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[Music]
HOST: Thanks for coming back to the final presentation
of the day. We're pleased to welcome
Professor Christopher McNally. He joins us from Honolulu
where he is a non-resident fellow at the East-West Center
and Associate Professor of political economy
at Chaminade University.
His research focuses on comparative capitalisms,
especially the nature and logic
of Chinese capitalist transition.
He has edited four volumes, including an examination
of China's political economy titled,
"China's Emergent Political Economy
:Capitalism in the Dragon's Lair."
Please welcome Professor Christopher McNally.
[Applause]
CHRISTOPHER MCNALLY: Hello. It's wonderful being back
in the northwest. I lived here for many years.
I got my degree from UW
so it's nice being back in the old vicinity.
I also would really like to thank PCC,
especially Tom, Debra,
clearly Peter, everybody at the East-West Center
for putting this together, for getting me over here.
I arrived like one o'clock in the morning yesterday
after one delay after another.
The United States reminds me of China;
the same thing happens in China. Delays, delays, delays.
As Tom introduced me, I am by training a political economist
so I study the nature and logic of capitalism quite broadly
and then, in particular, what is happening in China.
Our last speaker, Ambassador, was mentioning
that the Chinese do not like to be called communist.
They even less like to be called capitalist.
The entrepreneurs do,
but not the party people.
So they really exist in a very weird universe
of their own. Perhaps we should call them Leninists
because that's ultimately what they really are.
What I'll talk today about a bit
is really China's global emergence
and the concept of sino-capitalism.
Actually, what I'm trying to attempt here
is to use a political economy framework
to situate China's international emergence
somewhat better
in our frame of knowledge
as a threat. There's various theoretical literatures on this,
especially power transition theory
that says any rising power
will be a threat to the existing power,
in this case the United States,
to the status quo power.
Microphone adjustment: Are we doing okay? Thank you.
I'll pick it up and walk in a moment,
but I prefer not to have to hold it.
On the other hand, from a more liberal point of view,
China is seen as kind of becoming enmeshed
in the global order
that the West, especially the United States, set up
and therefore China itself could become a status quo power;
as Robert Zoellic who is now
the President of the World Bank said,
"a responsible stakeholder."
I think both of these views are a bit too dichotomous.
They're too black and white.
I think the truth really lies in the middle.
I think China's rise is going to trigger
some extremely complex
and some very interesting new dynamics
in the international system
and China is neither going to be a real pure threat
nor going to be a pure responsible stakeholder.
I will first briefly talk about China's international emergence
a lot of that is probably known to you --
and then flesh out the concept
of sino-capitalism a bit more, look at sino-capitalism
as it is emerging in the international system
and then ultimately,
how sino-capitalism relates to the form of capitalism
that both the United Kingdom and the United States
have been practicing over the last 150 years.
We could call that free market capitalism.
It's a bit more complicated than that,
but there are some very stark differences
the way the Chinese practice their form of capitalism
from the way we think capitalism should work.
And then, finally, I change gears a bit talking about
what is happening in the Chinese political economy
at this present moment,
especially about the 12th five year plan.
Yes, the Chinese still have five year plans;
they're not like the five years plans of yesteryear.
They're quite different actually.
They're quite an intelligent way
of actually managing your economy
because they're more a vision
of where will we go
and the vision gets continuously revised,
but there is some very interesting
new policy proposals in there
that can affect us immediately.
Indeed, if the Chinese are successful,
it will be very, very positive for the U.S. economy,
if they are successful.
Now briefly put, as you know, China has emerged
in the last 30 years.
This is the fastest sustained economic growth
that we've ever seen in history.
It's been roughly at 10% a year over 30 years.
No other country has come really close.
South Korea did; South Korea came quite close
but they had a real dip in the '70s with the oil crisis.
China has been more or less been able to sustain this
and you can see this. In 1980,
China was the 11th largest economy.
This is in GDP, not in PPP terms
so pure exchange rate terms.
It has become already number two in 2010,
just overtaking Japan
and between 2018 and 2025
(these are estimates; they're always a bit difficult),
China is likely to overtake the United States.
Chinese economic statistics are not super reliable;
neither are actually ours in the United States.
We fudge our inflation statistics quite a lot.
Everybody does, actually.
Nobody likes inflation,
but probably the Chinese economy
is about 10-15% larger than what the Chinese say.
Some people say
the Chinese overstate the size of the economy,
but probably because of a bias, it's quite the opposite.
They understate it and the reason for that
is you've got huge amounts of grey market income in China.
Actually, my brother in law is a pianist.
He makes maybe 3-4,000 Renminbi
which is roughly 500 U.S. dollars a month.
He makes about 10 times as much teaching private lessons;
that doesn't get recorded in the statistics.
That doesn't get recorded in taxes, too. It has its benefits.
And then as you go down,
you can see the United States will clearly remain number two
for a long, long time. Japan will remain number three;
very important political economy overall
in the global system
and then, maybe, we'll get India rising to number four,
but certainly India, Brazil, and Russia the other,
the BRI and the brick.
So not a French cheese, but Brazil, Russia,
and India (the BRI)
will become part of the top number ten.
So this will be a different world,
in terms of new economics.
Now what I'm arguing is quite simple.
What is taking place in China
is not anything particularly new.
It is not anything particularly execeptional,
historically speaking.
A lot of us who study China are blamed
for always seeing China
as something all unto itself, something extremely unique
and, obviously, extremely large.
China is huge, but what has been taking place in China
over the past 30 years does find some very distinct
and clear historical parallels to what has happened in Japan
and Germany, especially in the late 19th century, South Korea
and Taiwan in the '60s, '70s, and '80s.
Basically it's the development
of a capitalist political economy.
To be more precise, for those who are perhaps
within my field,
this is late development with strong state leadership;
it's very Gerschenkronian. I don't know if you know the work
of Alexander Gerschenkron. If you don't, read it. It's short.
His main piece is really short and it's fascinating
because it lays out how later developers develop differently
in the international system
because you already have pre-existing competitors.
You already have large multi-national companies,
large industrial firms
and so you need to develop differently than
both United Kingdom
and the United States did in the 19th century.
Now one of the problems as you can already feel here,
why I'm talking, is that when I use the term capitalism,
I perhaps mean something quite different
from the way Marxists would term it.
Marxists, especially in Marxists derivatives,
it's all about class structure and class struggle
or the way people do it on CNBC. I don't know
if you know Larry Kudlow, but he has everybody
who come on his show say that the best system in the world
is free market capitalism.
Capitalism, mind you, is not predicated on markets.
It is predicated on capital accumulation,
of which human accumulation is the most important.
In a sense, the invention of modern education systems
has been the greatest invention in capitalism,
not the market system.
Adam Smith was about division of labor, specialization,
much more so than markets.
Modern economics is actually more or less derived
from Ricardo
and read Ricardo's biography.
He was a stock market speculator
and became very rich. Maybe those two go together.
I'll leave it here. You can ask me more questions
about the nature
and logic of capitalism,
but it's really a system that is not –
markets are important. They create competitive pressures,
but it's really a system predicated
on capital accumulation.
Now, in the macro-political economy view,
China's economic emergence
is therefore generating a new form
of capitalism that I term sino-capitalism.
With sino-capitalism,
I mean a capitalist system that is already global in reach.
Basically, China has already generated
a global capitalist system.
Wherever you go, there are influences
from this capitalist system
and it's not just Chinatown, downtown Portland.
Biggest investors in Vietnam are part of sino-capitalism
and it's not just Vietnam. There is Taiwanese,
as well as mainland Chinese,
textile operations, toy operations
that are moving big time into Vietnam, for example,
but the biggest ice cream manufacturer in Mali,
in Africa,
is owned by a Chinese.
We had a different APEC session just two days ago,
in Youngstown, Ohio and one of the speakers,
Jennifer Turner from the Woodrow Wilson Center
in Washington D.C., mentioned what is happening in Congo.
It's not just big state-owned companies from China
moving into Congo to exploit natural resources,
but there is a lot of small, individual Chinese like mom
and pop shops that are moving into the Congo to smelter zinc.
They're doing it very dirty.
They're doing it in a very fast and dirty
and messy way, but they are there. In and of itself,
this is fascinating. I mean you have the influence
of the Chinese Diaspora,
Chinese state-owned companies all together globally
and the system as I will explain in a moment,
differs from anglo-capitalism very much.
But before I get to this,
I just want to point out the historical significance
of China's international re-emergence.
Basically, the global system since 1850,
since the birth of modern globalization,
was predicated on Anglo-American capitalism,
a system predicated on the freeflow of goods and services,
the freeflow of capital; very important, free finance,
and the freeflow of migration in its first phase up
until 1914.
You could very easily migrate before 1914.
Ever read Around the World in 80 Days; no passport controls,
no immigrations, no visas, nothing.
So you had this system that was very much predicated
on the Anglo-American concept of capitalism as one
with a minimal state, ideally a night-watchman state,
that regulates, but really keeps out of the economy,
that allows enterprises, private enterprises
and market forces
to allocate goods and services.
Sino-capitalism is different,
but it is the first time that we're seeing,
on a global scale, the rise of a continent size
(you see this is in nice purple),
continent size capitalist power.
Why did I put this there?
Because yes, we have seen the rise
of Germany and Japan before.
These were very important capitalist powers,
but they never had the potential
to affect the global system
as much as China. China is not Germany or Japan;
it is much, much larger.
Even, actually, the United States is dwarfed
by China's size.
If you ever travel in China, the amount of people,
the size of the country that you feel
there is really quite incredible
and, actually, the Communist Party uses that
because they build huge infrastructure
that then makes it seem even bigger.
By the way, I was quite intrigued. I was in Guangzhou,
what was it three years ago, and before when you were in China,
the Chinese had their flags. They had the flags in a rather European
(the French are not like that),
kind of a very normal flag size
and that's the only size you saw the Chinese five star flag,
but then I was in Guangzhou airport
and they had this huge Chinese flag hanging on one side
of the airport. I thought,
"Okay, they've learned something from the Americans,"
[Laughing]
although the Mexicans have even bigger flags.
There must be some competition going on there.
Anyway, sino-capitalism, yes, is a state-led form of capitalism,
but one of its defining characteristics is actually network capitalism
because bottom up, you have a myriad of small
and medium sized enterprises
that are driving the development of China's private sector
and ultimately, it's manufacturing.
Some of these companies are hybrid owned,
meaning they have some state influence.
It could be local state influence, provincial, sometimes even central,
but mainly local. In some cases,
these private enterprises have become very large like Huawei
and ZTE, these are network telecoms equipment providers.
Overall, these networks rely less on legal codes
and transparent rules. They rely on what the Chinese call guenxi
or more broadly, interpersonal human relations to do business.
That is basically because the Chinese system
is not very well institutionalized; you can't really rely on the law
and on lawyers. Indeed, all the lawyers I know in China, I ask them,
"What do you do?" And they say, "Oh, we don't do law.
We do guenxi we're basically middle-men that kind of pull strings
and get this person to know this person so things get done."
So it's very much a form of network capitalism that is highly dynamic,
highly entrepreneurial, and highly globally enmeshed;
so very different from what we imagine state capitalism to be.
Nonetheless, sino-capitalism assigns the Chinese state
the leading role in fostering and guiding capitalist accumulation,
what you would term state led or state coordinated capitalism,
and ultimately, China is a large developing economy still at a very,
actually, low level of development
(per capita the GDP is roughly $4,500 so this is a tenth
of the United States) that has a distinct socialist
and imperial legacy and I'll come back to history in just a moment.
Now bottom up, the network character
as I already mentioned imbues China with a highly entrepreneurial
and flexible element. These companies can sometimes cluster.
There are some fascinating places in China where you find hundreds,
if not thousands, of companies producing the same thing.
For example, lighters, if anybody smokes you have a lighter.
About 80% to 90% of all lighters in the world are produced
in a Chinese city called Wenzhou and originally,
these kind of families started each producing lighters.
They had miserable quality; that was in the 1980s and over time,
they split and some families
started to produce just the plastic casings.
Other, the fire-stones. Other, the metal casings.
Others put them together and inserted the gas and, yet,
others market them to companies like WalMart.
So very fine divisions of labor, very Smithian,
very Adam Smith emerged
that have produced enormously competitive industrial clusters
that have taken over world markets.
There is another city in Zhejiang (Wenzhou is in Zhejiang)
like Shengzhou that is called the necktie city;
probably this was made there and they've been clever.
They've actually hooked up with fashion houses in Milan,
in Italy to get the designs immediately sent over, via the web,
produce samples, FedEx them to Milan. If they're proofed,
they can produce the necktie within a week and have them in stores;
basically from design to having them in stores in Europe
takes about two to three weeks, enormously fast turnover
and they also produce about 70-80% of all silk ties in the world.
This is something that we don't necessarily associate when we hear,
especially in the press, that China is state capitalist,
it's all the state. China has a very large, very dynamic small, medium,
sometimes large, enterprise sector that is privately owned.
This element integrates sino-capitalism into global production
and knowledge network.
So China is very much part of global capitalism.
Now on the other hand, top down, you really need to see the system
as almost predicated upon a very unique duality.
My German friends always said, "Don't use duality; use dialectic."
I said, "Yeah, but then people in the U.S. will think I'm Marxist."
Dialectic is probably a better word, but duality works as well.
So you have the socialist Leninist legacy of China's capitalism.
Sino-capitalism implies a state sponsored form of capitalism
with a very large and significant state enterprise sector.
Chinese state-owned enterprises are the largest enterprises in China;
the top ten enterprises are all state owned and by the way,
they're the largest enterprises globally by now.
So the largest four banks by market cap, not by global trading,
but by market capitalization now are the Chinese four big state
owned banks. The same goes for Chinese oil companies,
mining companies, and quite a few other sectors.
Basically, the commanding heights of the Chinese political economy
are majority owned by the state.
From a political economy point of view, state hegemony by the CCP
(the Chinese Communist Party) is very much used
to foster economic expansion
which then in turn aids the Chinese Communist Party's legitimacy
and so there is a positive feedback loop. Imagine like somebody
who rides a bicycle and you can't fall off.
That is the Communist Party riding a bicycle and the speed
is the speed of economic development.
So once the speed slows down, they know they can easily tip over
and they're extremely scared of that.
There are some historical parallels to this.
This is not growing up in a vacuum. This is growing up
with both global and historical influences and especially
if you look at the political economy of China
from roughly the late Song to Qing dynasties
(so that's about the 13th century to the very early 20th century),
what you had is a dominate state, subservient capital,
and middle classes and really no separate sphere of the economy.
What I mean with this is that in the United States,
we see the economy as in many ways self-regulating.
This never happened in China. The economy has always been a tool
for the state. It's a means; it's not an end in and of itself.
There are no Libertarians in China.
Indeed, the Tea Party will sound very abstract to the Chinese.
You explain it to them and they just, "No, how can you do that?
You need a strong state," and Japan, Japanese, Koreans,
would react exactly the same way.
A strong state is very much embedded in the conscience
of northeast Asians.
This is roughly the way the system looked like.
The tributary state was this umbrella lording
over the political economy.
You had small-scale merchant capital that, mind you,
was at times very powerful locally and very, very rich
but these small-scale merchants could not flaunt their wealth.
It was something that was frowned upon.
They could not rival the state. If they rivaled the state,
they became dangerous and the state would clamp down.
So you can go to some of these rich,
merchant cities (they're actually called water towns)
around Shanghai. I don't know if you've ever been there
:Zhouzhuang and Xitang. Xi Tang is actually the place
where they made Mission Impossible 3, I think.
You see poor Tom Cruise running around.
It's a fascinating place to visit;
there's a lot of pictures of Tom Cruise,
but otherwise it's quite nice. You can walk by the facades
of these merchant houses and the facades are extremely simple
and inconspicuous. You cannot know how rich the family
is that lives behind there, but then you go in the door
and you go through a small courtyard and yet a bigger courtyard
and yet a bigger courtyard. Ultimately, you reach a big garden
that is all enveloped in this merchant house.
What merchants did is basically, they tried to split their wealth
into many pieces which you could in China
because all sons inherited equal amounts (this is different
from Japan) and you could also do that
because it was a polygamous society. It was quite easy
to have a lot of offspring. And then you educate your sons
to become part of the tributary state,
to basically do the imperial examination
and become Imperial Mandarins.
So there was this continuous flow from wealth into power
and this is something that is actually quite parallel to now
because a lot of rich Chinese do two things.
They've got two strategies to protect their property rights.
Strategy number one is to associate themselves or, indeed,
embed themselves within the party state: become members
of the National People Congress, become members of the Party,
became members of the CPPCC
which is the Chinese People's Political Consultative Conference,
what a mouthful. Only communists come up with that,
but I think APEC can do so as well.
The second method, you probably have seen a lot of this here,
is to get a green-card or a PR in Australia,
basically send your wife and kids abroad
so that they have a residency in a country that protects property
and put some of your money over there.
This is still, in a sense, very much a system that is emerging.
This is another way of doing, of looking at what I had here,
but in a more modern contemporary way, nonetheless very abstract.
So anybody who is a historian, please bear with me.
What you see is that private capital here -- I've got a pointer here –
private capital has a very kind of narrow base,
but nonetheless reaches high up. I mean it's very powerful,
but it's got a narrow base. The state is enormously powerful;
this includes the very large state sector and yet,
the market is also very powerful.
China is an enormously competitive,
political economy except in those areas where the state forbids it
and there's a lot oligopolies in oil and gas
as well as in telecoms that are basically state guided.
Chinese citizens complain continuously of a phenomenon
I'll talk about in a moment that is called [speaking Chinese]
which basically means the government is rich; the people are poor.
I think we Americans could kind of almost say the opposite.
There is a very strong market, especially for anything
from electronics to textiles, even in a lot of services, restaurants etc.
and then you can see that civil society still remains really quite weak.
It is growing; it is becoming more important, but it is under the state.
I mean it's very clear that the state lords over it
and keeps it constrained.
Now all of this means that, in a sense,
China's transitioning its internal political economy
remains incomplete; the system maturing
of a capitalist political economy because one of the hallmarks
of capitalism is constitutionalism and the logic is very, very simple.
If you own property, you want your property to be protected.
How do you protect it? The best means,
something the British invented, is the rule of law.
You have an autonomous judiciary that basically can find
in favor of whoever is legally right. It doesn't always work perfectly,
but it works, actually, stunningly well.
It is one of the great innovations of humanity.
This partially has been developing in tandem
with capitalist development and is one of its hallmarks.
Even let's say Singapore; Singapore most people would argue
is not a liberal democracy. Most people even would say
it's not a democracy, but Singapore is constitutional.
That's for sure, unless you say something bad
about Li Guangyao. You can get into problems here
in the U.S. as well, saying bad things about certain people.
What you have is really insufficient legal and institutional certainty,
no constitutional state. It's a Leninist system of governance
that continues to shape China's political economy
and as I mentioned at the very beginning, yes,
China neither is really communist, I think it is capitalist,
but it is certainly Leninist.
By the way, if Lenin would have lived today,
he'd be probably one of the top paid employees of McKinsey
because he was an organizational genius.
He was really good at knowing how to structure organizations,
especially highly secretive revolutionary organizations.
Now sino-capitalism, although having this historical antecedence,
is emerging in the global system and this global system is really
in an era of unbridled globalization.
The world has only seen this once before, roughly starting
in the 1850s, really picking up in the 1870s, and then leading up
to 1914. As you can see, it didn't end well and we're entering, again,
a period very similar to that before 1914.
Some people compare it to the 1920s, makes sense as well,
and I'll come back to that.
China's rapid economic growth has taken place
in this highly globalized era.
China has faced enormous international competition.
This is very different from the late Song to the Qing dynasty period
when the Chinese imperial government saw itself
as the middle kingdom without any competitors whatsoever.
It didn't work out well, but China does not see the world this way.
It sees itself as one player amongst many
and that it has to compete and that it, also,
has to integrate globally into existing norms and rules, especially
as you can see, for example,
with China's entry into the World Trade Organization.
These have conditioned Chinese policies to a considerable extent.
China's economy today depends on a healthy global economy.
China is part of the global capitalist system,
but the global economy also depends on China.
Just some very brief quantitative illustrations or, actually,
what we try to do is portray something graphically in a relatively nice,
elegant manner that works.
Let me kind of step out. I have to take this away.
Otherwise, somebody is going to come running up here.
What we did is, basically, quite simple. We said -- it really is; listen.
So in this case, we said there is a group of countries
that you can call industrializing Asia.
Most of them are in ASEAN except South Korea.
Industrializing Asia is comprised of Thailand, Malaysia, Indonesia,
Singapore, the Philippines, Vietnam, and South Korea.
It excluded Cambodia and Laos, Burma or Myanmar
[Unintelligible]
because they're really not industrialized;
maybe Cambodia now we could start to integrate.
We said that this group of countries
trades the four major trading poles.
So we said the four major forces of gravity that pull in one direction
or another and there are four major forces of gravity.
Those four major trading poles are: Japan,
the European Union (the whole European Union), the U.S.
and Canada being North America, and then China.
We basically took the year 1992 as a starting point
and just mapped it here on this radar chart. As you see,
out of all of this group of countries,
(Thailand, Malaysia, Indonesia, etc.);
almost 20% of the trade was with Japan, 50% the E.U.,
20% with U.S. and Canada (biggest old pole)
and only 2.9% with China.
Fast forward 18 years and the picture will be changed.
From what was a flat triangle,
we emerge with a very nice deep diamond, very nice diamond cut.
You can see that E.U., Japan, and U.S. almost are equal
(they're all around 10%), but China is up at 16.5%.
So this is really a major, true economic transformation
of the way industrialized Asia trades.
Now you might say, Asia. Asia is very close to China.
There is a Chinese Diaspora. There is a lot of inter-linkages
that are on a personal, an ethnic level. It's to be expected
so we took another country, Brazil, about as far away from China
as you could get and it did exactly the same thing.
Here again you have Japan, the E.U., U.S. and Canada, China.
What happens is very fascinating.
You've got this very flat kind of diamond cut.
The E.U. clearly is the biggest trading partner and has remained
so at 30% going down to 21.5%, Japan always not very important
at 6% has actually come down to 3.7. Interesting, U.S. and Canada,
North America that is really adjacent to Brazil
has gone from 22.7% down to 13.6%
while China has gone from a negligible 0.9% to 14.7;
that would be number two after the E.U. This is Brazil;
it's a long way away from China.
A lot of the trade is in commodities.
Brazil exports soya beans and iron ore to China
and will start to export a lot of oil and gas as well
and a lot of manufacturing goods from China to Brazil
that is, nonetheless, [unintelligible]
We did the same thing for the Gulf states
(Bahrain, Qatar, Saudi Arabia, Oman); you get the same pattern.
We did the same for India which didn't look very elegant
because the E.U. is large. So the E.U. is just even here, Europeans.
I grew up in Switzerland, by the way. We're not part of the E.U.
You really get this diamond, going from what is basically –
let me put this back here.
Going basically from what is a flat triangle to this diamond shape
happens everywhere globally. We also did South Africa;
happens the same thing again.
So what you see is China rapidly emerging
as either the second most important
or the most important trading pole for all emerging economies.
This is an emerging economy development and in a way,
the growth of emerging economies
is directly tied to the growth of China.
It's very much interlinked.
Even India, who you often see as a competitor to China,
India's biggest trading partner is now China.
India exports a lot of iron ore. India has wonderful iron ore,
some of the best in the world to China.
China exports a lot of manufactured goods.
By the way, there is an anecdote from an Indian colleague of mine;
it was about eight years ago. He was back in India with his friends
and he went out to buy a toy for his son.
What he thought, I'm just going to get him a tennis ball.
You know, the simplest toys are the best and he got a tennis ball
and the tennis ball said 'Made in China.' He talked to his cousin
and said, "Oh, how interesting. Even tennis balls are made in China,"
and his cousin said, "Yeah, probably not. It's probably made in India.
They just put 'Made in China' in there
so that they could sell it for more money."
That might have changed, as well, in the meantime.
But actually Chinese goods, overall, have a decent reputation.
Now finally, what we did
is we looked at (these are actually all from IMF statistics),
we looked at how much do the United States,
we also looked at the European Union and others,
but especially the U.S. and China contribute to global growth.
This is not how large are they in absolute terms, no.
This is like if the global economy is a horse carriage
and you have six major horses pulling it; which is the biggest horse.
Throughout the post-World War II period,
the United States was the biggest horse. It went up and down;
the data series is quite volatile, but what you see in 2000,
this is the last year the United States grew at 4%,
and the United States contributed more than 60% to global growth;
China at 10%, respectable but not very large.
2001, we had a negative growth year so we cannot run the numbers
and from 2002 onwards, you can see the United States
is consistently larger, almost triple to double the size of China.
And then all of a sudden, in 2007,
even before we entered the so-called great recession,
China contributes more to global growth than the U.S.,
just a bit above 10%. Then in 2008,
clearly it contributes almost three times as much as the U.S.
and then, this is a negative growth year again. Then in 2010,
you see that China already contributes about 20%.
The IMF just came out this year and said in the first half of 2011,
China contributed a whopping 33% of global growth.
So a third of global growth is now driven by China.
This might not be sustained.
China's economic growth cannot continue at such a high speed
as it has before, but nonetheless it is impressive
in the sense that China already has become the biggest motor
for global growth. It already has overtaken the U.S., in that respect,
about four years ago.
So this is just some kind of illustrations,
trying to put them there of what this means.
Now since roughly 2000, the United States and China actually,
in the economic realm, have formed symbiosis,
have formed a highly collaborative, cooperative,
even one might argue, deeply enmeshed relationship.
What the United States got out of this was, basically,
low inflation, high corporate profits.
We had this question at the last session about labor.
Certainly, one could argue that a big chunk of U.S. labor
actually hasn't been doing so well. Indeed,
if you look at growth in the United States from 2000 to 2007,
all the growth has happened in the non-tradable sector,
things that we cannot easily trade across borders
such as: construction, government, and certain services.
Wherever you can trade across borders,
the United States has not fared well between 2000 and 2007.
This might change. As the Ambassador mentioned, a lower dollar
is really starting to help us and we're seeing onshoring.
We see a new trend of bringing stuff back to the U.S.
because it can be done here better and control can be better.
But nonetheless, this system basically,
the United States got low inflation. It is the WalMart economy,
high corporate profits. China got growing employment,
growing trade, rapid capital accumulation.
This is expressed by these enormous, humongous, I should say,
reserves under the People's Bank of China.
They were just about 3.2 trillion at the end of June.
This is an enormous amount of money; it's very difficult to fathom,
but if we had that money to invest in the United States,
our unemployment rate would be down at 5%
and we would have world class infrastructure.
Now the Chinese invested here in the United States so it's up to us
what we do with it, partially. I'll get back to that.
And growing technical sophistication.
Some commentators have said we can term this Chimerica,
this system. Because indeed, what was going on
is that the financial flows between the United States and China
were on a scale that historically has only occurred
within nation states. So flows let's say from Los Angeles to New York
or from Houston to Boston.
Flows between China and the U.S. have been so large
that we really only generally find them on the level of the nation state,
but this marriage of economic interest might be coming to an end.
Some, indeed, those who have coined this term
(this is Moritz Schularick and Niall Ferguson) are saying
that we're heading for a divorce.
In my opinion, we are in a marriage. It is a very difficult marriage,
but unfortunately we're in a Catholic country
where you can't divorce because we're really in a situation where,
if we divorce, we're going to destroy each other mutually.
Larry Summers, whom has had many government positions
somewhat infamously at times, also President of Harvard,
even more infamous, did actually coin a very, very intelligent point.
He basically termed this mutually assured financial destruction.
That's what we have.
Anybody in the international relations will know
about nuclear weapons being mutually assured destruction;
we're in a mutually assured financial destruction system.
We can't pull the rug under from the Chinese
and they can't really pull it under from us
because we're just going to have a pyrrhic victory.
We're just going to destroy ourselves
and this is basically the way the system looks like.
If you look at this, you will see, "hmm, quite nice.
China loans us money and the United States buys Chinese goods."
By the way, it's not such a bad deal for us
because the Chinese loan us money which is basically zero interest,
even a negative interest loan. We repay them less than they gave us
because we're devaluing our currency constantly by inflation
and by the reevaluation of the yuan. This is not a very good deal
for the Chinese and people on the Chinese blogosphere
have picked up on this. They're saying,
"Why are you giving all this money to these consumerist Americans?
We've got all these poor people here. Give it to them."
So this is a very raw issue.
I've heard many Chinese say Wen Jiabao,
the Premiere of China, does not sleep well at night
because he does not know what's happening with the money
and they're very scared of losing it.
But the problem underlying this is that China accumulates more
and more capital in this system
and the United States more and more debt and as we know,
this cannot be sustainable. Something has to change, ideally
by our own volition before it's too late and we really end up
with a catastrophic situation.
Basically, we never want to become the United Kingdom.
Don't forget, we and the British are almost like brothers and sisters,
but the Americans did not treat the British well
when they were in debt to us.
There is a long, very, very bitter history there.
[Unintelligible] himself was very bitter about that,
but that's history.
So basically, the system I think that is emerging at least
in the next 10 - 20 years
is sino-capitalism versus Anglo-American capitalism.
We are seeing increasing tensions in the U.S.- China relationship,
but yet we're so closely enmeshed with each other
that it's very difficult to work through them.
And especially, since the financial crisis,
the Chinese have become a lot more self-assured about themselves,
about their power, about who they are in the international system
and they are starting to make that power felt; cautiously,
but if you're Vietnam, it is not fun.
It's not fun living next to China.
It's not fun living next to the U.S. What is that; so far away from god
and so close to the United States.
Yeah, you can tell that to the Vietnamese next time;
they'll sympathize with the Mexicans very much.
To quote from The Financial Times, "It is a discomfiting historical fact
that great power shifts in the global economy are dangerous.
They have tended to coincide with extreme financial dislocation,
currency turbulents, and trade friction."
Kind of rings a bell, increasingly.
Basically, U.S.- China relations in the economic realm, especially,
are undergoing a rapid power transition.
This does not mean the United States is declining.
Be very careful here. It's meaning that we're moving
into a more multi-polar world
where the United States will have an economic competitor
of the same size, but at a much lower level of development.
This necessitates both sides to review their policy positions,
but the problem -- this is where my conceptual framework comes in –
is that sino-capitalism, the form of capitalism China practices.
Now, China practices capitalism and that makes China very different
from the Soviet Union. It means that we're deeply enmeshed
with each other, but yet the two systems differ deeply.
It espouses different values, international viewpoints
and those characterizing our system,
there is less emphasis on legal norms and standards;
more emphasis on interpersonal relationships built on reciprocity,
human empathy, and trust; again, guanxi, very bilateral in a sense
and perhaps, even more importantly, there is less trust in markets.
The Chinese deeply (the people and the government)
distrust markets. So do Europeans, by the way.
Talk to the French. Talk to the Italians.
There is much more trust in the state and social norms
of stability and hierarchy.
So this is a very different view of how the economy should work
within China and how the economy should work globally.
If China ever becomes very powerful,
it's likely that they'll gradually try and constrain international finance
the way it exists nowadays. You can see that with the way
they're internationalizing their own currency; it's a very cautious,
very state controlled process.
The currency issue is one, very clearly,
because the Chinese control their currency.
They don't think that currency values should be left to markets.
If you look at it historically, they have a point.
Emerging economies that have left their currency value
basically defined by markets have not fared very well.
They have experienced enormous volatility
that has wiped out manufacturing sectors in one fell swoop.
So the Chinese believe we need stability and indeed,
this is the credo of the Chinese Communist Party.
We might call them the stability party. I'm sure that
if you went to them and said, "You're not communist; you're stability,"
they would say, "Yeah, that's what we are";
these neo-Confucianist stability freaks.
What they really want is social stability above all else
and currency policy is basically a means to an end;
the end being social stability,
the creation of employment opportunities,
the creation of export opportunities.
There is little regard, by the Chinese Communist Party,
for what this currency policy does abroad.
Really, I mean they are selfish stay that.
There is, by the way, very little regard by the United States
what our policy does for the rest of the world.
The federal reserve embarks on quantitative easing.
Nobody in the United States -- there is a lot of people
who die of hunger because of this that nobody in the United States
really cares about that and I can talk to you
about the transmission mechanism if you want to hear more.
I don't want to throw things out that are somewhat, you know,
and then not explain them. But the Chinese really don't care much
about global imbalances. Only now are they starting
to revalue their currency basically
because it's creating massive inflationary pressures in China.
So now, they're actually much more flexible.
The other side of this coin, it's really the flipside of the same coin,
is the accumulation of reserves.
Chinese foreign reserves are excessive, clearly excessive,
but the Chinese Communist Party, although
it always complains about the stability of its reserves in the U.S.,
actually likes it. It likes the stability and the influence that
this brings with it and it does not mind low returns.
As I just mentioned,
the money that China has loaned the United States
basically creates negative returns. It is not positive returns,
but this is a state-led system; it's not a market-led system
and so the government, the party state, does not mind this.
This is just illustrations of the way sino-capitalism is emerging
as a very, very different system.
All of this implies that the world will be faced
with a massive political economy that is a developing nation
with a very different form of capitalism and that we are,
in a sense, entering the age of uncertainty and it will be with us.
Don't watch your 401k every day. It will not be fine. Okay?
Diversify. Do good porfolio management and invest
in American companies that are globally active;
you'll probably do quite well.
But we will be seeing basically three major forms
of capitalism rivaling each other and vying
for global economic leadership, especially in the philosophical,
in terms of precepts. One is sino-capitalism.
The other is Anglo-American capitalism and the third one
is what we might call Rhineland,
alpine or northern European capitalism which, by the way,
has been doing very, very well. It's the other part of Europe
that has not be doing well. If the Germans get their way,
all of Europe will look like Germany.
This is actually the problem with the euro, by the way.
Germans want Greece to behave like them and it doesn't quite work.
But if the Europeans get their act together,
which I actually personally believe they will. They have to almost.
Europe will emerge as a much stronger force
because it will be economically much more centralized than
it's been before, but that is for another day.
So now to the future. There are some positive things.
My whole description of what is going on has some influences from,
actually, a French author. His name is Michel Albert.
He was the CEO of Assurances Generales
which is a very large French insurance company that I think, now,
has been renamed. He wrote this book in 1993
that is called Capitalism vs. Capitalism.
So a lot of that kind of philosophical is where I come from.
It's not that the world will go under; it just means
that we're facing a totally new form of global, philosophical,
in a sense, ideational competition.
It's not Marxism versus capitalism;
it's capitalism versus capitalism.
It's kind of a fraternal struggle.
But there are some positive things,
because the Chinese themselves are trying
to revamp their political economy.
Basically, rebalancing China's domestic political economy is key
to solving various challenges that could, if solved,
create a sustainable base for Chinese economic growth.
Now, the Chinese have studied very carefully basically three things.
The first is the collapse of communism in eastern Europe
and the Soviet Union. They want to avoid that at all costs.
The second is Scandinavian models of social democracy.
They'd love to be like Scandinavia
and the third is the Japanese bubble
and what I call the great stagnation. It's not really recession.
I think it's stagnation
because actually Japan hasn't been growing at all.
It's been growing just very, very slowly. On a per capita basis,
actually, it hasn't been doing so badly.
But they really would like to avoid the Japanese scenario at all costs
and that means moving from an export led model
and an investment led model to a domestic demand,
domestic consumption led model and this is key
to diffusing social and regional contradictions in China
and key, ultimately, to addressing global imbalances
including the currency issue which continuously is on the radar
of China - U.S. relations. I think the Senate will be voting on a bill
just next week, yet again.
So China's political economy is at a very crucial threshold.
This is key. These next five to ten years are crucial for China
to make it out what is kind of a lower middle income country
to a lower advanced industrial economy, to kind of graduate
with a bachelors, not a masters, a bachelors.
As I mentioned, China's been building up in investment export
and state-centric development strategy and the 12th five year plan
as well as a slough of policy measures
really constitutes a new policy framework. Let's put it like that.
The Chinese are very good in setting up visionary policy frameworks,
much better than we Americans are; just look at our healthcare bill,
2000 pages.
They have very clear visions. The problem is always implementation.
Once you start to implement things in China, it gets messy.
Now, imbalances. Very briefly, what are these imbalances in China
that I'm talking about. I already talked about the global imbalances
between the U.S. and China, but within China the major one is,
as I mentioned before, rich government, poor people.
[Speaking Chinese.] What it means is that if you look at China,
a lot of the savings that have been occurring, there is always this idea
that it's the Chinese households that are saving so much and yes,
Chinese households have a savings rate of roughly 38%
which is stunningly high. We, in the United States, are 5%
and we feel, 'oh, we're being frugal.'
Now, the 38% probably is lower because as I mentioned before,
a lot of Chinese don't declare their income.
If you're a university professor in China, you make a miserable salary
but you can make 100,000 Yuan, 15,000 U.S. dollar
for one appearance and you don't pay taxes on that.
So there is huge amounts of grey market income in China
that does not get wrapped into that and so that changes,
basically, income is underestimated and therefore,
we get a very high savings rate.
But most of the savings in China are happening
in the government sector. The government, the Chinese government,
has been saving money aggregately.
More importantly, the Chinese government's corporate interests,
the state owned enterprises, have been saving money like mad.
Actually, our corporations are doing the same thing.
They are the ones that are really saving nowadays in the U.S.
But there has been huge amounts of profits accumulating
to the state sector and also, partially, to the private sector
and that has led to income inequalities;
what we could call a wage profit imbalance where wages are low
and profits are very high.
And there is an industrial structural imbalance.
Basically, there is not enough value added being produced
in this economy. There is not enough technology
and know-how in the goods that China produces.
So rich government - poor people, saving consumption,
and rising income inequalities are all linked. It's all, in a sense,
part of the same package and that, also,
plays into rural- urban imbalances
because urban areas have been growing very rapidly
and rural areas have stayed far behind.
Rural incomes are roughly a quarter of what they are in urban areas.
This is one of the largest differentials globally and historically.
And you get a rich coast - poor interior imbalance meaning
that the coast is very rich
and the interior is poor though that is changing.
That, actually, I would already argue the Chinese government
has been quite successful in addressing
because several interior cities like Chengdu
and Chongqing are growing like mad. I was in Shanghai.
The thing you do in China -- you can talk to investors.
They all do the same thing. They count the cranes, crane-counting.
In Shanghai, crane-counting has become easy
because now there's probably a dozen, but Chengdu is like Shanghai
about five or six years ago, there's over 100.
And then finally, perhaps, what I think
is the most important imbalance is man-nature.
It's really the Chinese have ravaged their environment in the process
of industrialization and it's created enormous ecological imbalances.
So what are the Chinese doing to address these imbalances?
Some of these are really essentially liberal policy proposals.
They are market enhancing, but for the most part,
the main policy thrust is one of centralization, standardization,
and regulation under state guidance.
This is very different from the debates we're finding in the U.S.
Actually, the United States political economy
is at a very crucial threshold as well,
but our debate continuously is about government versus market.
This is not a debate that is occurring in China.
In China, it's about what type of government should we have.
Basically, anybody who has lived or knows about Singapore,
that is kind of the model the Chinese are pursuing,
but Singapore is very small. China is huge
so we'll see how this works. It is to use government
in a more effective and concentrated manner.
The aim is to revamp, restructure, and ultimately strengthen the state.
So this is a continuous state capitalized enterprise,
but one in which the state itself will have to clip its wings.
Basically, the major intra-struggles that will occur are intras
within the party state and I'll come to one example.
In a sense, the Chinese Communist Party stands at the center
of this reform effort because it will be the central leadership
that will have to change the incentives within the system
to rebalance the political economy.
And the state sector dividend pay-out policy is really a key example.
The Chinese state sector has moved from basically being bankrupt
in 1996 to becoming the most profitable state sector anywhere.
Roughly last year, the state sector has produced 5% of GDP
in profits. That is a lot of money.
That's enough to fill more than half of our budget deficit, for example,
but the state sector has not given any of these profits to the state,
its owner. Rather, the state has allowed them to retain these profits
for re-investment and that has led to industrial over-capacity.
There is a pharmaceutical company in Harbin
that has renovated its headquarters. It looks like a Russian palace.
Harbin, by the way, has a lot of Russian influence.
You can see corporate show-offs upon corporate show-offs,
wasted resources of money everywhere in China
and so the government has decided, this is not good.
They make so much money, we start to collect dividends
and they have started to collect dividends in 2007
and just upped the rate at which the government
is collecting these dividends this year, for this year.
Unfortunately, we don't have very reliable statistics.
We don't really know how much the Chinese are collecting
and you can imagine this is going to be a real struggle
because these big state owned companies, they're like fiefdoms.
They can be quite autonomous and so you need a lot of political will
and a lot of force to basically force them to hand over that money
and obviously not engage in accounting gimmicks and other things
as corporations everywhere are prone to.
Social welfare reforms (medical, pension, unemployment, disability),
the Chinese are undertaking
what are probably the biggest social welfare reforms ever seen
in history. Interestingly, there were various companies
like McKinsey etc. that were trying to sell the Chinese
an American medical model. After the financial crisis,
the Chinese have decided against it;
they're going with medicare for all.
So the purpose of the medical reforms in China
is one of universal social insurance system that insures everybody,
but there are big problems because if you go and see a doctor
for surgery in China, you are well advised to first visit him
at his home or at his office. Come with a nice fat little packet,
red in color, with about 3,000 RMB which is about 500 U.S. dollars.
It's the minimum necessary for surgery. Do the same thing
with the anesthesiologist because he can kill you
as well as the nurses because they're going to be very important
in after-care. This is a highly corrupt system
and a lot of people's interests are going to be hurt by moving
from basically, a kind of guanxi system of receiving money
to a regularized system.
Urban housing policy reform, another big one.
The Chinese are basically building the biggest urban housing
scheme ever, historically. This 12th five year plan is looking at 36 million units
of public housing. That's enough to house Australia, Spain, France
all put together. Okay? It's enough for a third of the United States
if you look at a family of roughly three on average.
That's keeping the economy going. Again, a lot of problems there.
Industrial upgrading is another big one.
Infrastructure remains key. All of these are basically meant
to create a form of state refurbishment,
to guide a socially inclusive political economy.
Again, the Singapore model looms large.
Might this be the mutual strengthening of state society and economy?
I remember when I was at UW, I had a directed study course
with Joel Migdal who is somebody who studies Israel.
He believed that state and society
are always in constant struggle with each other,
but he had collaborators
who actually made a very sophisticated argument
that the process of capitalist development is predicated
on the mutual strengthening of government and society and market.
That again, ties very much into our discourse, in this country,
where we always feel it's kind of a zero sum game.
Either the government wins or society wins or the market wins.
But in reality I, personally for my own experience
and especially looking at China,
believe that sustainable capitalist development
is based on a strengthening of government
as well as a strengthening of market and society.
Indeed, a strong market requires a strong government.
Again, going into details on a slightly philosophical point,
but this is very important
because what we're seeing is a CCP initiated project.
It is a status strategy, but to restore better government control,
but thereby provide better social services and perhaps,
ultimately, co-opt new social sectors,
especially migrants into the cities (the Chinese blue collar workers),
into being supportive of the party state.
Again, Singapore looms very large.
I don't think this is going to work, by the way. I think politically;
it might work economically and socially, but not politically.
Will it be successful? I ask this to all of my Chinese colleagues.
I will leave you with this question. Thank you.
No, I'm not answering that.
So I'll stand out here a bit.
Any questions, comments, insights, ideas?
The gentleman right in the front or there's another in back.
MAN OFFSCREEN: Thanks very much.
You didn't talk much about the seeming problems
that China is starting to have, for I don't know
how long, with shortages in agricultural commodities
to feed their people.
For example, the middle class is starting to eat more meat
which requires more feed which takes that off the tables
of other people who are trying to eat the old style, if you will,
food and there doesn't seem to be going forward.
Now capacity will make what they need to feed the people.
CHRISTOPHER MCNALLY: The Chinese have been quite obsessed
with the idea of being self-sufficient in food.
Quite a few international advisers have told them,
"This is somewhat ridiculous.
You have a comparative advantage in people
so grow things like garlic and vegetables that are intensive
and let others like Brazil do the soya beans and wheat."
Gradually, the Chinese have moved in this direction.
They're still obsessed with food security.
They're still very much intent of actually keeping the amount
of arable land constant, because one of the problems
is not only that the diet has changed, moving more toward meat,
protein rich food that requires lots of feed, especially soya beans,
but also that the Chinese have been losing a lot
of the best agricultural land to urbanization.
So actually in China, if you want to take agricultural land
and make it into urban land, this is a very, very difficult process
and it actually has caused a whole new type of market
where villagers nowadays sell their village houses,
the land for the village houses
to be converted back to agricultural land.
That creates, basically, a credit that can be used
to develop agricultural land into urban land further, closer to cities.
There is a huge movement going on
where villagers are moving into high-rises
that are close to the township, the county seat or the township,
and the villages then are basically raised
and become agricultural land.
[Microphone cut out momentarily]
Oh la la. Was that me?
So the Chinese government is very much obsessed with that,
but basically, they've become very big traders
in agricultural commodities. They're both big exporters
and big importers; big importers of feed, in particular soybeans
and wheat. Less wheat actually;
China is the biggest wheat producer in the world,
but especially soybeans.
The government has also set up huge warehouses
so that they have some control over the market meaning that
if there is a very bad harvest, the government can release supplies
into the market and when there's a very good harvest,
it can buy up these supplies
to keep agricultural prices relatively constant.
So this is one of the areas where the state guided system
is highly influential and will continue to be so,
but there's no doubt that
China will become a much bigger international trader
in agricultural goods and basically,
try to produce high value added agricultural goods in China
and import the very land intensive
and water intensive goods into China.
So thank you very much for that question.
MAN OFFSCREEN: So you said that this plan would probably
be successful economically, but not necessarily politically.
Is that partially due to what some of the other speakers
over the past few days have said that the efforts
by the leadership are a bit more for show
and they're not good for depth and quality or what's the issue?
CHRISTOPHER MCNALLY: No, the issue is basically
one of implementation. The Chinese Communist Party
seems to have a very Singaporean vision.
Again, you have to understand, this is a regime
that is exceptionally paranoid and due to its paranoia,
basically fearing social unrest, has become very adaptable
in the way it implements policies. It has become very foresightful;
it has started to think very far ahead.
The problem is that they see that as society becomes urbanized,
as the middle class grows, there will be much greater demands
for civil rights and for political participation and in a way,
the way they'd like to take care of it is the Singaporean model.
You move a lot of farmers from the countryside into the city.
You house them in public housing.
You provide them with social services, the state funded schooling,
state funded job retraining, etc. and then,
they will become indebted to the Communist Party
and become a very large urban support group for the party.
That, I think, is division. It's not really spelled out,
but if you look at it and compare it to other Asian political economies,
roughly what it seems to be aiming at.
What I think is going to happen is twofold. First of all,
China is not Singapore. These policies will not be implemented
as cleanly and as efficiently as in Singapore.
Already, for example, there is one case in Beijing
where they built this huge development
in which some housing is private and some is public.
The Chinese, actually, have learned from many American
and also European experiences.
Don't just put public housing together in one place
because then you're going to get a ghetto.
So mix public and private housing together.
The problem is the developer knew this,
that they would be making a lot less money on the public housing
and so they built very shoddy public housing
and very good private housing and so the people in public housing,
their flats are falling apart while the private ones are looking good.
You think this is going to create support for the government?
I doubt it.
The same thing goes on many other respects.
So I think one of the problems is going to be implementation and,
also, the rising of expectations meaning that the Chinese government
is really rising expectations
that they're going to have a much more socially inclusive policy
and medical reform, in particular, will be a very hard nut to crack.
It is also in this country.
We really can sympathize with the problems the Chinese are facing.
Even now, if I talk to friends and relatives in China,
they're very unhappy about the medical system,
how much drugs cost, the medical care they receive,
the corruption underlying everything, etc. If the government says,
I'm going to reform this, but yet the system remains corrupt
because it is very difficult to reform, that will decrease legitimacy.
So that's the first part, why I think it's going to be difficult, implementation.
The second part, if they're really successful
and they really create a much larger urban populace
that is somewhat dependent on social services from the government,
you will also create people who are much more intent
on participating politically and wanting to have a say
in what kind of services do they receive, where do they receive them,
basically hold the politicians who make these decisions accountable
on their behalf.
So I think, ultimately, the policy the Communist Party is pursuing
is self-defeating. They're going to create a political base
or they're going to create a social economic base
for political participation that if they do not allow these people
to participate at some point or another will –
you're going to have something happen.
China is like a pressure cooker. It's not like India
where you have just constant, constant, constant uprisings
and things like that. In China, things can stay calm for a long,
long time and then one spark and things go off.
So thank you very much for that question.
WOMAN OFFSCREEN: -- it didn't go very well, but anyway,
for all kinds of reasons. It was a weird assumption.
Anyway, I took them to the mall and they wanted to find something
that was made in the USA to take back to their families
and we thought it was kind of an easy project.
It turned out to be really excruciating
and they got really obsessed about it. Eventually,
in the Florsheim shoe shop, they found one rounder of belts
that all said made in the USA and they bought them all up
and took them home.
So now that you're giving us this concept of sino-capitalism;
it made me wonder does it carry that Nike, Gucci,
I've got to have this thing which is kind of antithetical
to communism in terms of its presentation.
So how does that add up or work out?
CHRISTOPHER MCNALLY: First of all, thank you very much
for using the term sino-capitalism.
You always want to put out a brand, talking about branding.
Sino-capitalism is kind of the brand
that I want to push hopefully associated with my name, at some point.
Your question comes back to Andrea's question a bit, actually.
There is a very, very crucial point that I didn't mention
when answering Andrea's question
which was that China has become ultra-materialist.
I mean materialism beyond anything that even Japan saw
and that's already brand consciousness driven to an extreme.
The Chinese, obviously there are counter movements.
I've met young people who've moved out of the city
up into areas populated by Tibetans and opened a cafe
and just want to get out of the rat race
and they're as anti-materialistic as you can find, but for the most part,
young Chinese are extremely brand conscious
and it is very much a country predicated upon materialism
and consumerism.
It's very interesting how you say this flies in the face of communism,
you know the Beijing municipal government recently declared
that certain types of advertising should not be put out
because they're too materialistic, but it's a joke.
It's an absolute joke and it just contributes to this rise in cynicism
because nowadays, I would say there is no other country in the world
that is that crassly materialistic and status conscious as a result.
I'll just give you an example. My sister in law works in a radio station.
These radio stations are all state owned; all the media is.
She works in the marketing department.
About two years ago, the market department decided that
their marketing people needed to have cars
that would represent the company and be according
and so they gave her a very, very low interest loan
to buy at least an Audi; Audi, Mercedes, BMW, Lexus,
nothing below that.
The company also buys Gucci handbags and Prada handbags
on behalf of their staff. I mean this is a degree
of status consciousness driven;
you know it becomes corporate policy.
You cannot come to work unless you have an LV bag.
France is making out like a bandit.
The Louis Vuitton store on the Champs-Elysees
has now 50% Chinese employees and has lines out.
I have told people in Hawaii, "If you do advertising in China,
don't show the beaches. Don't show the volcano.
Don't show hula dancers. Show them Ala Moana Mall."
It's the biggest open air mall in the United States.
It's got a wonderful selection of brand name goods
and it's cheaper than anything in China.
I mean I can go on and on and on.
Also, the income inequalities in China are so crass that it's like Brazil.
It's sickening. It really is sickening.
People buying expensive furnitures and villas and cars
while you just go like a kilometer away and you have people
that are still just barely scrapping buy on subsistence
and the arrogance of the rich that we see everywhere
is very palpable. That is another part of that identity,
the Chinese government, that's why you've got the new left in China.
The new left is a group of younger, actually people
who believe very strongly in social democracy
with an authoritarian tinge. The Communist Party both likes them
because they kind of reinforce the socialist creed,
but they're also very scared of them
because they're very, actually, critical
of what the Chinese Communist Party has done
which is basically create a state technocrat capital alliance.
That's what China is; it's an alliance of the rich with technocrats,
with communists in one bed. It's a weird amalgam.
You see all kinds of new tensions emerging in this leading
to new identities but right now, we're still full force in the hay day
of materialism, consumerism. I mean I don't want to live in China.
One of the reasons is just the gift giving culture. You need to do it.
Sorry Peter, I'm taking away from your time,
but this might be a nice segue into something more cultural.
There is a guy called Fusher. He lives in Changsha
which is in Hunan. It's in the middle of China
and he just wrote a book on basically how to conduct guanxi
and he said, "Look, in our system cultivating interpersonal relations,
giving gifts is a must. Otherwise, you lose out.
There are some people who do it really well and therefore,
they're successful and there are others who don't do it well
and so now, I'm going to teach the people who don't do it well
how to do it." And he has lists of how much money is required
for every government service and for every single doctor
and things like that; how do you give the money, when do you give it.
I mean it's basically a handbook of how to navigate that system.
Now, obviously, I think it's going to be translated
into English very soon because it's useful. For someone like me,
this is really difficult. Even more so because I grew up in Switzerland
which is a very anti-gift giving culture,
to put it mildly. It's a very stingy culture.
The Chinese, everything, you've got people, they go to Hong Kong,
they have a seafood meal for 10,000 bucks.
I mean, it's just ridiculous. It's ridiculous stuff that goes on there
and for me, it makes me slightly sick; not just the seafood,
but the money.
So I'll end with that. Thank you so much.
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