BOOK REVIEW

Knowing China
by
Gregory C. Chow

FUTURECASTS online magazine
www.futurecasts.com
Vol. 6, No. 7, 6/1/04.

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An appreciation of China:

 

 

 

 

 

 

 

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  China is inevitably developing into a super power, Gregory C. Chow points out right at the beginning of "Knowing China." By 2020, its economic output will equal that of the U.S.

  The real "wealth of nations," as Adam Smith pointed out, is the "net revenues" that after maintenance of physical and human capital are available for discretionary uses - whether for investing or consuming or for taxation that does not reach the level of a capital levy. It is this that  society can draw upon without deferring maintenance or otherwise draining existing productive capital. This is the real measure of economic power for long haul purposes.
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  China's economic product will have to support more than four times the population of the U.S. However, it will still constitute a huge source of power and influence, and by maintenance deferrals will be able to generate tremendous economic power for short periods of time.

  An accurate understanding of China is thus essential, since China will surely play an important role in 21st century events. Decades of experience working in China and advising Chinese government officials have provided the author with a broad practical understanding of Chinese society and its economy. He relates his experiences and affirms his impression of the high caliber of many of the Chinese officials with whom he has worked and consulted. Since the beginning of the Chinese economic transformation, the Communist Party has sought educated people for high level appointments.
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  Written in a manner readily accessible by the general public, "Knowing China," provides an insightful view into the complex world of China

  Although Chow candidly presents many of China's problems - such as with corruption and one-party rule - this book is clearly an appreciation of developments in modern China - not a critical analysis. In particular, economic transformation has come a long way in China, but still has a long way to go - along paths that Chow does not go into. See comment on legal system weaknesses in "The economy," below.

"Partnership with China is good for the United States in assuming its world leadership."

  The political, economic and cultural backgrounds of Hong Kong and Shanghai are briefly discussed by Chow. Also briefly described are natural tourist attractions - the strangely beautiful mountains in Guilin along the Li River, and in Huangshan and Wuyishan - the Yangtze River and its spectacular three gorges and great Three Gorges Dam project - and historic tourist attractions of Beijing, the Great Wall, the Ming Tombs and Xian.
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Chow asserts:

  • China's large population is actually a major advantage rather than a problem.

  • China "does not have a well developed legal system in Western style but has a moral-legal system that works if one knows the rule of doing business."

  • China's technological capabilities are rapidly advancing.

  • China's people are free in a non-political sense, and quite happy with their government and with what their government has done for them in the last quarter century.

  Chow concludes: "Partnership with China is good for the United States in assuming its world leadership."
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Four thousand years of history and philosophy:

  Chow begins with a quick sketch of 4000 years of China's history.
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The recent experience with Western colonial imperialism has left modern Chinese strongly inclined to favor stability and a strong central government.

  Dynastic periods of strong central government have been interspersed with periods of disunity, sectional rivalry and conflict. While the dynastic central governments could be quite severe in their exercise of power, the periods of disunity, weakness and strife have always been the most difficult for the Chinese people. The recent experience of weakness and conflict during the period of Western colonial imperialism has left modern Chinese strongly inclined to favor stability and a strong central government. They thus tend to overlook the defects of their government.
  Some of China's most famous technological advances occurred under the pressures of the periods of fragmentation and conflict. (Perhaps they were also a response to greater personal freedom sometimes available during such periods.) The author notes that the invention of gunpowder and advances in Chinese medicine date from the 285 year period of political fragmentation and conflict after 304. However, harsh dynastic rule brought great projects like construction of the Grand Canal and major enhancements of the Great Wall.
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  Confucian ethics is a 2500 year old philosophy that promotes order and stability by assigning fixed rules to each social element.

  "Children should respect and obey their parents. Friendship should be based on honesty, trust and mutual respect. Ministers should serve the emperor, and lower-level administrators should yield to higher-level ones. The emperor has the right to rule over the entire population but only if he treats them properly and follows certain basic principles of good government. By misconduct an emperor can lose his right to rule or the Mandate of Heaven. To aspire to move upward socially, a person first disciplines himself, then learns how to act as the head of his family, then to rule his country and finally to govern the entire world in peace. - - - In a family, the wife should follow and sing to the tune of the husband, but the husband should love and respect his wife."

  While much of this philosophy is now outdated, Chow believes that its basic concepts for "individual conduct and harmony" are still applicable.

  "Through Confucian ethics, the Chinese people have learned to be honest, to work hard, to be loyal to their friends and to work for the good of society."

Confucian ethics have been a vital part of Chinese governance for many centuries.

  The law may not always be ethical, but good moral behavior must always be ethical. Thus, Confucian ethics guides business practices where China's admittedly weak legal system cannot be relied upon. The thriving market system of the Song period was guided by Confucian ethics.
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  Confucian ethics have been a vital part of Chinese governance for many centuries. Around 600 AD, examinations of knowledge of Confucian classics were introduced as a means of selecting scholars for government positions.
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  This wisdom was, unfortunately, not always adopted in China, especially during the dynasty of Mao Zedong, Chow notes. However, China has had periods of great prosperity under this system. Two thousand years ago, Han Dynasty China had extensive trade ties across its northern borders and all the way to the Middle East and Europe across the fabled Silk Route. During the Song period - about 1100 AD - China enjoyed a thriving  market economy.

  This illustrates a classic weakness of autocratic rule - no matter how benevolent. What one autocrat - being wise and benevolent - gives - the next autocrat - either because of stupidity or a lack of benevolence - can take away.

  The Han Dynasty period [206 BC-220 AD] established the dominant Chinese culture and the larger Chinese empire. Confucianism was widely adopted. 
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  The Tang Dynasty period [618-901] was particularly prosperous and productive. Buddhism had been introduced from India and gained popularity. Art and poetry flourished. The status of Tang poetry for the Chinese people is similar to that of Shakespeare for English speaking peoples.
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  The Song Dynasty period [960-1126] was noted for its further cultural development, and also for its flourishing market economy. However, it was under repeated pressure from invaders from the north - culminating with the arrival of the Mongols of Genghis Khan.
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  By this time, China clearly possessed the most advanced technological and mathematical skills in the world. Yet, somehow, they failed to develop practical applications. Chow explains that wealth and respect flowed from scholarship and official position, not from trade and business.

  "This social structure did not provide much incentive to study science, which was not taught to the children. Knowledge of Confucian classics and elegant calligraphy were more important. Furthermore, the economic advantage of technological innovation was limited because of the abundance of low-cost and high-quality labor. When an innovation was introduced the initial cost was high. It was only after much improvement and when the economy of large-scale production set in that the economic use of technology could replace China's cheap labor."

  The Yuan Dynasty period [1279-1368] began with the consolidation of Mongol rule under Hubilie, the grandson of Genghis Khan. However, the Han culture proved to be resilient and - as it would in the future - triumphed over the cultures of foreign invaders and finally of domestic communism.
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  The Ming Dynasty period [1368-1644] included a period of great overseas expeditions, from 1405 to 1433. (These expeditions - some involving the largest high seas fleets the world had seen - went as far as across the Indian Ocean to East Africa.) One scholar now claims that one of these fleets crossed the Pacific Ocean, found America 70 years before Columbus, and continued on a complete circumnavigation of the globe. It was at this time that Chinese in large numbers immigrated to Taiwan.

  These maritime advances, like other Chinese technological feats, proved to be before their time for China, and led to nothing more thereafter than some illicit trade with neighboring states.

   The Qing Dynasty period [1644-1911] was established by Manchus who invaded from the northeast during a period of Ming weakness and disunity. The Manchus proved very capable at first. They relied on Han Chinese officials and adopted the Han Chinese language. They compiled a comprehensive dictionary that is still in use. Chinese influence spread rapidly during this early period.
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  By the 19th century, however, the Manchu Dynasty was incompetent and weak. The British Empire forced China to accept British opium exports during the opium wars. The British needed the revenue to pay for the tea, porcelain, silk, and other Chinese products that they desired. This started a feeding frenzy as one Western power after another forced China to grant trading and territorial concessions. China ceded control over Vietnam, Burma, and Hong Kong, and granted long leases to Dalian, Weihaiwei and Kwangchowwan to the various Western powers.
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    Japan got into the act by the end of the 19th century, taking Korea and Taiwan after its victory in the Sino-Japanese war. By the time of the defeat of the Boxer Rebellion in 1900, parts of China had become "semi-colonies of foreign powers."
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"A democratic government cannot be established to function simply by setting up institutions in form."

  The Twentieth century started with a period of weakness, failed efforts to establish a republic, and disunity. It progressed through civil war to Japanese invasion and finally to the triumph of the communist Mao Dynasty in 1949. While this brought an end to anarchy and weakness, it brought the vast calamities of the Great Leap Forward and the Cultural Revolution, and the persistent failures of central planning.
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  The destruction of all market incentives for efficient production and usage of capital assets resulted in the greatest famine in Chinese history, with well in excess of 20 million dead and untold suffering. Mao blamed the disaster on bad weather conditions.

  God must truly hate autocratic socialism. He invariably afflicts such states with the most horrendous weather conditions - which quickly clear up after the end of the socialist systems.

  Chow draws a keen lesson from the early failed efforts to establish a republic in China.

  "An important lesson to learn from studying the history of this period is that a democratic government cannot be established to function simply by setting up institutions in form. Democratic institutions can be established in name and in form but they may not function property. This statement applies to political, legal, economic and other social institutions, - - -."

  This lesson is again being learned at the beginning of the 21st century. Democracy is not easy, and often fails. The challenge is to reject ideological or utopian forms and politically expedient forms of democracy in favor of practical forms that have a chance to survive.

Chinese unity:

  There have been several factors that have promoted unity within the vast territory that is now China, and that tended to restore it after periods of fragmentation. China would not remain permanently divided - as did Europe after the fall of the Roman Empire.
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  There were the traditions of Chinese scholarship.

  "In the historical tradition, Chinese scholars and intellectuals aspired to become government officials. They tried to compete in imperial examinations in order to be selected. By Confucian teachings, they were responsible for the prosperity and demise of the nation."

  These scholars were always available to serve a new imperial dynasty, as long as it could be effective. When effectiveness was lost, they could also take part in pulling a dynasty down - as they did in 1911. In the 1920s, they divided between the Nationalist Party and the Communist Party.

  The Chinese written language was another important factor. It is a "literary style" rather than a phonetic spoken style - that has existed for 2000 years. Thus, while people from different regions of China might not be able to speak to each other because of differences in their spoken languages, those educated in the use of the written language could always communicate through their writing.
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  Japanese isolationism
was another important factor. Japan would not adopt a balance of power strategy with respect to China as Great Britain did with Europe. However, this might not have been as successful with China as it was with Europe, and Japan seldom felt threatened by its vast continental neighbor.

The pragmatists:

  The Mao Zedong Dynasty came to an abrupt end when his four chief lieutenants lost a power struggle with party pragmatists after his death. The Maoists were put on trial and convicted. The pragmatists set off on the road towards autocratic market capitalism, which continues to be the direction of the ruling party to this day.
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The three major factors contributing to China's economic development are market economic institutions, high quality human capital and the advantage of the latecomer in employing modern technology.

  Chow explains the rapid economic advances under China's economic transformation. It is not a miracle.

  "Given political stability and law and order, the three major factors contributing to economic development that China possesses are market economic institutions, high quality human capital and the advantage of the latecomer in employing modern technology invented by the first-developed countries, - - -. China should naturally do well as compared with other economies lacking in any of these three important factors."

The quality of life:

  Four thousand years of retained cultural development buttress life styles in China. This includes everything from cooking, calligraphy and the various crafts to the fine arts, as the author explains. These things may not be included in the GNP statistics, but they add significantly to Chinese standards of living.
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  The best of China's artistic and cultural artifacts can today be found outside China. During the conflicts of the 20th century, much of it was either destroyed or removed from China. Thus, the Palace Museum in Taipei has the best collection of ancient Chinese artifacts, and the best of ancient Chinese architecture can be found in Japanese cities such as Kyoto.
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  The author also provides some explanation of Chinese martial and performing arts, literature, and herbal medicines and acupuncture.
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Philosphy:

 

"Chinese in general do not believe in absolute truths."

  Chinese philosophic traditions go back more than 2500 years. There is wide variety in both secular and sectarian philosophy. Predominant secular philosophy includes Confucianism, Legalism, and Naturalism. There are Buddhist and Daoist religious beliefs.

  "Chinese in general do not believe in absolute truths, or the existence of only one god. This attitude can help them to be more tolerant."

Concern with the supernatural and questions about existence are considered "fruitless if not unreasonable."

  The Chinese are predominantly realist and pragmatic. Their philosophic concerns are with human affairs rather than the supernatural or questions about existence, which are considered "fruitless if not unreasonable."

  This pragmatic attitude probably also helped them to recognize the failings of communism and to switch towards market capitalism.

  Confucian ideas are still very influential. "Confucian ethics and moral standard form the basis of a social order."
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Status is very important and rigid. Relationships of authority and responsibility are established for husband and wife, parent and child, the older and the younger.

 

Nepotism and discrimination in favor of close friends is considered a virtue among the Chinese both inside and outside China.

  His "basic ideas on living a good life are based on loyalty, piety, kindness, love, reliability, righteousness, and peaceful living." These virtues are required for "social harmony."
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  However, these virtues have restricted application. "A subject is to be loyal to his master, emperor or country. A child is to practice piety towards the parents." Extremes should be eschewed in favor of the "Golden Mean."

  "As Confucius advises, to achieve self fulfillment, one should first learn by observing and understanding the world. Then one can be determined and set a right goal in order to discipline oneself, before he can achieve family harmony, or rule the country and eventually help achieve a peaceful world order."

  Status is very important and rigid. Relationships of authority and responsibility are established for husband and wife, parent and child, the older and the younger.

  "Besides placing each member of a family in his/her rightful place, family unity and mutual help are important. Individualism teaches one to care for oneself first, and care for others as much as one pleases. But collectivism in Chinese family means that one should automatically sacrifice oneself for the good of the family. If one person is well to do, all members of the family share the benefits."

  The millions of Americans who dedicate many hours to the numerous activities of civil society demonstrate daily that individualism and individual liberty are not inconsistent with deep commitment to the common good. It is not restricted to close or extended family or acquaintances. Indeed, a well developed civil society is probably one of the most essential factors in the maintenance of both political and economic freedom - both democracy and capitalism.
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  Polling data in 2001 indicates that over 100 million Americans volunteer their time for community purposes, and 60 million volunteer on a regular basis. Americans give about $240 billion per year to private charities. Their volunteer services are estimated to be worth a similar amount.

  The need for protection from attacks from outside created an extended family system encompassing whole villages. Nepotism and discrimination in favor of close friends is considered a virtue among the Chinese both inside and outside China. In a business context, these connections have both advantages and disadvantages.

  However, outsiders doing business with the Chinese - inside China or out - must be wary of their low status in Chinese eyes.

The collective good takes precedence over the individual.

  There is a strong socialist utopian thread in Confucian philosophy. The collective good takes precedence over the individual. Property is to be shared. "Individual ownership is not the ideal." The stranger should be treated equally as members of family.

  "Although private property has existed in China for a long time, subject to the approval of the emperor, individual members of a society are asked to give and not to take, to endure and not to be aggressive, to be patient and not be be in a hurry, and to reflect on oneself rather than placing the blame on others. Tolerance is more important than freedom."

  There is an obvious inconsistency, here, between the social ideal described by Chow and the status-conscious ethics and moral standards.

The economy:

 

 

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  The material on China's economic transformation was presented in more detail by Chow in a previous work - an economics textbook. The FUTURECASTS review of that work should be consulted by those who want a more complete presentation. See Chow, "China's Economic Transformation." That work also went into greater detail on the Chinese political system, as did the FUTURECASTS review, which should be consulted concerning political subjects, too.
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Under the "Chinese bureaucratic system," inefficiency and corruption afflict both foreign and domestic businesses and investors.

  Chow sketches China's economic history from the 1930s. A market economy was then in fact developed, but was greatly hampered by political instability and war. Now, China is enjoying rapid development. "Market institutions, good-quality human capital and the availability of modern technology are sufficient for rapid economic growth."

  Political freedom - democracy - is not viewed by Chow as an essential element for rapid economic growth. Tiny Singapore is a prime example of successful capitalism with a one party political system. It remains to be seen if vast, complex China can be similarly successful.

  With the notable exception of the state-owned enterprises ("SOEs") and state-owned commercial banks, China is now a rapidly developing market economy. It is increasingly open to world trade and ideas, and its people are enjoying personal as well as economic freedom. This is especially true in the eastern coastal regions, but is spreading inland as well.
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  Chow candidly notes the continuing problems of the "Chinese bureaucratic system." Inefficiency and corruption afflict both foreign and domestic businesses and investors. Chow accurately describes this mixture as "a bureaucratic market economy."

  Inefficient and corrupt practices are relatively unchecked in any autocratic system and constitute an inherent weakness in autocratic capitalist systems. This weakness must increase proportionately with the size and complexity of the system. Demagogic politics remains the primary systemic weakness of democratic capitalist systems. While both systems suffer with both corruption and demagogy, the differences in degree are substantial.
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  The 20th century proved that capitalist systems were easily superior to socialist systems. FUTURECASTS expects that the first half of the 21st century will determine whether democratic systems of capitalism or autocratic systems of capitalism are superior.

  The prospects for future economic growth and the difficulties inherent in such calculations are examined by the author. Regardless of any inaccuracies in the statistics, there is no doubt that China has been growing and continues to grow rapidly. Chow emphasizes the progress achieved in the last quarter century.
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  Indeed, economic improvements generated by market incentives may well have been significantly understated since the raw statistics don't include the substantial improvements in the quality of goods produced (or in the variety of goods produced, either).

  Since its inception, FUTURECASTS has been emphasizing the existence of such weaknesses in economic statistics. See, "Economic Statistics & Macro Econometrics: The Figures Lie."

"Although the Chinese market economy has many shortcomings, including those in the state-owned enterprises and the banking system," the system has proven to be conducive to rapid growth.

 

Even the slowest province has been advancing at about a 3.6% rate.

  The impressive determination with which Chinese political leadership - although acting in a cautious, deliberate manner - has persistently learned about market practices and pushed the transformation of the Chinese economy into a capitalist market model is properly emphasized by Chow. "Although the Chinese market economy has many shortcomings, including those in the state-owned enterprises and the banking system," the system has proven to be conducive to rapid growth.

  "The Chinese government also deserves credit for maintaining social stability and law and order, which are necessary for the proper functioning of a market economy."

  Fortunately, perfection in economic policy is not necessary for economic growth and prosperity. Nowhere is it even remotely achieved, even in the best of the advanced economic systems. However, major weaknesses do eventually make themselves felt - especially in the periodic downward phases of the business cycle.

  Economic development in China has been very uneven. It has been rapid along the Pacific coast and slow in the Western provinces. However, even the slowest province has been advancing at about a 3.6% rate.

  The centrally administered economic transformation of China has stressed the maintenance of control. Thus, reforms were first applied in a manner limited to favored cities and provinces along the coast. These cities and provinces would probably have developed faster than those inland in any event, but one result of this administered approach and the corresponding political allocation of credit was to hold back development of the interior provinces and thus materially worsen domestic migration and unemployment problems in China.
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  The political allocation of credit and uncertain property rights have also limited the potential of small businesses and the development of the middle class - materially worsening China's unemployment problems  and problems with maintenance of privately held physical assets. See, "Observations about China."

The Chinese government is now shifting its attention to encourage development in the Western provinces.

  Freedom of movement within China has been established, and this has had immense benefits. Moreover, all Chinese are immensely proud of the advances made in Shanghai and the other coastal provinces. The Chinese government is now shifting its attention to encourage development in the Western provinces. Highways, railways, power plants, the Three Gorges Dam project, are all part of a massive infrastructure effort to facilitate economic development in the interior.
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China enjoys a 35% savings rate, which pours additional funds into its banks.

 

These state-owned and directed banks are very inefficient in channeling financial resources to the most productive investments.

  Several of China's obvious economic weaknesses are covered by Chow.

  • China's banks have vast amounts of non-performing loans. These are primarily loans to SOEs. The banks were required to extend loans on the basis of political directives rather than credit-worthiness. This situation has recently improved somewhat, but essentially continues.

  However, there cannot be any bank failure because the government owns the banks and will always provide them with sufficient funds. (China has vast dollar reserves with which to meet any emergency.) Thus, the people justifiably have faith in their banks and there is no real risk of any bank runs.
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  Indeed, China enjoys a 35% savings rate, which pours additional funds into its banks.
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  Perhaps more important, these state-owned and directed banks are very inefficient in channeling financial resources to the most productive investments.

  "The inefficiency is due to the bureaucratic behavior and lack of training of the management and staff of the state-owned commercial banks. This inefficiency has been a drag on China's economic development in the past and will remain so in the near future. The situation can be improved only slowly. Competition from foreign banks under the terms of the [World Trade Organization] will hasten the improvement somewhat during the first decade of the 21st century."

Local governments have retained significant authority to protect local enterprises threatened by foreign competition,

  • The inefficiency of the SOEs is a major but declining problem for China. As of 2000, they produced only about 28% of China's total industrial output. Moreover, they have in fact been slowly improving their productivity.

  With membership in the WTO, much of the Chinese economy will - step by  step - be exposed to import competition. This will include the SOEs. This will likely force significant improvements in productivity. However, local governments have retained significant authority to protect local enterprises threatened by foreign competition, so it is uncertain how this will all work out.

  • The Party still believes in industrial policy. It still directs significant investment initiatives. Currently, it is directing investment flows into high tech industries.

  Industrial policy in many developing nations - especially in Asia - is following this same route - leading inevitably to cut-throat competition in the pertinent industries.

The Chinese moral code based on Confucian ethics has lasted for centuries because the Chinese people believe that it works well.

  • China's legal system is not well developed. China has traditionally relied on moral principles rather than legal rules - and this may turn out to be as appropriate for facilitating commerce in China as legal systems are in the West. It may be even superior as a means of maintaining harmony in social and economic conduct.

  Chow asserts that people who accept a moral code will voluntarily abide by it, while laws have to be enforced at significant cost in money and freedom. The Chinese moral code based on Confucian ethics has lasted for centuries because the Chinese people believe that it works well.

  "Social order may be better achieved by the practice of a set of moral principles accepted by all than by a legal system that is not firmly grounded on moral values."

  This comparison with Western legal systems is unfortunately simplistic. Like any complex human activity, legal systems will have their defects and can certainly be excessively costly. However, in democratic Western nations, no law can be effective if it does not have broad public acceptance. Even the most technical commercial laws must have an appearance of legitimacy for effectiveness. Voluntary compliance is the bedrock of Western legal systems.
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  Even in the West, the vast  majority of business is done on a basis of trust and established relationships. This is the same under Western legal systems as under Chinese Confucian ethics. Nobody bargains for a law suit.
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  However, legal systems have clear economic advantages. A legal system makes explicit how business is to be conducted. It permits strangers to do business with each other in confidence. It enforces property and contract rights that provide the bedrock of a wide access to credit systems. All of this is still missing in China. This constitutes weaknesses of policy and practice that China will eventually have to confront.

  However, Chow is clearly correct in his conclusion that the imposition of a Western legal system on China would be a dubious proposition, and might not result in the desired improvements over China's existing moral standards.

Guanxi is social influence that facilitates the conduct of business without legal formalities.

  • "Guanxi" is the social fabric of business in China. Trust and respect - credit and credibility - must be established with those with whom one would do business. Guanxi is social influence that facilitates the conduct of business without legal formalities. However, guanxi promoted the use of official offices for personal advantage to get around the limitations of central planning under the Mao regime.

  Another word for the use of public office for private gain is "corruption." Moreover, the guanxi system gives domestic competitors a huge advantage over foreign competitors, and thus undermines the efficiency achievable by the Chinese economy. It facilitates the informal continuation of protectionist practices. See, Backman, "Asian Eclipse."

  • Intellectual property concepts never existed in China. Innovators tried to protect themselves by keeping their processes secret. China now has patent laws, but they are poorly enforced and little understood.

  This lack of protection for intellectual property is one reason why societies with great technological skills - like the Soviet Union and dynastic China - can fail to translate those skills into modern products. If anyone can copy what you create at a fraction of the effort, why bother?

  The lack of respect for the law is general in China. It is not just a problem of theft of intellectual property. The government is slowly inculcating wider knowledge of and respect for the laws, and China is making real progress with its legal and judicial system. "The courts are deciding more cases, including suits against the government." However, it is not a truly western legal system. It still functions on the basis of traditional moral ethics.

  "Different forms of market and legal institutions may suit the need of different countries. Asian economies have imperfect and non-Western market institutions, but to convert them into certain Western institutions may not be the best way to improve them."

  The author candidly discusses the problems with corruption that afflicted China under socialism.

  "As a general observation, people's behavior is affected by the environment. The system of economic planning itself induced the Chinese to take full advantage of the assets at their disposal. Under the system of central planning, most of the economic assets in China were owned by or under the control of the government, since private property was essentially abolished. However all assets had to be managed by people since the government had to assign some people to control and use the assets on its behalf and in the name of the state. In reality the people managing government assets used them for their own benefits. Corruption was only one example when the bureaucrats controlling some economic assets extracted money from people who desired to use the assets. A driver of a government-owned car could use the car for personal benefits. If another person had wanted to use the car, he would have to compensate or appease the driver since there were no cabs available.
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  "Under the system of central planning when all important assets were controlled publicly and consumer goods were not available in the market place, two phenomena occurred. First, the Chinese people became frustrated when they had to beg to get served or to acquire the essential consumer goods. They then aired their frustration and returned the favor to others when other people needed goods and services from them. The quality of services provided in China was poor in general. People were unkind to one another. The person in control would not readily grant another the needed asset or service. Second, barter became widespread. A person in charge of selling low-price and scarce theatre tickets could exchange the tickets for scarce consumer goods distributed in government stores, - - -. With the appearance of the market economy, the quality of services provided by the Chinese people has gradually improved, and the people have been kinder to one another. Now money can be used to buy goods and services and fewer people have monopoly control of economic resources that others need."

  Where in socialist theory is all this explained?

Moral and ethical values are still considered more important than the law - and the Chinese Communist Party still remains above the law.

  Both moral ethics and regard for law were undermined by three decades of disastrous government central planning and misrule under Mao Zedong, as the author explains. Survival during the Mao regime required deviousness. However, as China progresses economically, behavior is becoming more moral and lawful. In China, moral and ethical values are still considered more important than the law - and the Chinese Communist Party still remains above the law.
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  The author writes at some length about the cultural impacts of the Mao period of socialist central planning and the disastrous cultural revolution. Much of the problems with corruption and unethical conduct flow from this long period when the ability to "beat the system" was essential for survival. However, much of it is due to cultural influences that predate Mao.
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  Indeed, the Chinese people expect to pay modest sums for official actions. They do not consider such payments to be corruption unless the payments are considered excessive. Bribes at low levels are considered an ordinary expense of doing business throughout Asia, but can get excessive.

  Such payments are viewed by apologists as a fee for service - but these fees go into private pockets instead of into the government treasury.

  Two of the best ways to combat such corruption are by reducing government regulations and by increasing the salaries of government officials. The Chinese government, however, is still far short of being able to pay such salaries, and requirements for licenses and approvals still provide widespread opportunities for corrupt practices.
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  Nevertheless, matters continue to improve in China, and foreign investors keep coming in and those already in keep expanding their investments. It remains to be seen whether such practices are of such an extent as to cause trouble in the future.
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Overseas Chinese:

  Chinese living outside China tend to retain much of their cultural roots. Chow discusses the Chinese experience in Hong Kong, the U.S. and Taiwan.
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  Considerable human and financial  capital have been contributed to China in the last two decades by the foreign Chinese community. The Taiwanese came originally from China and speak the same dialect as the people across the Taiwan Strait. In the last two decades, economic integration has occurred at a substantial rate. Many Taiwanese have homes both in China and Taiwan. About 300,000 have settled in Shanghai alone.

  "For the critics who think that China does not have sufficient human rights and individual freedom, the presence of these immigrants from Taiwan may help alleviate their concern."

  However, economic integration does not necessarily presage political integration - as the nations of the European Union have found out, and as can be seen in the relations between the U.S. and Canada.
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Demographics:

  China is 92% Han with a wide variety of small ethnic and religious minorities. There is some resentment among the Muslims of the northwestern province of Xinjiang and among the Tibetans, but there is widespread integration and pride in being Chinese.
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In China as elsewhere, urbanization and economic development have been leading naturally to reduced fertility rates.

  China's large population poses no great problems and provides many advantages, according to Chow. China easily feeds itself. Its population density is less than that of Japan or of many European countries and regions. This is true even for the density per square mile of cultivated land.
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  While having fewer children may increase per capita wealth in the short run, it makes it harder to provide for retirement in the long run in a society still dependent on family for such matters. This is also true under modern conditions of social insurance since, ultimately, the working generation must provide for the retired generation.

  If productivity is improving rapidly, then a proportionately smaller working generation can sustain a proportionately larger retired generation.
 &
  Chow is correct that China's large population poses no economic problems. However, there are problems other than economic - especially with urban density and the environment. As more Chinese take to the road, for example, they may find it difficult to find any road space that is open enough for them to drive on.

  In any event, in China as elsewhere, urbanization and economic development have been leading naturally to reduced fertility rates. Moreover, China's large population is an obvious advantage for purposes of national power and market economics.
 &

Education:

  The history and current status of education in China is outlined by Chow.
 &

  Today, the quality of courses in the natural sciences, mathematics and engineering at the top universities is quite good. Many other subjects still suffer from a dearth of good teachers. Outside the top universities, the scarcity of qualified teachers is widespread. However, China currently benefits from an increasing rate of return of students educated abroad.
 &
   The author asserts that the bloodshed during the Tiananmen Square incident in 1989 was greatly overstated for propaganda purposes by the student leaders. Academic freedom is now fairly good.

  "By and large professors are free to do their research, to publish what they write and to teach what they think the students should learn. On freedom of speech, students and faculty members can say what they want, but they would be restrained if they were to advocate the overthrow of the government. It is all right to criticize the government on its policies, unlike the days in the 1950s [during the "Hundred Flowers Campaign"] when intellectuals were mistreated for criticizing certain government policies. - - - In private gatherings among students or faculty members, one hears conversations as free as any [in] American universities. The - - - government no longer feels threatened by such conversations. Furthermore, even if some government bureaucrats may not like it, they no longer have the apparatus to control it and no one who overheard an objectionable conversation has any incentive to report it - - -."

  China increasingly has more graduates than jobs for graduates. Unemployment is rising among graduates, and starting salaries are tumbling.

  The Chinese, by tradition, are profoundly driven towards learning. The mix of public institutions, private institutions, traditional instruction in family crafts, and individual acquisition of knowledge provides a solid foundation for the impressive expansion of human capital. The students are ardent in their acquisition of knowledge, but concededly limited in their creativity and originality. However, this, too, is improving.
 &

The Chinese have provided favorable terms to foreign technology firms seeking to invest in China - and have proven adept at learning, copying and then competing with them.

  Science and technology education are emphasized by the Chinese government and society. Research facilities are well funded and successful research is well rewarded both in terms of social status and money. China's accomplishments in nuclear and aerospace technology are no fluke. Many of its scientists are internationally recognized as first rate.
 &
  The Chinese have provided favorable terms to foreign technology firms seeking to invest in China - and have proven adept at learning, copying and then competing with them. China is taking full advantage of its late-mover status to rapidly increase its technological capabilities. It is now a major exporter of technology products.

  Fear of theft of intellectual property is keeping many technology firms out of China, and limiting what is done in China by those that have come in.

The Government:

  The Communist Party parallels and controls every element of government and society right down to urban block and village levels. Thus, the Chinese government is still organized along traditional communist state lines.
 &

  The details and the usual discrepancies between the liberal constitution and the autocratic rule of the Party are briefly sketched by Chow. He offers a justification for this system.

  "In Chinese culture, responsibility is valued more than freedom. Individualism has not generally been considered a virtue in China. This was so even before the establishment of the [Communist state] in 1949. Collective welfare is considered as important as, if not more important than, individual freedom. This value system has resulted from China's historical tradition and has been affected by the environment in which the people lived."

  Even in the U.S., freedoms have been curtailed somewhat in favor of security requirements since the terrorist attacks on 9/11/01.

  "In Chinese society people consider law and order to be more important than freedom, although they resent inappropriate restrictions to individual freedom in the name of law and order. They also consider responsibility and tolerance as probably more important. The most desirable amount of individual freedom in China is probably less than in the United States. It is necessary to have social order before its citizens can have much freedom. Since there is a greater need to preserve social order in China, there is more limitation to freedom than in the United States."

  Public opposition to the Party is forbidden and the Party still controls the popular electronic media and even the internet. However, information flows more freely over short-wave radios. Fax machines and the internet are hard to control. Hong Kong TV is still in private hands.
 &
  Most of the traditional communist restrictions on personal freedom have been removed. Travel - both domestic and abroad - choice of jobs, and freedom of speech and press have all been greatly liberalized. Censorship is now "almost non-existent."
 &
  The increase in education and economic wealth facilitates the exercise of allowed freedoms and makes control more difficult.
 &

"In considering the conduct of their government, [the Chinese] think less about how much freedom they have than the performance of the government in providing them benefits."

  Certain controversial elements of government policy are addressed by Chow.

  • The one child per family policy - which currently has been somewhat relaxed - has broad public support. The author, however, believes it is an unwarranted restriction.
  • Restraints involving Tibet and the Falun Gong are broadly supported in China. Ordinary Chinese consider Tibet a part of China, and most view the Falun Gong as a cult. Religion is viewed suspiciously as a potential tool for opposing the Party.

  Religion has been used as a means of political opposition in the past in China, and the Party is well aware of its use against the Communist Party in Poland.

  • Human rights complaints are viewed skeptically in China. The Chinese have little trouble finding weaknesses in the human rights records of the nations from which many of the critics come. At any rate, the Chinese government has shown itself willing to address some of its human rights problems.

  "The Chinese are more concerned about how to improve their economic well-being under a stable government and tend to place more emphasis on law and order for the common good. In considering the conduct of their government, they think less about how much freedom they have than the performance of the government in providing them benefits, - - -."

  The Chinese government has elections at its lowest levels - the city district and village - that are direct although filtered by a Party approval process for candidates. All elections to higher levels are by those already elected at lower levels.
 &
  The author believes this is a good system for China since the vast majority of Chinese know nothing about affairs outside their city district  or village. (This will become increasingly inapplicable as China becomes better educated and more affluent.) He sees slow evolutionary processes at work that support his optimistic expectation for the future development of democratic practices.
 &
  The same process applies to the Communist Party, but only Party members - about 8% of the population - can run or vote in Party elections. This system has proven to be very stable and has provided China with a quarter century of peaceful transfers of power since Mao's death.

  Of course, such transfers of power at the top are restricted to the retirement of incumbents.

  The Party now has accumulated an impressive record   despite the massive failures under Mao. Chow lists unification of China, domestic peace, and the end of foreign domination as the preeminent accomplishments in Chinese eyes. The restoration of pride as Chinese, and a sense of nationalism are also widely appreciated.
 &
  In addition, literacy levels have risen to include about 90% of the population, death rates have dropped dramatically, economic infrastructure has vastly improved, and the transformation to a market economy has been managed without serious social disruption. Market economics has resulted in vast improvements in living standards for which the Chinese people properly credit the Party.
 &

International relations:

  China's current and future position in the world and its relations with the U.S. occupy the concluding chapter of the book. Chow emphasizes that the war on terror must be fought with the cooperation of other nations, including China. This is a type of conflict that cannot be waged unilaterally.
 &

China is no longer an orthodox communist country.

 

Containment of the growing nuclear threat from North Korea depends on Chinese cooperation.

 

Until some resolution is reached, the Taiwan issue remains a disruptive influence in U.S. - Chinese relations.

  China has emerged as a major world power. Its relations with the U.S. are of long standing and are constantly deepening. They have been generally positive except for the first two decades of the regime of Mao Zedong. China is no longer an orthodox communist country. "China and Vietnam in particular have changed their economic and social system and are no threat to world peace." The U.S. and China have much to gain by successful cooperation and collaboration in international relations.
 &
  In particular, containment of the growing nuclear threat from North Korea depends on Chinese cooperation.
 &
  Taiwan is viewed as a part of China by the Chinese people and government. However, for various reasons, this has not resulted in an effort at an invasion and is unlikely to do so. China currently would accept Taiwan as an autonomous entity with its own government and military, so long as the principle of one nation is accepted by Taiwan. However, until some resolution of this problem is reached, the Taiwan issue remains a disruptive influence in U.S.-Chinese relations.
 &
  Chow emphasizes that China has no territorial ambitions outside its borders, leaving the Taiwan issue the only matter of international concern.

  China has some very far-flung claims to mineral rights under the South China Sea that must be resolved with a host of Southeast Asian nations. These claims extend right up to the territorial waters of the other nations around that body of water. Success at peaceful resolution of these disputes would go a long way towards confirming China's peaceful intentions.

Both China and the U.S. will be better off "as their national incomes will increase at a faster rate as a result of economic globalization."

  The globalization process with China - like all expansion of international trade - is mutually beneficial for both China and the U.S. - the author emphasizes. Although change is always somewhat disruptive and a threat to adversely affected economic interests, it cannot be avoided and must in the long run create more opportunities and gains than threats and losses.

  Protectionist measures against China - such as import quotas - cannot possibly work, since they would at most merely redirect business and investments to other nations rather than back to the U.S. Generalized protectionist measures would place U.S. manufacturers at significant disadvantage to the extent that they could no longer obtain supplies and services from the most efficient sources.
 &
  Meanwhile, an increasingly prosperous China provides a huge market for the U.S. and the rest of the World. This has proven to be particularly advantageous to Japan. With its nearby location, it is enjoying an export boom into the rapidly expanding Chinese market which has enabled it to break loose from a decade of stagnant economic conditions.

  Adjustments will be required. However, both China and the U.S. will be better off "as their national incomes will increase at a faster rate as a result of economic globalization."
 &

It is far better to negotiate and compromise conflicts with a friend than to engage in conflict with an adversary.

  The U.S. and China will be in conflict on various matters at various times. As two great nations with vastly complex interests, this is unavoidable. However, it is far better to negotiate and compromise conflicts with a friend than to engage in conflict with an adversary.
 &
  Chow believes that China wants friendly relations with the U.S. and is willing to collaborate in maintaining stability and peace in its region. He notes that the U.S. government has increasingly been responding in kind in its relations with China.

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Copyright 2004 Dan Blatt