State Capitalism Watch

Why Should I Care About the Power Transition in Beijing?

The 18th CCP Congress is going on right now in Beijing, I was lucky enough to be invited to BBC TV and BBC radio to comment on this once-in-a-decade power transition. Before that, I was asking many ordinary people around me about what this moment means to them. Some cannot care less, as they feel they have zero influence on the outcome. Some are watching it as a “Gong Dou Drama/宫斗剧” (Fights-in-the-Palace Drama) and found pleasure in all the conspiracy theories and the tabloids about power elites’ in-fights . Some are busy interpreting and deciphering the formulaic and predictable official announcements, and looking for so-called signals of future policy directions. Some are making their wish-lists of what reform they hope to see under the new leadership. I happen to think that it is futile to try to peek into this black-box of CCP meeting, but it is an interesting moment that triggered a lot of important public discussions about what China did right and what it did wrong in the past decade.

Jin Ge & Martin Jacques on BBC World News discussing the 18th CCP congress

In BBC TV’s program, I had a mini debate with Martin Jacques, author of When China Rules the World, who was known for championing the so-called “China Model”. Our debate was so short that I left out some key points, so allow me to make up here. Right before this Party Congress, Mr. Jacques wrote an article saying that the Chinese leaders are more legitimate than the US president coming out of an election. Well, the Chinese government certainly did not show much confidence in its own legitimacy, otherwise we should not having so much problem accessing the real Internet, buying kitchen knives, or letting our pigeons fly.

Jacques argues that unity is the core value of Chinese civilization. I find it offending that he feels comfortable to assume the huge population in China composed of diverse communities share one value. And he certainly ignored the fact that the value systems in China changed many times throughout the history.

But is unity currently a sufficient source of legitimacy for the Chinese government? What about the high percentage of rich Chinese trying to emigrate out of China? What about the peasants who are protesting against some local governments’ forceful land grab? What about the middle class who held protests against environmentally dangerous industrial projects run by state owned enterprises? It seems people care not only about whether the government holds the nation together with strong hands, but also about whether they can feel safe and free under the government.

Mr. Jacques likes to emphasize China’s economic growth in the past 3 decades as a proof of the superiority of the “China model”. But even President Hu in his speech on Nov.8th acknowledged that China’s current economic growth is “unbalanced, uncoordinated and unsustainable”. Also what about the fact that China is still a poor country in terms of income per capita? What about all the costs of nominal GDP growth, from environmental crisis to corruption to unjust wealth distribution?

I am not saying that all that growth is illusionary, but we cannot forget that it was the shift away from authoritarianism that initiated the economic growth thirty years ago. Mr. Jacques suggested that the lack of democracy contributed to the efficiency of China’s economy. Following that logic the centralized economy under Chairman Mao should have been the most efficient. Even today, the local governments and state owned enterprises are misallocating resources to the extent that wasteful and low-quality infrastructure projects are becoming a liability rather than an asset, real estate bubbles in places like Erdos and Wenzhou are busting, and so-called innovative projects heavily sponsored by tax payer’s money, such as solar or cloud computing, turned out to be technological disasters and hotbeds for corruption.

Mr. Jacques’ view has won him popularity among the power elites in China. But even the leaders of CCP have stated many times that “reform” is urgently needed to make the people more satisfied, evidently they are aware that economic growth and nationalism no longer can bring them the desired “stability”. Meanwhile, the increasing exposure to the outside world has changed the Chinese public’s expectation of their government fundamentally, although few of them are calling for a whole-sale adoption of western-style democracy, many are calling for more openness and transparency of the government and more rule of law. If China manages to overcome the current challenges, which is certainly my hope, it will not be the victory of the “China Model” that Mr. Jacques extolled, rather it will be a result of the Chinese public’s success in “reforming” the government.

 

 

Middle Class Losers

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On June 4, I was invited to talk about middle class discontent on BBC World’s live program Impact. Since it was June 4, as a self-protection I again spoke optimistically about the future of Chinese middle class. The truth is even my friends and I, considering ourselves part of China’s middle class, often swing between extreme optimism and pessimism about the outlook of our career, life quality and the stability of Chinese society. As a media researcher, I have also been tracking what people say about China’s middle class on social media, again I found a lot of confusion and anxiety.

What does being middle class mean in China?

There is no clear-cut definition of Chinese middle class. Various institutions, from the Chinese government to the World Bank to market research firms have proposed different standards of middle class in China, but the meaning of middle class is multi-layered to the public. The most commonly used criteria is income, for example, Goldman Sachs in one of its reports set the bar for Chinese middle class at 9000 USD per year, while in 2005 an official report from the Chinese government said that anyone making 60,000 yuan to 500,000 yuan per year should be considered middle class (By either standard, less than 10 percent of the Chinese population fit in).  But in my research I find most people think being middle class means much more than a certain level of income. Unfortunately many of the Chinese people who meet the income criteria don’t think of themselves as middle class, because they feel that the burdens of life are so heavy that they are still surviving rather than enjoying life, they lack sense of security and they are pessimistic about upward social mobility in our society.

The major concerns of Chinese Middle Class:

First of all, living cost is rising fast in China. In big cities like Beijing, Shanghai and Guangzhou, typical middle class consumer products, from Starbucks coffee to Levis Jeans to iPad, are usually at least 30% more expensive than those in the US. Even IMAX movie tickets are about the same as those in the US. So obviously not many Chinese can afford the Western-standard middle class life style, as the average income of Chinese white-collar workers is only one sixth of that of their American peers.

Enough has been said about the high prices of apartments in China’s big cities. In my city Shanghai, an average apartment costs more than 20,000 yuan per square meter (the downtown area costs several times more), while an average white-collar worker here makes less than 10,000 yuan a month. But not many people can choose not buy an apartment. As I have written before, home ownership is not only the primary store of wealth, but also a spiritual needs, an ends in itself and the ultimate pursuit in today’s Chinese society. Owning an apartment, however tiny, is the foundation of love and the premise of marriage. Disputes over property are also breaking up many relationships and families. For Chinese young people, choosing not to buy an apartment involves being seen as a loser, an untrustworthy, unstable and even unloved person.

But once you buy an apartment, you and even your whole family probably will become “the slave of the apartment”. With all your savings gone and heavy loans to pay back every month, you can hardly afford to spend or play.

What makes you feel worse is the perception that even if you work hard and keep improving yourself, you will have little chance to move upwards. That is the sentiment I often observe in many Chinese young people. They call this the age of “father competition” (拼爹), meaning that only those from the right families can succeed. I don’t think it’s too pessimistic to say that the uninhibited marriage between power and wealth has almost eliminated fair competition in our society, for example, many companies I know prefer to hire children of government officials, you know why.

Sometimes the basic sense of security is missing even in the young professionals of China. Most of my peers are now in their thirties and already have a good career, financially they are much more secure than the new college graduates who can hardly find jobs, but they are worried about health care and the care-taking cost of their aging parents. The parents of us “single child generation” are getting old, in a few years most of them will retire, that means each young couple of “single child generation” will have to take care of four parents. With the miserable health care and social safety net in China, how dare the young middle class consume rather than save?

Reasons to be Optimistic

The main reason that I still see hope of a growing Chinese middle class is that the conditions cannot get any worse. Consumption’s share in China’s GDP has been decreasing in the past ten years, it is as low as 35% right now (while in the US it is around 70%). Wage’s share in GDP has also been decreasing in the past ten years, it is standing at around 40%, much lower than the 50% 10 years ago. These things cannot go any lower.

The wealth and power of China’s middle class might not have increased as that of the oligarchy and crony capitalists, but their knowledge and skills have increased tremendously thanks to their integration into the global workforce and new sources of information online. I don’t see any skill gap between China’s young professionals and their Western peers, yes sometimes they don’t seem very creative, but it’s usually due to the environment rather than their lack of creativity. Precisely because I observe how China’s middle class struggled in an extremely extractive economic system in the past several years, I’m optimistic about their ability to adapt to the tough years ahead and make things better.

Shanzhai State of Mind

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The literal meaning of Shanzhai (山寨) in Chinese is “stockade village on the mountain”, many factories of Shanzhai products indeed started as small underground workshops in marginalized areas. But Shanzhai has evolved from the synonym of low quality copycat to a mode of production so efficient that even the global tech giants have to take it seriously. Culturally Shanzhai is no longer just a symbol of the inferior and laughable, it often refers to anti-establishment parody, creative remix, sometimes even the “Ugly Duckling”.

Recently I came across an article reporting that the best selling phone in India is actually a Chinese Shanzhai brand called GFIVE (基伍). I had no idea that the “stockade village on the mountain” has gone so global! According to this article, in 2010 GFIVE has a 21% market share in India, selling around 35million phones a year. The company that has the second largest market share in India is Nokia, but it only has 13%.

One of GFIVE’s biggest hits in India and in the Middle East is a phone that features super-sized speakers. I was quite impressed by the story of how Mr. Zhang Wenxue’s (张文学), the founder of GFIVE, came up with this idea of “phone+large speakers”, no matter it is true or not. According to Zhang, when he was doing research in Dubai, he joined the local’s barbecue parties in the desert, but he observed there was no good device that can play music for the parties in the desert where an electricity outlet is hard to find. That was where Zhang got his inspiration. GFIVE is a good example of Shanzhai manufacturers, who are known for their quick response to local demands and the diverse line-up of their products. But this story also reminded me that the Shanzhai phone is more a toy than a tool for its users.

Some of my lawyer friends still use Nokia and Blackberry because they need to make calls and check emails. But for the working class young people I interviewed, phones are more often used for text messages and QQ. Besides, the mobile phone is probably the only toy that they can afford to carry and play in their busy and fluid lives. They also want to appear cool and fun in front of their friends, that is why phones like the following have became legends:


I know such phones seem a little silly, but their fans are certainly aware of it. These phones are called jiong/囧 phones: phones that cause “mixed feeling” in people. And in reviews they are often associated with the comic style of Stephen Chou (周星驰), the king of parody and spoof in Chinese cinema.

Certainly not all the irony of Shanzhai phones is intentional. In those wicked TV commercials for Shanzhai phones, sellers are seriously trying to mislead people when they throw the phone hard onto the ground or drive trucks over it to prove its tenacity.  But the whole trample-your-phone gig is now a favorite move in all the theaters of the absurd online and offline.

The Shanzhai producers often confuse originality with ever more excessive functions, like cameras, flashlights, multiple batteries or sim cards, but when this excess is pushed to such an extreme, it is again great material for humor. Look at these fictional Shanzhai phones that netizens made up:

The term Shanzhai is used to describe not only products but also cultural content. Now parodies, spoofs and mischiefs are also called Shanzhai. Some manufacturers have already realized that such cultural association is actually a good way to distinguish themselves, which even give them some edge over the established brands. So here is a Shanzhai phone’s ad slogan:”You have to sell your kidney to get an iPhone? You can get our phone by being a prostitute just once“. (Referring to the true story that a young man sold his kidney to buy an iPhone. Being a prostitute? For each set of sexual service, sex workers in China typically earn 500 yuan, the price of many Shanzhai phones).

Shanzhai, stockade village on the mountain, actually has another layer of meaning in Chinese literature. It is where the heroic outlaws in ancient China lived, where the Chinese “Robin Hoods” had their adventure and fun. I know I must be over-romanticizing the culture of Shanzhai. But I am in the Shanzhai state of mind right now, I cannot help fancying a phone that can run Symbian, Windows, IOS, android and porn all at the same time!

 

The IPO Farce of People’s Daily: Washing People’s Brain with People’s Money

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The website of People’s Daily, the mouthpiece of the CCP, is now a listed company in the Shanghai Stock Exchange. The company raised 1.4 billion yuan (US$222.2 million) in its IPO, nearly three times the amount it hoped for. On the first day of its trading, its stock price surged 76%. Before People’s Daily’s IPO, some pro-democracy activists said that no citizen would buy the stock of a propaganda machine whose profit comes solely from government subsidy. But they couldn’t be more wrong.

Hu Xijin (胡锡进), the Chief Editor of Global Times and a shareholder of People’s Daily, proclaimed victoriously, “The strong performance of People’s Daily on the stock market clearly showed that the majority of Chinese people support our political system. People have voted with their own money.” Meanwhile, pro-democracy blogger Wu Yue San Ke (五岳散客) sadly reflected: “In our society most people are still willing to exchange democracy for monetary gains.”

I do find the retail investors’ enthusiasm over People’s Daily unnerving, only because it confirms my pessimistic view that many people are not against a repressive system as long as they have a chance to join the repressor side. But from an investor’s perspective, People’s Daily’s success is no surprise. The single most important lesson Chinese investors learned in the past several years is that you have to “Follow the Government”. People are buying People’s Daily only because they believe the government will not let it fail even if it means showering taxpayer money on it.

A Webpage of People.com.cn

Here are some facts about the website of People’s Daily that have been discovered by netizens so far:

  • It has certain monopolistic advantages in the heavily controlled news industry. For example, a Chinese journalist can only be acknowledged as a “professional journalist” after they received a “journalist license” from the government. Any journalistic investigation might be considered illegal if the journalist does not have the “journalist license”. None of the other Internet news portal has any journalist licenses, while People’s Daily has more than 120 ones.
  • The other Internet news portals, from Sina, Sohu to Tencent, are required to buy and publish news from People’s Daily. How many companies have such power over their competitors?
  • The biggest clients of People’s Daily are all government institutions who are not price sensitive at all.
  • It can generate profit even without income. For example, the People’s Search Engine, which is set up to compete with Google, has not been monetized at all, but already has more than 30 million yuan profit magically showing up in its book.
  • It plans to spend part of the money it raised on office equipment, namely iPhones and iPads, at the price of 10000 yuan each, several times the market price.

The successful IPO of the website of People’s Daily is a testament to the success of state capitalism in China. The bureaucrats working for People’s Daily must be celebrating: Who said the Internet or the market will undermine state authority? Now we have more money to buy luxury goods such as iPhones and LV or to fly first class to the US for business tour. And if we have some money left, we can spend it on educating people that democratic values are just Western imperialist ideology.

Related article: Red Pad, a Pad Tailor-Made for Government Officials

 

 

Internet PR Company Sued for Hiring Hackers

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Recently in the court of Shanghai Qingpu district, an “Internet public relations” company was found guilty of violating the article on Computer System Security in China’s Criminal Law. What this company did was to force a website to delete negative records of its client by hiring a hacker to attack the website.

“Internet PR” is a thriving industry. What’s special about Chinese Internet PR companies is that they don’t just manage social media publicity like their Western peers, they also offer water army service, post deleting service, and even hacking service. I’ve written about how the water army can be your personal online mercenary and crowd out voices of your critics. But Internet PR companies can also delete negative information about you by bribing web-masters and editors. For example, during the poisonous milk crisis in 2008, milk companies hired PR companies to help them “persuade” the search engine Baidu and major web portals to delete posts and discussion threads about their polluted products.

These PR companies often act in a treacherous way: in the morning they take your order to spread negative news about your competitor, but in the afternoon they might already get paid by your competitors to delete those news, and at night they might be posting negative news about you if your competitor pays more. Some of them even make up negative news about a company themselves in order to get deals of “post deleting”.

But this indicted PR company crossed the line by hiring hackers to attack a website that would not collaborate with them. It accepted an order from an accounting company to erase its past record of fraud on the Internet. So it contacted websites that contain such record, but one of these websites simply refused to collaborate no matter what they offer. Then it decided to pressure the website by hiring a hacker, who is a young man in early 20s, to attack and shut down that website. But the people in this PR company have no idea that the owner of this website reported their attack to the police, nor did they realize that their behavior is a criminal offense.

This case is a good warning for me also. I always thought the cyberspace in China is a wild west where you can get away with murder, as long as you don’t criticize the government. I have been saving money for a campaign that will transform my online image into a young man with no past but many followers. But now I am worried. Would there be more constraint on the practices of the water army, post deleters, and hackers? How will China’s legal system adapt to the new media sphere?

From Heaven Bank Note to iPhones, Popular Gifts to Your Ancestors on Spring Memorial Holiday

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Last week is the Spring Memorial Holiday (清明节)for Chinese, it is the time for people to go sweep the tombs of ancestors and loved ones, and pay them some tribute. We Chinese believe that you can send gifts to the dead by burning the gifts in front of their tombs. Popular tributes include fake money (from fake gold and silver ingot made with foil, to US dollar bill in which the face of Franklin is replaced by that of the Chinese god in charge of Heaven), paper houses and paper servants, the luxurious liquor Moutai and other things Chinese people crave in this world.

Heaven Money and Alcohol. Photos by Tian Ma Hua Ti.

But this year the trend is you have to give your ancestors iPads and iPhones if you don’t want them to be looked down upon in Heaven.

Burning Paper iPhone on Qing Ming Festival
Burning Paper iPad on Qing Ming Festival
No kidding, people are buying iPads and iPhones made with paper to burn in front of tombs. Even I myself considered buying two iPads for my grandparents, but they have never even used computers when they were alive, so I was worried that they wouldn’t know how to use them, and they wouldn’t be able to communicate with me via iPad anyway given the ever extending reach of the Great Firewall of China. Some of my friends are also skeptical of this trend. One was worried that his icon Steve Jobs might be bothered by too many Chinese asking him for pirated software. Another was concerned that the plugs we have in this world might not fit the outlets in Heaven.
Anyway, I am again touched by the creativity Chinese people have in reinventing rituals and our unshaken belief in materialism.
Heaven Bank Note
 

Will Tim Cook Like Our Shanzhai (山寨) Phones?

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Apple CEO Tim Cook is visiting Beijing these days and meeting with Chinese officials. He even was spotted in the Apple Store in Beijing. But what my fellow netizens are curious about is how he likes our shanzhai(山寨) Phones.

I heard a story from a proud Shanzhai iPhone user: Tim Cook decided to try the subway in Beijing. And he was pleasantly surprised that the phones that most people were playing with on the train were iPhones. Then he noticed something even more surprising. One iPhone was running android, another was running symbian, and another even let the users choose from iOS, android, symbian and windows 7 in its menu!

Courtesy of Techweb China

Cook then noticed that a girl was opening the back cover of her iPhone, changing the battery. But Cook saw that her iPhone is holding 4 sim cards! Yes this is the legendary iPhone PS with built-in simultaneous dual-dual sim cards.

Courtesy of Techweb China

Apple had a partnership with China Unicom, but the iPhones bundled with China Unicom network are not selling well. My uncle, who is a peasant,

just got an iPhone for 600 RMB, while China Unicom is selling at 5888 RMB a piece.

Courtesy of TechWeb China

I’m a big iPhone fan also, but I’m not buying the iPhone 4s, I am waiting for an iPhone that I saw on the Internet, which can be worn on the wrist like a watch and has a built-in LED flash light!

Courtesy of Apple频道 中国

Animal Protection also a Western Imperialist Conspiracy?!

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Gui Zhentang Pharmaceutical Company (归真堂), a company that specializes in bear farming and extracting bile from live bears, is applying for IPO on the Shenzhen Stock Exchange. The news was met with outrage all over social media in China. This company announced shocking plans to expand the number of bears they are torturing from 400 to 1200 with new capital raised through the IPO. So tens of thousands of netizens are petitioning the China Securities Regulatory Commission to disqualify this company from being listed on the stock market. But the Association of Traditional Chinese Medicine (中国中药协会) just published a statement on 2/7 saying that western imperialist interest groups are stirring up these protests against bear farms in order to undermine the traditional Chinese medicine industry and enhance the dominance of western medicine companies.

Bear bile is considered a precious ingredient in traditional Chinese medicine. Despite the fact that there are already synthetic alternatives that prove to have the same medical effects as bear bile, companies like Gui Zhentang still kept moon bears (an endangered species in cages, cut a hole in their stomach and stick a tube into their gall bladder to drain bile from them everyday. NGOs like Animal Asia and End Bear Farm have detailed documentation of such cruel practices on their websites. Read More »