Saturday, July 4, 2009

Sab China hai bhai!

Name one country that Indians are too keen to emulate, be it infrastructure, gadgets, athletes, foreign policy, missiles…did you guess it right?

Indians are so thrilled by the Chinese model of growth that they never realise this imitation could jeopardise the country's social, economic and political fabric beyond repair. So we buy Chinese toys for our kids without knowing the toxic material could harm them; we allow cheap electronic gadgets to enter our homes and they ditch us in no time. Chinese watches, DVDs, mobiles, gifts, home decor --- the thrill is unlimited as the price is dirt low.

Reams have been written across the world about China’s rapid transformation from an orthodox, closed economy to a developed nation that has taken the world’s markets by storm. There is a growing recognition that China's economic rise will change the world.

And why shouldn’t there be? China’s average per capita income has gone up 11 times in the past 30 years and it has lifted more than 400 million people out of poverty. It has by far the world’s largest current account surplus and foreign exchange reserves. Meanwhile, the common man who reads about harmful Chinese toys and medicines with ‘Made in India’ tag being dumped in developing and underdeveloped countries, only wonders why?

There is a dark side to all the shimmer that has dazzled the world so long. Beyond the new high-rises and churning factories lie rampant corruption, vast waste, and an elite with little interest in making things better. “The only thing rising faster than China is the hype about it,” says Minxin Pei, author of China’s Trapped Transition: The Limits of Developmental Autocracy.

“China’s bounding exports and rising trade surpluses suggest very high levels of efficiency in manufacture. How then, it is consuming 2.2 times as much energy and three times as much raw material as India for every dollar of product? How does inefficiency co-exist with supreme competitiveness?” asks Prem Shankar Jha, author of recently published, Managed Chaos: The fragility of Chinese miracle.

Surprisingly, none of the three – the World Bank, Maddison and Holz – seriously question the reliability of the raw data on which Chinese estimates are based. “The bank only questions, and adjusts, the inflation data that China uses to convert current into constant price estimates,” Jha explains.
In 1997, China’s National Bureau of Statistics provided detailed evidence of what the media dubbed ‘statistical fraud’ when it disclosed it had discovered 60,000 cases of statistical misrepresentation.

Its banking system, which costs Beijing about 30 per cent of annual GDP in bailouts, is saddled with nonperforming loans and is probably the most fragile in Asia.

It is a myth that China owes its near miraculous performance to privatization. “Investment was made fatally easy for the entrepreneurs by the state’s continuing monopoly of the banking system… The motive that drove the investment was not to earn profit, but to extract a form of ‘rent’…When the extraction is made possible through the misuse of state power, it endangers the legitimacy of the entire political system,” argues Jha.

At present there are nearly two million private enterprises employing more than 24 million workers, and the number of private enterprise is growing by more than 30 per cent per year. “Privatization in China has been carried out in opaque ways, with little regard to the principles of fairness and justice. The government has never made it an official national policy and no national legislation exists to dictate the process,” says Feng Chen, who undertook a detailed study of three firms in central China.

No bhai-bhai here please!
While the above anomalies are just to name a few, it is indeed shocking how the World continues to gloss over the imperfections, including India. In its eagerness to emulate the Shanghai Magnetic Levitation (Mag-Lev) train, Mumbai has not bothered to find out its cost and profitability. For China, the “Shanghai Meg-Lev train is a white elephant that will take 167 years to recover its cost.”

“…It is not that we have nothing to learn from China. But we must first precisely understand what it (China) has achieved and at what cost,” says Jha. Citing more instances of India blindly aping China, Jha says in his book that the Indian Government is rushing to establish “Chinese-style Special Economic Zones (SEZs) to attract FDI into export-oriented manufacturing and services industries. What they many not know is that President Hu Jintao has closed 4,755 of the 7,000 SEZs!”

In such a scenario, it remains to be seen how China sustains its economic growth rate by using cheap technology and toxic materials. Outdoing the West and forging ahead as the next superpower is just another story.

The story was originally published in