S.

Economist Intelligence Unit

economy, American

economy, Chinese

gross domestic product of

income gaps in

size of

Economy, Elizabeth

economy, European

economy, global

China as solution to debt in

world markets, disruptions in

educational improvement, in China

corruption and, fears about

government funding initiatives

ideas for

international educators, recruitment of

need for

roadblocks to

education system, Chinese

American’s view of as superior

analytical/critical thinking, lack of in

class sizes

exam results, emphasis on

higher education, increase in access to