Thu, Dec 25, 2008 page9

• Reforming China is a country of bigger aspirations and risk

  • By Tania Branigan / THE GUARDIAN
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  Zheng Shiqing lives and works in a small room with an earth floor in the tiny village of Zhuanshanzi, high up a twisting mountain road in northern China. The padded curtain in place of a door does little to keep the winter at bay, and his breath curls white through the air. He has heart problems and should retire but cannot — medical treatment has eaten away his meager savings. His sons are unemployed and his family of five largely depends on his 10,000 yuan (US$1,400) annual earnings.

  But Zheng, 53, is one of China’s winners, one of hundreds of millions lifted out of poverty since the launch of economic reforms three decades ago.

  “Life is so much better, you can’t even compare it — 100 times better than before,” said the dentist, who works with a basic drill and little other equipment. “We lived in really crappy houses and had no property. We worked for the big commune and only got 400g of food a day — we were hungry. We had maize flour and sweet potatoes; there was meat once a year at spring festival and even vegetable oil was rare. Pigs these days won’t eat what we had back then.”

  “People used oil lamps and we had to carry water from the well. Now there’s running water and electricity,” he said.

  Thirty years ago, the third plenum of the 11th central committee of the Chinese Communist Party opened in Beijing, about 100km from Zheng’s village. All month the state media have feted the meeting and late Chinese leader Deng Xiaoping’s (鄧小平) victory over Maoist diehards as he wrested control of economic policy and launched the reforms that have altered China beyond all recognition.

  China was once an economic powerhouse, but by 1978 it was languishing in poverty and isolation.

  Now it is the world’s fourth-largest economy, with endless highways, swelling cities, vast factories and luxurious boutiques. Over three decades, the economy has grown on average by 9.8 percent a year. Grain production is 65 percent higher. Four-fifths of the world’s toys are made here and almost three-fifths of its clothing.

  The statistics are staggering, but they conceal as much about the reforms as they reveal. Deng famously compared the process to “crossing the river by feeling the stones,” and China has frequently halted midstream.

  From the first, reform has been a messy, fractured process driven by people’s demands as well as political leadership. Farmers in Xiaogang village, Anhui Province, formed a secret pact to divide up the land and farm it separately, risking severe punishment. Deng did not promote the measure until two years later. Meanwhile, Beijing residents turned a stretch of brick into the Democracy Wall — putting up posters calling for opening up and reform.

  Lai Hongyi (賴洪毅), an expert on the reforms at the University of Nottingham, England, argues that the dismantling of Mao Zedong’s (毛澤東) economic policies resulted from an interplay of factors.

  “There were elements of local initiative, such as household farming ... but they led to intense debate within the leadership and it was only through the intervention of reformist leaders that they were allowed to continue and expand,” he said.

  Now Beijing is studying a new set of figures. The economic crisis is hitting China faster and harder than anyone expected. GDP soared by 11.9 percent last year; but in the third quarter of this year, growth fell to 9 percent. This week, the IMF warned it could slump as low as 5 percent next year.

  Exports fell year-on-year last month and industrial production increased by the lowest rate in almost a decade. China’s central banker has urged the country to prepare for a “worst case scenario” and Chinese President Hu Jintao (胡錦濤) has described the outlook as grim.

  “No, I’ve never heard of it,” said Zheng, when asked about the economic crisis.

  But when he heard that factories were closing and migrant workers returning from the manufacturing heartlands to family farms, he grimaced. His sons rely on casual labor such as building homes — mostly funded by wages that factory workers remit to their hometowns. If those dry up, his youngest son’s hopes of building a home and finding a wife look even slimmer.

  Kelly Zhang is also worrying about the economic outlook, but she and Zheng have little else in common. Born in the same month as the reforms, the 30-year-old has seen only good times. She works in the motor industry, invests in stocks and takes holidays in Europe. She and her husband have no dependants and their monthly salaries are more than double Zheng’s annual income. But they share at least some concerns.

  “I’m traditional Chinese — I save at least half my salary and my husband saves even more of his,” Zhang said, strolling past a Prada store in Beijing this week. “We have to; society is different here. We don’t have guarantees of health care and if we want to have children we have to think about that [too].”

  She too is beginning to consider the impact of the slowdown.

  “I was going to go to Japan for shopping, but I thought maybe with the global economic situation I should save. If I want to buy a luxury watch or handbag, I think — well, maybe next year. That wasn’t a consideration last year,” she said.

  For countries in recession, the prospect of 7 percent or even 5 percent growth sounds highly enviable. But China needs higher growth than that to provide jobs for all the new entrants to the labour force. Expectations have soared, and — since the Tiananmen crackdown in 1989 put an end to hopes of growing political freedom — the case for the government’s rule has rested largely on its ability to provide a good living for its people. Protests are already on the rise and government advisers have warned that economic grievances could lead to mass social unrest. Many remain vulnerable to even small shifts in their income.

  And the headline figures disguise huge inequality. This week, a report from the Chinese Academy of Social Sciences warns that the average income of the richest fifth of households is now 17 times as high as that of the poorest fifth.

  The gap is not just between rich and poor, but between regions and — above all — between city and countryside. Rural per capita income stood at about 4,000 yuan last year — less than a third of the urban rate. Nor is it just about income. Farmers gained hugely from early reforms, but the subsequent withdrawal of health and education provision hit them hard. Infant mortality in sparsely populated Qinghai Province is seven times higher than in Beijing.

  The downturn is emphasizing the frailties of China’s model. Economists have already pointed to ongoing weaknesses: state interference in the market, such as price controls, or the lack of competition in many sectors. Others highlight the cost of progress: endemic corruption and pollution that has turned blue skies to smoggy grey.

  But as it faces the wider slowdown, the immediate concern is that China remains heavily dependent on exports, and officials acknowledge that domestic consumption is perilously low.

  The government is trying to shore up the economy with heavy investment in infrastructure — a sort of Chinese New Deal.

  But much of the 4 trillion yuan package consists of existing programs and does little to address the long-term issues, such as how to encourage citizens such as Zhang to spend rather than save.

  “In the short term, expanding infrastructure investment is a key issue for stimulating domestic demand; but in the longer term, improving public services development is more important,” said Wang Xiaolu (王小魯), deputy director of China’s National Economic Research Institute. “If our citizens worry about their children’s education fees or health care in the future or housing issues, they will tend to save money instead of spending. Only when the public services are well developed will citizens dare to spend the money they earn.”

  It’s a sentiment that Zheng might echo. He shows little interest in the highway being built through the valley or in subsidies to help farmers buy fridges; he cannot afford such a luxury. But he is animated as he describes the health care scheme he has joined.

  “Every time I went to hospital before it was more than 100 yuan. Now I pay 10 yuan per year and they pay back part of my costs for each visit. It really helps,” he said.

  Thirty years after China began its great crossing, Zheng and his family remain a long way from the other bank. But like the country’s leaders, they are groping for the next stone.
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