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A purely analytical perception...


China
Surprising China

 

Updated April 25,  2003

Demographics

At the moment, China is the world's most populated country: somewhere between 1.3 and 1.7 billion people live within its borders, nobody in China, or anywhere else for that matter can really be certain. A number of years ago, the Chinese adopted an intense population restriction formula, which allowed only one child per family../../._span style_.css"mso-spacerun: yes"> While the government seemed in earnest about that law, if you are among the Chinese elite, rules are for everyone else. In spite of the selective cheating that is going on, India will probably surpass China in population early in the 21st century../../._span style_.css"mso-spacerun: yes">  Interestingly enough, although only 22% of Chinese live in urban areas, there are 40 cities in the country with over 1 million people../../._span style_.css"mso-spacerun: yes">  Ethnic Han Chinese comprise approximately 92% of the population, followed by Zhuang, Manchu, Hui and Miao peoples.  

The Chinese literacy rate is relatively high: 78% of the population is able to read and write../../._span style_.css"mso-spacerun: yes">  On the other hand, advanced education historically had required proof of allegiance to the Communist Party, which until recently had restricted universal higher education and excludes a substantial talent pool from the elite../../._span style_.css"mso-spacerun: yes">  Most curricula throughout the system, stress courses in math and science because the national leadership believes that the country lags in those disciplines, which they believe are essential to the country's technological growth.  However, as new thinking comes into play and old ideas are shunted aside in favor of growth, China is branching out intellectually to cover all of its basis. The have learned after years of isolation that having intellectual resources readily available represents a more constructive approach than constantly worrying about a revolution among the more educated, one of Mao's theories. 

China has no state religion, and the government make the claim that it does not stand in the way of people who want to practice religion../../._span style_.css"mso-spacerun: yes">  However, if that religion grew to strong and advocated major change such as is happening among Muslim's in the southwestern region of China, regional authorities tend to dampen religious ardor with numerous unpleasant techniques. Confucianism, Buddhism and Taoism are the most common forms of organized religion, but in practice, people seem to treat religion as a menu and often combine parts of all three in their services../../._span style_.css"mso-spacerun: yes">  Ancestor worship is universally practiced.

Moreover, whenever a religion begins to look more like a political forum such as the hated Falun Gong, the Chinese are quick to crack down and have gotten substantial bad publicity recently because of their treatment of a number of religious minorities. Moreover, religious movements have sprung up over the years in China, mostly offering a better life, inoculations against tyranny or something better in the hereafter. The come and they go but their attraction to the Chinese is almost magnetic. They have witnessed the rise and fall of ../../__147.css;the Taoist Yellow Scarf Society during the Han dynasty in 184 A.D., the Wu Dou Mi Religious Society during the Jin dynasty in 399 A.D., the Bai Lian Sect in 1796 and the Taiping Rebellion during the Qing Dynasty in 1850.” ([1])  

Economics 

With a landmass of 3.7 million square miles, China is slightly larger than the United States. Only Russia and Canada are larger. It contains the highest point in the world, Mt. Everest, and one of the lowest, Takia Makan, an oasis, which is over five hundred feet below sea level. The Yangtze River is almost 4,000 miles in length and only the Nile and Amazon exceed it in size.   The land for the most part is unsuitable for agriculture, as mountain ranges make up much of China's terrain. It has 22% of the world's population and only 7% of its arable land. Yet, it is agriculturally self sufficient, due to the use of highly technical production techniques. On the other hand, the food is only of the subsistence variety, and as the country's wealth increases, it is likely that the population will desire a more varied diet. Under those conditions it is doubtful that China can maintain the delicate balance that it has established between production and consumption.

 The World Bank in a recent report indicated that while the world's economy was growing at a rate of 2% a year in the first half of this decade, during that time, China averaged a global high of 12.8%.  Of the top nine countries in the study, all but Kuwait and Jordan are from the Pacific Rim. The runners up were Kuwait, New Guinea, Singapore and Malaysia, all literally  in a dead heat, Thailand, Vietnam, Jordan and Indonesia. However, some of these countries are starting from literally a zero base and any growth at tends to be magnified dramatically. Neither Vietnam or Jordan had virtually any economy at all a decade or less ago.


 

[1] “In the early seventeenth century, trading companies in England leased lands in what is now the United States.  In order to make profits, the companies assisted settlers in developing natural resources.” American railroad companies, in need of a large supply of laborers for their transcontinental railroad construction, persuaded many Chinese to emigrate to the United States to work as unskilled laborers.”  Center for Migration Studies of New York, International Migration Review, spring 1995.

[2] “The last few decades have also witnessed extraordinary growth in global industrial and agricultural productivity, with profound social consequences.  Among these have been migration and urbanization that in turn have upset traditional household structures and gender roles.  The same forces have depleted non-renewable natural resources and produced environmental pollution.” Our Global Neighborhood, The report of the Commission on Global Governance.

As more countries join the list of industrial wanabees, there are often certain strains that are put upon their systems. The sudden transaction of a society from rural or agrarian to urban occurs more often than not without a proper infrastructure development being put into place. Cities like Alexandria, Sao Paulo, Calcutta  and Mexico City are horrifying examples of what can happen when too many people opt for what they consider are the better things in life offered by  the ../../__147.css;big cities” all at once. The normal problem of having a roof over one’s head is more or less of the superficial variety, but environmental after the fact concerns  have turned magnificent cities into wastelands. Standard problems of brought on by too many people trying to occupy a relative small area to quickly cause, inadequate sanitary facilities, massive pollution, substandard drinking water, insufficient and inoperative transportation, lack of police protection, overcrowded jails and inadequate teaching facilities. Show me a city in a third world country that is growing quickly and you will find all or most of these problems. Many of these problems stem from the fact that these countries are democratic and people are allowed, for the most part, to live where they chose.  

Awareness

This has not always been the case in China but to some degree it is becoming true today. People in China are now aware of what is going on in the world, they see television, they have Internet and they talk to their friends that have traveled. For that reason they suffer the same delusions as everyone else on this planet, that of aspiring to a better life. However, China is still much more dictatorial than India, Brazil, Egypt and Mexico and at least has an opportunity to see that its growth is to some degree controlled. China historically has used a sophisticated identification system so that at least most of their citizens are either where they belong or they are somehow or other otherwise accounted for. Without these passports to a better life, moving from on place to another is extremely difficult. China has industrialized and because of that reason has become a nomadic culture. Depending upon the season or the industry, there can be enormous shifts in the population of various places. The central government is out to build a modern society and is trying to do what it takes to get there, whatever the cost.  

Until recently, China issued residence cards to all of its citizens and only the chosen elite could meander about the country as they choose. When China determined to relax those regulations, an exodus occurred that shocked the country’s father/’s, it seemed that no one really liked it down on the farm and everyone was anxious to see the big city lights. Thus, the country was forced to attempt the impossible, to go from an ox-cart/bicycle economy to that superhighways and jet aircraft overnight. In terms of the road building the task was daunting especially because non of the modern variety existed. In the last decade though, all major cities in China have been linked together or are in the process.  

Buses replaced the rickshaws and oxcarts, but their society remained the same. As these modern prairie schooners plied the inter-city routes buses were obligated to pickup literally anyone, anywhere, carrying anything. These tramp steamers of the highways are filled to the brim as the careen down the roads carrying an assortment of people with chickens, pigs, food and other evil smiling luggage. While it serves as a means to an end, the buses are old, the tires are bare and the dangers are severe for anyone not having the ability to speak the language and a cast iron stomach.  

There are approximately nine million cars and trucks on the road in China with production at about 1.5 million a year and rising like Topsy. The figures are somewhat deceiving though because the great majority of the trucks cruising the Mainland's highways are military.  While 125 companies make these vehicles, 70% of the total are produced by only seven manufacturers and only a tad over a million Chinese own and drive their own cars. On the other hand production is increasing geometrically as incomes increase and the highway system reaches maturity.  Not to long ago even if you had a car, you really couldn't drive it anywhere without taking your life in your hands, today, almost all of China is accessible and everyone would like to trade their bicycle or moped in for a car. The problem is that by far the majority of the population can not afford the luxury of owning an automobile. On the other hand car theft in Southeast Asia has picked up dramatically and for the most part, the objects of the thieves’ affections are unloaded in China.  The average Chinese worker is making $500 per year and there is over $3,000 worth of raw materials in a 2,000 pound automobile. The mobility of the average family in China will be limited in the near future to how many people they can load on a bicycle,  

As for rail transportation, which has been the mode of choice for some time, long lines at train stations greet ticket buyers and as the throngs push and shove for position, pickpockets are able to relieve many of their cash. The rich, are able to hire either “line standers” (those that will get tickets in exchange for an honorarium) or ticket brokers who for some strange reason are always walking around with just the ticket that is needed in their pocket. The price, about five times the going rate, but it is certainly better if you can afford it than fighting the mobs.  

Air-traffic though is a horse of another color. An industry that has been growing at the rate of 20 percent for a score of years is not to be overlooked. Between tourism and an ever more mobile population, airports are being built and reformatted at breakneck speed. The problem is that although an airport can be erected here or there, the air traffic control system must address airspace relative to them all and the computer capacity is just not present to do the job.  Think about the logistics, the air controllers in the United States have had a humongous time keeping track of every plan and its flight pattern along with getting them up and down safely. China is only a tad larger geographically than the United States but has a substantially larger population. Just think about the logistical problem that they would face if they had the same percentage of people taking to the air. Moreover, where would they get the planes to transport them?

For the most part, air control systems are not indigenous to China and the country is in the process of spending billions of dollars in precious hard currency to get the job done. China is expected to go from about a dozen airports with the capacity of handling large commercial jets to 100 by the turn of the century, a monumental task. On the other hand, their navigational systems better be in place and synchronized or a lot of metal is going to strewn over the landscape. The major problem is the fact that airspace in China is highly restricted and it is primarily reserved for the air force, which controls over ninety percent. You can not have a situation where 90 per cent of the air space is restricted and still safely fly people out of 100 airports in a country only slightly larger than the United States. At present, on Beijing, Guangzhou and Shanghai handle 40% of the nation’s air-traffic. The margin for error becomes very small when the corridor that you are flying becomes clogged or weather contaminated. How do you fly around the weather when you are obligated to only travel in a straight line?  Sounds like a kamikaze mission to me.  

However, provincial leaders sometimes have interests that are diametrically opposed to those of the central government. Although since the time of Mao, China has had a policy based upon agricultural self-sufficiency, the fact is, farm products don’t pay the freight for infrastructure development. They provide sustenance for the people but when you a country with over a billion mouths to feed, you are lucky to keep their bellies full, forget about generating hard currency. Hard currency that comes from the global sale of manufactured goods can provide the people with enough to eat.  

The country not to long ago was basically a barter society with an unwieldy language that does not allow a lot of computer latitude without a substantial amount of tinkering. Things like calculators, computers and even cash registers were rarely seen in this country until a few years ago. Because of the lack of an imbedded technology bas, China suffers a perennial problem in their collection of taxes from urban residents. However, when it comes to collecting real money from farmers who mainly deal in the exchange of products, that is a horse of a completely different structure. Moreover, China has recently had a problem with the distribution of wealth and when you take a micro-economic look at the country, it is literally divided into any number of slices, with a substantial amount of overlap in numerous areas. As a generalization, the wealth is located in the eastern part of the country and farming is done in west. The mineral resources are located in the west but the shipping is predominantly in the east. China’s customers for their exports are located in the northeast and southeast and the products that they buy are primarily finished goods which are produced in the east. However, the raw materials that make up the finished goods usually come from the west.  

China philosophically places very little value on raw materials, farm output or energy. These essentials are contributed to those products that create exportable items at what you could say are ../../__147.css;coolie” wages. In other words, the central government sets the values within the system at each stage of a products production cycle. Because of the historic underpayment of people from rural areas and the massive numbers of prisoners that receive no pay at all, the basic stock for manufactured items is priced substantial below equivalent world market prices. This could only occur in a system that is totally committed to bringing in hard currency at any cost. In this case because of the logistics involved, this usually comes at a substantial cost to those people living in the western and southwestern regions of the country.  

The southeast has substantial potential but is almost an alien territory operating within an otherwise synergistic society. What happens in the provinces in the western and southwestern parts of the country is that they have neither the income to help pay the expenses of the central government nor the ability to even help themselves and thus live substandard existences. Because of this anomaly, many of these provinces almost operate unilaterally relative to the central government.  

In an effort to create goods that can produce income for the residents of outlying provinces, their leaders often mandate the creation of their own factories and in doing so more often than not, directly compete with the central government’s overall planning strategy. The factories are usually centered within quickly growing cities where there has been little or no infrastructure planning. Worse yet, valuable people are pulled off the farms in an effort to equalize the economic disparity between regions. Sadly, this has resulted in the deterioration of agricultural production, where China in less than a decade has gone from underfed to fed and back again. While China can now purchase food in the world’s market with its substantial hard currency reserves, the country is no longer agriculturally self sufficient.

Securities

Stock prices in China have now been in the doldrums for about a year to some degree following the lead of markets in the rest of the world. The Chinese market has fallen approximately 30 percent from its highs and the people of this country are not at all happy about what has happened. In spite of this natural occurrence, stocks of state owned companies are still selling a lofty price earnings ratio of 50-60 times earnings, about twice the price of the Dow Jones. While a case can be made for the Chinese market to outperform its more mature American counterpart due to the substantially higher projected growth rate in China’s gross domestic product, but in reality this market is for the most part unregulated and hard numbers on earnings and sales are impossible to come by. Moreover, there is a substantial fudge factor built into Chinese growth numbers and the regulators still have much more work to do before investors in China can be confident that what they see is what they are going to get.

In the meantime, the Chinese Government has decided to use the still inflated market as an alternative money raising vehicle. China because they are supposed to be a Communist State goes about its privatization in a round-about manner. Instead of selling state owned companies to independent buyers in an open market, which would smack too much of free enterprise, they find that they can do much better by floating these shares in the stock market and then selling whenever they are in need of money for one project or another. Because of the fact that this method of raising money is simpler than collecting taxes, a difficult job at best in China, the rulers of the country are not particularly anxious to quench the burning fires of speculation that exist within the population. As a matter of fact, if anyone would raise their voice to harshly about China’s stock markets they could well wind up in jail or worse.

Thus, the Chinese Government consistently twists itself into a pretzel in order to communicate to the people their attempt at cleansing the market place of evil doers and profiteers while in reality not doing much of anything other than giving lip-service to its grandiose plans.  However, as long as they can collect enormous amounts of money by this bizarre form of reverse taxation they will continue to work in the markets grey by feeding the speculative passions of their people. If the government can’t get the money out from under the mattress in the form of taxes they can easily get their unwitting citizens to take it out in order to invest in get rich trading schemes of stocks that are controlled by the state. People that suggest that investors are throwing their money away on overpriced securities or are investing in companies that they know little about and which routinely have the accounting of their profits made to order are routinely threatened by all segments of the population. God help the stock market service that causes the substantial decline of one of the people’s favorite investment choices. The can literally be burned at the stack for such a blasphemous action in spite of the fact that they could be entirely accurate.

Interestingly enough, it is usually the American educated Chinese that return to the Mainland as employees of large financial conglomerates after getting a thorough financial education abroad that get the brunt of the criticism. When these folks talk about the market being too high, they are blamed for wanting knock prices down to buy up cheap shares and when they recommend a security they are said to be doing it to dump their shares on an unsuspecting public. This is indeed a risky company to be an honest securities analyst. The Financial Times in an interview with Yang Fan, a senior researcher at the Chinese Academy of Social Sciences, someone should have known better said, ../../__147.css;People should be wary of certain ‘returnees’, They earn a high salary from foreigners but do things which make individual investors suffer.”  Sounds like the right kind of thinking to me.

Corruption

Shenyang is China’s fourth largest city and the home to over 8-million people. The politicians in this city are for the most part, party hacks who conspicuously toe the line while continuing to ring up the votes their hierarchy in Beijing whenever there are local and national elections. Party officials in Shenyang, for this reason have always been highly regarded by the senior politicians in China’s capital. However, when it was found that the mayor of Shenyang, Mu Suixin had secreted over $6-million in gold bars within his two country houses along with hundreds of high-price Rolex watches and an antique collection fit for the Taj Mahal, there were early signs that he had gone a tad too far and his benefactors in the capital were sure to pull the plug on the entire corrupt Shenyang political organization.

What happened in this city was impossible to deny as computer disks were recovered which gave chapter and verse as to the illegal manner in which these assets were converted to the mayor’s possession. This was especially disappointing to his associates in Beijing because of the fact that Mu had originally been a graduate of Qinghua University, literally the top school in China, he had been cited by the United Nations in 1999 for his work in improving housing in Shenyang and had been sainted by western media for saving many of China’s unprofitable state owned industries by using modern economic techniques. This in turn provided substantial employment to the area. Because of similar problems throughout the country, the leaders in Beijing had always pointed at Mu as being a sea of tranquility amidst a storm of bribery and deceit. This did not play well in the Forbidden City.

In addition, this public disclosure caused Beijing no end of consternation because officials there were in the midst of another cleanup operation in which thieves along with unethical politicians were being rounded up and summarily shot. However, there was the ultimately determining factor that Shenyang always had swung the vote in the right direction in the past and for that, there was a debt that was owed.  It was at this point that the leaders in Beijing made a series of strange decisions. Naturally, under the circumstances, the first that they ordered done was the arrest of those that had brought them the evidence of the mayor’s intransigence. Zhou Wei, a retired official who was 71-years of age was responsible for blowing the whistle on corrupt police officers in Shenyang and for his efforts he received a two year jail sentence to be served in a labor camp. His partner in the crime of uncovering evil doers, Jiang Weiping, got an even stiffer sentence as it was he, as a journalist that exposed the entire corruption machine in the highly read Hong Kong magazine, Frontline. For this anti-Chinese action he was given a sentence of nine-years in jail. The logic of Jiang’s sentence seemed to send the message, if there is corruption in this country, tell your story in Beijing first and don’t go to the newspapers with it.

After the Beijing’s leaders had addressed those whom they believed were the guiltiest in this affair, Zhou and Jiang, they got down to the more serious business of how to show the people that they were taking action but they had to do it without taking apart the well-oiled political machine that had been delivering the vote. Naturally there were going to be certain untouchables. All those that had closed ties to senior officials in the Chinese Government in Beijing were allowed to walk without even being questioned no matter how involved they were in this matter. Most Shenyang officials were allowed to remain at their posts without even giving up a day’s pay. A new mayor was brought in that Beijing felt could get along well with the entrenched political system without notice of the fact that he too had been accused of protecting corrupt officials in his previous job as mayor of Dalian, another large city in the same province.

This was a rather grievous situation and as the Washington Post pointed out in a story by John Pomfret:

../../__147.css;Corruption in Shenyang involved almost every government department and ran the gamut from smuggling, to buying and selling official positions, to stealing farmland for big development projects, to rigging construction contracts, to basic theft from government coffers.

The mayor, his wife, daughter and lover, his executive vice mayor, the police, prosecutors, judges, customs officers, construction bureaus, private companies, bankers and local legislators were all on the take, according to a government report. In his 17 trips to gambling dens in Macao and Las Vegas, the executive deputy mayor, Ma Xiangdong, was executed late last year, blew $4 million in public funds a source close to the investigation said.”

And yet he was rather laid back in his efforts to cull money from the public coffers when compared with others. Ma had an associate by the name of Liu Yong who was a local legislator during the day but headed what was probably the largest crime syndicate in province at night. His gang of toughs were responsible under his direct orders for killing at least 35 people who wouldn’t willingly give up property that he needed to develop for a real estate complex. He had become the largest dealer in smuggled cars from North Korea and once they had made it safely over the border he would sell this contraband merchandise at the local convenience stores which he owned. His astronomical profits were also often spent at some of the plushest Vegas casinos. For unknown reasons he has yet to be even be tried.

The mayor’s wife was also in on the thievery big time. When one of the higher bids was approved to build a highway around the city, the contractor was granted it on the condition that the materials would be purchased only from the Mu Suixin’s wife, Zhang Yafei, who in reality didn’t know cement from fertilizer. This was evidenced by the fact that within six-months of the time that the highway was completed, almost the entire length of this brand spanking new road split neatly down the middle and became riddled with substantial potholes making in totally unusable. And the city’s first lady was not done yet. There is an old saying in China, like mother like daughter and Mu Yang, was a spoiled child at best. When she grew up she was always demanding the nicest things for herself and her parents were always condescending to her wishes.

However, her mother grew tired of being constantly nagged by her daughter about getting a lot of money and talked her husband into granting his brainless offspring the contract to beautify the city with brand new lighting and billboards. When the city’s lighting blew a fuse and the billboards were wrecked in the first minor storm that hit Shenyang, an investigation was hastily begun in spite of daddy’s best efforts to put the matter to rest. It was found that all of the contractors were kicking back far too much to Mu so that they couldn’t afford to erect the billboards with proper materials. Further research found the millions of dollars that had been paid off to her and was now drawing interest in a convenient Hong Kong bank.  
 

Naturally, this caused Mu to catch the first available plane headed for the United States and that is where she is still happily ensconced even today.  Intelligence relative to the supposedly quiet investigation was like a sieve and soon everyone involved in the matter was heading in an easterly direction along with their money. They now call the city of Las Vegas, Shenyang East because of the numerous politicians from that city that now call the American gambling capital their home.  

However, the Mayor himself developed an ugly case of lung cancer from chain-smoking cigarettes for most of his life and the Chinese Government seems to have determined that this was punishment enough for what he had done. Thus, when all was said and done, the whistle blowers are now doing substantial hard time for their cleanup efforts, a few senior politicians were caught before they departed for the United States and will serve some time in jail as well, but most of the characters in this untoward drama are now living the good life in the United States, hardly a fitting punishment. China’s attempt to cleanup their political corruption still has a long way to go. However, probably the casinos in Vegas will eventually take upon themselves to separate these profiteering politicians from their ill gotten gains.

In spite of the fact that many of the people involved this fiasco got off lightly because of their political connections, China’s leaders are quick to point out that they have taken a much sterner hand when it comes to corruption and other crimes. The Associated Press in piece entitled, ../../__147.css;Chinese Law-Enforcement Officials Say Courts Don’t Meet Expectations written on March 11, 2002 had some interesting quotes primarily from Xiao Yang president of the Supreme People’s Court:

../../__147.css;Mr. Xiao said China’s courts handled 729,958 criminal cases last year, an increase of 30.8% over 2000. Of 340,571 people sentenced for serious crimes, 150,913 got the death penalty or at least five years in prison, he said…Prosecutors investigated 36,447 corruption cases involving 40,195 people and funds worth 4.1 billion Yuan ($496 million) in 2001, according to Mr. Han, the prosecutor. That compared with 45,113 corru0ption cases investigated in 2000. The Communist Party’s top graft-fighter, Wei Jianxing, said last week that the number of corruption cases peaked in 1993-1998 and is now declining.  Still, many graft cases are handled outside the courts. The official Xinhua News Agency said recently that 175,364 party officials were investigated for corruption in 2001.”

"Last year, 20,120 people were convicted of bribe-taking and embezzlement and 995 court officials were punished for corruption or other crimes, of whom 85 faced criminal prosecution. Mr. Xiao reported. He said prosecutors and police focused on rooting out officials allied to criminal gangs or who offered protection to gangs, smuggling rings and producers of fake products…In a renewed drive against organized crime, known in China as ”black societies,” Mr. Xiao said courts handled 350 cases of mafia-style crime in 2001, a six-fold increase over 2000.”

However, in spite of the glowing statistics that seem to show a serious attempt by prosecutors in China to reign in crimes of all sorts, the type of offenses that would tend to hurt China’s relations with bankers have become increasingly more serious. A number of foreign bankers have been killed in supposedly safe areas of China.

Retail Sales

One of the problems that has historically plagued China is the lack of any national branding. The problem which has been brought about primarily because of China’s previously, almost feudal system of transportation, a lack of specialty outlets and the historic anathema towards national advertising. An advertiser that does national advertising is playing to a market for the most part that he couldn’t even get his goods too even if the people that saw his commercials wanted to purchase them. For most part, advertising in this country most be directed towards those cities which form the national distribution system itself. These would be those cities primarily on the national highway grid and would therefore be located primarily in the Eastern sector of the country.

Beyond the pure logistics of the matter is the fact that local products are produced by regional workers. Political chiefs in these regions are not anxious for their citizens to be thrown out of work so that a certain brand loyalty to local products has become instilled into the population. Those that load up in the larger cities with more economical national brands can be severely criticized and most unload their vans when they get home in the darkness of the night in order to avoid being ostracized by their neighbors. This is not to say that the urbanization of the entire country is not happening at a break-neck pace, but for the time being, certain concepts can be premature and resistance can be high especially when local jobs are on the line. This thinking to some degree has hurt the national effort to bring down the price of unit sales even further but there are so many people already on the grid that this has not become for the first order of business for the nations leaders.

However, there are certain areas of endeavor in which there are no regional or national products available and in those sectors there is unlimited opportunity for entrepreneurs to ply their trade. One of the early success stories is a Chinese company called Babycare which was founded by a young American expatriate living in China. Babycare specializes in three distinct product categories all of which have been overlooked in this bourgeoning economy. The first is a wide range of nutritional products that carry the Babycare label. Matthew Estes the company’s thirty-five year old founder who formerly worked in China as a salesman for SmithKline Beecham Pharmaceuticals, arranged to bring in some of the best known Chinese nutritionists and doctors to push the product on television, the news media and in the form a Chinese multi-level marketing setup in which everyone is an evangelistic employee not a commissioned agent.

The food products themselves are more mundane but they are branded and through the success of the nutritional supplements, the name Babycare has developed substantial cache in this country. Moreover, everything with that brand name on it is assumed to be a notch above what one can purchase at the local store. This branding has also given a substantial push to the company’s toy divisions which is geared to toddlers of the age of six or less. These toys are a technically an improvement above what is usually available in Chinese stores as most of them have degree of educational value attached to them. Education to one child homes is a significant buzzword.

The entire product line is enhanced by the company’s website which provides vital information to expectant mothers and those women with young children on subjects that many in China believe to be taboo. The site has educational forums, a series of chat rooms on diverse subjects that allow peers to converse with each other and specialists who are brought in at varying intervals to talk about specific problems that may be facing various women with children or who are pregnant. When compared to the only available alternative, the state run clinics, which are about as personal as a frog, Babycare is providing a valuable service to young Chinese women who literally have no where else to go.

The company’s products are sold through distribution centers located in many of the larger cities which also double as classrooms. The women are taught about the type of nutrition that their children will be needing and then can conveniently load up on Babycare products in the back room before they leave. This unusual distribution characteristic sets the company apart from other retailers who manage to get by because they may be the only game in town. Equally important are the facts that large families are no longer the rule in China and the economy has provided substantially more disposable income to new parents. Having only one child is reason enough for parents to attempt to do the very best possible for their progeny.  In a one child country, this translates to the fact that there are four grandparents for every offspring, and Chinese grandparents have a history of being very doting when it comes to their grandchildren.

Success in this country can often be measured by the schools that the young people eventually attend and the number of degrees that they are able to accumulate. For this reason, Babycare’s largest seller has become Nutrimed which is a supplement aimed at the market for brain and eye development.  Because of focused marketing, the elimination of the middleman and a zealous sales staff, Mr. Estes along with his corporate investors, which include Bank of America have been able to bring a substantial cash return to the bottom line while avoiding so many of the pitfalls in the Chinese Marketplace. The company is expanding like Topsy and doing it primarily on its enormous cash flow.

Television

The glue that binds China together is television and in spite of the fact that shows originated in this country have had a tendency to be bland, uninteresting and dogmatic, they have been the only game in town. Dull serials have dominated Chinese television from the very beginning, for the most part carrying some form of moral message that tends to make the shows unpalatable to even the most self-confessed stay-at-home. However, as we have pointed out earlier, many people in this country are utilizing cable and getting through to the rest of the world. Thus television in China was forced to compete with the fare offered elsewhere and most recently television in China has become more commercial and at the highest end of the pecking order are what are called the reality shows. These are shows that are filmed live and pit individuals, couples or groups against each other for what, by Chinese standards are substantial prizes. These prizes can be cars, homes and even cash awards of over $100,000. Moreover, to the Chinese these are extremely substantial rewards and the demand to get on these shows has become overwhelming to say the least.

While a number of them are already in the can, the problem from the beginning was the fact that in order to win one of these ../../__147.css;Survivor” type contests, it took not only a strong physical durability but also a character that included the ability of doing your competitors in by any means at your disposal. This concept was originally totally alien to Chinese life which at least superficially taught that everyone should pull together to get the job done. Ratings for those shows which left out the darker side of human nature did not seem to fare well as well on television as did those that contained none of the good things in life such as scheming, conniving and underhanded dealing. Eventually, audience ratings determined that human nature at its very worst should be exposed for what it really was and the programs ratings proceeded to explode.

The original show in that genre, Shangri-La was changed to allow for the watchers more basic natures. The eventual success of Shangri-La led to a new rush to air these types of shows and in a recent article in the Wall Street Journal by Leslie Chang, they were described as follows:

../../__147.css;’Escape to ancient roads’ will feature 16 contestants racing in jeeps in the uninhabited reaches of northern Tibet. In each daily segment, one person gets voted off the show by the others; the fastest driver each day wins a car. Another show, ../../__147.css;Panning for Gold” will plunk four Chinese contestants down in the U.S., where they will sell Chinese products while regularly tallying their financial status.”   China Central Television, the state-owned national broadcaster, last month started airing, ‘The Golden Apple,’ a weekly series that sends two teams on a treasure hunt, with the winners getting a $1,200 scholarship. The show’s creator, a private company called Beijing Qiuxian Advertising Arts, is reworking it to sharpen the head-to-head combat between the teams. ‘We want the two teams to resemble two armies facing each other,’ says Wang Wei, the company’s managing director.”

../../__147.css;It takes some concessions to the cautiousness—or prudishness—of officialdom to survive on that frontier. (Reality shows with personal conflict) For example, ../../__147.css;Strategy of Love,” China’s nod to the Fox network’s ../../__147.css;Temptation Island,” will feature only two couples among the 20 contestants, with the others unattached. In contrast, the express point of ../../__147.css;Temptation Island” was to tempt couples into romantic liaisons with attractive singles. Mr. Chen (The head of Beijing Weihan Cultural Broadcasting Company) says in China, the prospect of breaking up too many couples would be seen as morally unacceptable. ../../__147.css;

It would seem that the Chinese are getting their act together on all fronts. They will soon become aware of all of the bad things in life that the rest have known for many years. Perhaps this will make them even more ferocious competitors in the economic arena. This is could turn out to be a fate worse than death.

Fast Food American Style

Years ago, no one would ever have thought that the Chinese would become more American than Asian in their thinking, but strangely that is what has occurred. As China embraced the rest of civilization it was a stretch to believe that this historically inward leaning country would have ever chosen western ideas over those of their neighbors. However, the American life style has become cache to the now substantial middle class that has arisen in China. Fast food seems to fit their lifestyle while Chop Suey and Sushi have almost become pass’. All you have to do is look at the statistics supplied by the New York Times in late February of 2002.

../../__147.css;There are now 80 McDonald’s in Beijing alone, a figure that has accelerated greatly in the past two years. The number of Kentucky Fried Chicken outlets has increased by 100 a year for the last 2-years to about 600. Shanghai and Beijing each have more than two dozen Starbucks. Most Chinese never drank coffee until Starbucks came to town in 1999, selling small lattes for over $2…”

It seems that for whatever the reason, the Chinese have fallen in love with things American. This s particularly odd when you consider the great distrust that Beijing held America in. However, the flip side of the coin is the great entrepreneurial skills that have been demonstrated by American entrepreneurs for breaking down the doors of a market once consider closed to the west. Other American businesses have performed equally as well as the above. Price Smart, Pizza Hut and Coca Cola have done sensationally making products previously unheard of in this country into household names. They have done so well that according to Beijing’s Horizon Market Research, nearly half of all Chinese children under 12 identified McDonald’s as a domestic brand.

Political views aside, China in sociological terms is rapidly becoming an annex of New York City and a traveler here would find little to stare at in the major eastern seaboard cities that he wouldn’t find in his home town.  While this may becoming a problem to Chinese politicians that on occasion have been know to paint the United States as the World’s bully, the people have developed a love affair with things American. By combining high quality products with unique western style down-home marketing, the west has won the hearts of the Chinese population; however the jury is still out when it comes to the people that really count; those living in the Forbidden City. They are the only ones that really count when the votes are all in and they can turn off the spigot as easily as they turned it on. 

The Law and Fast Food

In spite of the fact that China has developed a love affair with American Fast Foods, once in a while the love affair and Chinese laws come to a harsh separation of the ways.  From a fundamental point of view, China was never big on deals being reduced to writing and if the local politicians and the entrepreneur could agree on terms, this was more often than not sealed with a handshake and there was never a particular need to delve further into the transaction. As the legal system in China became more sophisticated because of business expansion, foreign influences and the confluence of both and the import and export market, many of those matters which were previously left to handshakes and the honor system have been rudely altered and unless they have been meticulously reduced to writing, totally in conformity with the existing code, there can be serious problems. As times have changed many of those that got into the game early failed to see the handwriting on the wall and did not revert from handshakes to written contracts, naively believing that China would continue to stay with its old ways. However, this  could not happen in a modern state and has caused no end of confusion.

The New York Times did a story on this change entitled, "The New China Can Look Like the Old", by Chris Buckley on May 2, 2002. In part it went like this:

    "Frank Miu, the holder of the A&W franchise here, may have met his match early    Monday morning, and it was not McDonald's or KFC. After a decade of building up a chain of American-style root beer and sandwich stores, promoted here as "the father of American fast food," and surviving an onslaught of competition, Mr. Miu found himself staring in bewilderment and shock as a squadron of 30 officials from a local court swept into one of his outlets in a busy commercial district in northwest Beijing. While police officers videotaped the small crowd of restaurant workers and passers-by gathered outside, the court officials seized the restaurant's tables, chairs and cooking equipment and sealed the doors. At the bottom of this case is a lease dispute, and those can turn thorny almost anywhere, of course. But Mr. Miu's predicament illustrates a larger danger facing Western companies here: crosscurrents developing in the traditionally vague, indirect and informal way business deals are often done here and the requirements of a more legalistic court system that sometimes intervenes precipitously in disputes."

Interestingly enough, Mr. Miu should have known better as he is a Harvard-educated lawyer and he and his partner were trying to do business in what they call "Beijing style" a form of agreement that is understood between the parties by not memorialized on paper. This was a rather serious mistake for a person that had always argued with his clients to "get it in writing". However, the fact that the agreement was not in writing would not have made a tad's difference if it were not for the fact that Miu had tied up a valuable piece of property at a fraction of what it was now worth. People with better connections than Miu obviously wanted the property and went to the landlord and inquired about a lease. The landlord indicated that he had a handshake with Miu. They correctly indicated that a handshake wasn't worth the paper that it was printed on in a Chinese court with a trumped up case and a paid off judge. They also correctly informed the landlord that cash speaks loudest and offered him an amount that he could not refuse.

The landlord went to court and complained that Miu had not been willing to renew his lease in spite of constant requests and that he should be dispossessed  from the property.  The court seemed to buy that argument and another piece of Chinese history had gone by the boards. While handshake agreements are still all the rage here, they do leave the parties to the agreement open to outsiders who know how to manipulate the new-fangled system to their best advantage. Having a Harvard Law Degree here is an inferior position to knowing city officials and having some big bucks. Undoubtedly a new fast food palace will arise from the ashes of the shuttered A&W store here in spite of the fact that officials have said that the property would be converted to a drug store. You Bet.

Rental Cars

So what if a Chinese couple decide to see the countryside around them on a lovely weekend and have no car, what do they do? Well, there are a lot of busses around that will drop them off pretty much anywhere and if they are in the right place at the right time, they can even find one going in the opposite direction so that they can head for home when their day is over. In addition, there are trains in China but they are much less punctual and the stops are few and far between and usually when you are left off, you still have quite a ways to go so this is not a good solution. There is an occasional hotel around, but travel between cities is only something that has come upon the scene recently and as the country starts spreading its economic muscle around, some accommodation must be made to the future. As tourism increases the number of western style hotel accommodations will dramatically increase but for the moment, they are not part of the national strategy other than for the very large cities.

The future for middle class car-less families in China may well be Hertz or Avis Rental Car Companies. As part of the recently arrived at WTO agreements, the Chinese Government has allowed the two rental car companies to set up shop in Beijing, Shanghai and Guangzhou. Living in the United States one really has to wonder how salesman in China really got around before the rental car initiative got going. Well, the answer in actuality is that they didn’t, up until recently roads were poorly paved, gas stations were few and far between and bad weather could inundate the highways for days at a time. Effectively the salesmen was forced to work small territories that were located close to their home base.

However, the fact that the rental car companies are moving into China will not be any panacea for international travelers anytime soon. It seems that at the beginning at least, travelers will be obliged to drop off rental cars wherever they are picked up. International drivers licenses will not be honored so if someone really wants to drive through China they are going to have to pass the local driving exams and most of them are only given in Chinese. However, in spite of this, there is some light at the end of the tunnel as China has indicated that it will allow foreign renters to start using their international driver’s licenses sometime in the unforeseeable future, whenever that is.

Tourism is probably the ultimate use for a rental car in this country as they have a road system that was created far in advance of any possible usage. The best available statistics seems to indicate that they are not destined to be fully utilized for the next several decades or even longer. Thus, highways here are a dream, modern, multi-laned, non-access and few restrictions of any kind. Movement that only a few years ago was restricted by both regulations and terrain is now a vision to behold. As tourists start to pick up on this breathtaking opportunity, China will be forced into the pleasant task of creating fast food shops, tourist hotels and mega-gas stations sprinkled along the countryside to please hungry and tired travelers. Who knows, they might even decide to make the truly western traveler feel more at home by charging for driving on their magnificent highways. However, as this unfolds, it will only help push China’s economy even faster as the tourist dollars, now only a trickle start to really roll in.

However, while the countryside is a dream, the cities can be a nightmare. China’s indigenous traffic is still in a bicycle mode and cars will be forced to vie with their two-wheeled competition for parking. Traffic patterns that contain endless streams of bicycles is also much slower moving and the rental car contingent will have to bear with it as the torrent slowly moves along. The bicycles in some instances have taken to the superhighways as well and this tends to cause some dangerous conditions. I for one would not want to be the foreign tourist that knocks down a cyclist and is forced to explain what happened to the local Chinese Police. These folks can sometimes get very cranky and jails in China are not for the weak.

In the meantime, rental cars may for a while still be the hobby of the salesmen working for large corporations with lots of money or for only the flushest of foreign tourists. Cars are much more expensive in China then they are most anywhere else because of enormous tariffs that the country charges and because of that, the rental companies will be forced to pay high prices for admission into the business. And yet, as prices eventually fall as they are predicted to do, the car rental companies may not be able to receive anything near the economic price necessary to cope with rental fees as we know them when selling their used merchandise. In the United States for example, most of the time car-rental companies no almost to the penny what they are going to get for their surplus cars when they sell them in about 2 years. This is added into the price charged for rentals and the companies are able to project a tidy profit. This is harder to do when taxes are in a state of change and prices a thought to be going to drop precipitously when these artificial barriers to commerce are removed. Thus, rental fees will originally not be set at a price that can be afforded by the faint of heart and getting proper insurance may be an even greater problem.

However, all that aside, China does not have a national credit card network and although this is not a deal killer that will stultify rental car use until they system is established. There is little question though that this as with all other problems in this enigmatic country will get worked out and at this rate, China is soon going look a lot like everywhere else. Better get there early.

The Political Process

As a youngster growing up in Chicago, I read in the daily paper’s headlines about a phantom payroll scandal. These turned out to be people that had died and were buried in various cemeteries around town. In spite of this fact they were a very active part of the cities voting contingent and in addition to voting they were also paid a significant sum to work for the City of Chicago. This was the era of the elder, Richard Daley who ruled the city with an iron fist and if you weren’t for him and the Democratic Party, you were thought to be the enemy. I thought, ../../__147.css;What better why to get through college than to volunteer to a phantom parole and I wouldn’t even have to share a cemetery plot to get involved”. I naively marched into city hall, nowhere near old enough to vote and announced to my prey, an overstuffed ward healer that my family had been voting democratic for 30-years and I had been voting the straight ticket for the last five. I was in law school and needed the bucks to pay my tuition. Without the slightest hesitation, the overly fat man sitting in a rocking chair at city hall leaned back while  clinching the largest cigar you have ever seen with both his uppers and lowers and announced, ../../__147.css;Kid if you want to be on a phantom payroll, you have to work for the party.” I was about to question him relative to those that were getting weekly checks while buried under 6-feet of sod and living in various cemeteries around town but thought the better of it and decided that if you can’t beat them join them.

That was a true story about a time long past and an American political system that worked because it was both corrupt but extremely flexible. Politicians around the country knew that Dick Daley could bring home the bacon and he did it year after year after year. I voluntarily became part of that system in spite of the fact that everything that it stood for was diametrically opposed to my upbringing.  However, this indeed is the way things still operate in China. In order to be elected to office, it is almost suicidal to run unless you are a card carrying member of the party. The party in China usually contains the acronym, ../../__147.css;The People’s” this or the ../../__147.css;People’s” that. Sadly, none of the ruling party’s platforms have anything at all to do with the people. They only are a methodology of perpetuating a life style that has become comfortable for China’s leaders.

Historically, anyone that was motivated to take on the politically entrenched and was not a card carrying ../../__147.css;Peoples This” or ../../__147.css;Peoples That” was historically taken aside by their employer and told that it would not be healthy to run for office and that if one did, their working career might abruptly end abruptly or even worse. Occasionally someone was stupid enough or given that, passionate enough to want to do some good deeds and ran in spite of those threats, veiled or otherwise. After all in the Chinese system you only needed a few people to sign your petition to be put on the ballot. Surprisingly in China the magic number of petitioners seems to be only ten but for the most part finding ten people that would be willing to lose their jobs in exchange for a nebulous endorsement were very few indeed. The catch seemed to be that those people that signed your petition usually wound up disappearing into political retraining centers. And even if all of your friends did not vanish, five will get you ten that you lost your job and without financial means could no longer campaign. However, in the rare case that you would get as far as the election, all voters were definitively told that a vote for you would result in their becoming irrelevant in the workplace. Obviously there were not a lot of non-party members that could stand up to this kind of pressure. Historically there have been literally none, that is until very recently.

However, China to some degree has recently liberalized its voting process and in spite of the fact that most elections in the country only have uncontested ballots with life long politicians running for offices that they cannot lose because they are unopposed. Today every once in a while someone comes along that seems to have no fear of retribution, delivers the requisite number of signatories to his petition and miraculously makes it through the starting gate and gets elected. For the most part though, these wild cards create utter havoc within the system with their constant cries for liberalization and honesty, two of the most hated things in the Chinese hierarchy, but yet, there has been a small crack in the dam and the country’s political climate is starting to undergoing dramatic change ever quickening change. Not a lot yet, but the trickle may soon become a torrent and when it does we may well see a country that has become an anarchy not a government.

Li Yujing, deputy secretary general of the Guangdong People’s Congress put the matter into prospective. ../../__147.css;Ten years ago, whatever the local government submitted to us we would approve. Even if we saw great need for a certain type of legislation, all we did was wait. Now not only do we review laws, we’ve started to write Laws on our own. We call in outside experts. We hold open hearing. We demand to see budgets.”  China appears to be coming a democracy of sorts. I am sure that they will eventually find it as difficult to deal with as we have.

China has a rather unique political situation somewhat similar to when an American plaintiff is not represented in court by counsel (pro se). The American justice seems to adjust to these hapless souls and becomes especially forgiving when dealing with these people. There also seems to be an ad hoc appeal process for anything that happens in Chinese life. The trouble with the process is that it is often thankless, unrewarding and frustrating but nevertheless it is there and it remains a way of life. You can literally petition for anything you want in China and can start at the lowest level bureaucrat in your district and carry your project all the way up to the top of the ladder. It is somewhat like the American Federal Court system appeal process, where if you are not satisfied with a decision at a lower level you are welcome to continue on up the ladder until you have exhausted the process. [1]

In China, the system is more open ended and can go on as long as the appellatives have the appetitive to endure endless frustration and ridicule. Possibly one case in a hundred receives redress in China using the petition methodology but eventually certain hardheaded people have made the process something more than one of trial and error. They have learned the in and outs of the process and found out that by becoming an enormous pain in the butt they have increased that chances of being heard and possibly succeeding.

However, there are substantially risks within the system for being too vociferous in crying foul. The penalties can range from getting locked up in either a penal or mental institution to disappearing from sight altogether.  The ideal situation for someone that wants to get something done using this process is to gradually work the petition up the line while relentlessly papering everyone in sight. Eventually, if properly thought out the paperwork should be eventually taken to a reliable newspaper and an article printed about the terrible situation that the petitioner is concerned about, which is more often than not, local political corruption.

Once armed with copiousness public relations material along with numerous signatories to one’s petitions, the petitioner must then appear in Beijing during an important conference. The best time is usually during the National People’s Conference. ../../__147.css;This is the only time when the higher-ups might pay attention to us. I knew it was dangerous, but this is the only road open to us. Similar sentiments were offered by dozens of petitioners here, clutching heavily thumbed files filled with accounts of murders and rapes gone unpunished, wrongful imprisonment and torture, gross medical neglect, unpaid wages and compensation, confiscated land and livestock, unchecked corruption and political vendettas.”[2]

Many of these petitioners eventually become hardcore. They just don’t know when to give up and turn to begging to be in close propinquity to the office that they are allowed to visit with their complaints on a once a month basis.  Interestingly enough, in spite of the hardships endured by these people, the number of visits by petitioners is constantly rising and last year hit almost 200,000 individual visits which is up over 30% from the previous year. However, while the numbers continue to rise, the patience of the government is getting shorter and eventually, these nomads will wear out their welcome and are then sent in many different directions. For many, this will permanently end their quest for justice. The land is seemingly filled with frustrated Don Quixote’s that similarly to the fictional character are in a never ending battle against the inanimate windmills that make up the Chinese justice system.


 

 

 


 


[1] Petitioners who do not feel satisfied after complaining to local offices can nudge their cases upward to offices in bigger cities, then provincial offices and eventually Beijing. Here they line up at the central office for petitions and appeals and at dozens of departmental offices, often in groups and carrying petitions. But often the complainants are then sent to other department offices, or back to the very officials who first passed them on or even back to the officials who are the subject of the complaints. The process exhausts the patience and savings of many of the petitioners. Only the most stubborn persist; Ms Gao for one, estimates that she has come to Beijing nearly a hundred times over 10 years, this time in defiance of a police guard on her home.

 

For her and others, the Dongzhuang neighborhood is base camp, though of late demolitions have scattered many of its residents. Its primitive hostels offer shared plank beds for as little as 30 cents a night, and a place to swap stories and pick up tips on how to win a case. The petitioners’ chances are slim, but enough to keep many trying. Sun Hongqing, a veteran campaigner who runs his own petitioners’ hostel here, said, ‘I take in a few hundred of them every year, and maybe six or seven go home satisfied.’” Chinese Seek Justice, Clad in the Armor of Persistence, By Chris Buckley, The New York Times, March 11, 2002.,

 

[2] Chinese Seek Justice, Clad in the Armor of Persistence, By Chris Buckley, The New York Times, March 11, 2002.,


 

Wealth Distribution

In a country with no middle class, the average urbanite earns more than twice as much money as his rural cousin. In real terms, farm wages are substantial less than they were as recently as five years ago and the people are unhappy to say the least. To make matters even worse, the price that Chinese farmers are getting for their products has been dropping like a lead balloon while the amount that both the central and provincial government are trying to collect from the farmers in taxes has spiraled nearly out of control. And in the unkindest cut of all, the farmers have started vocalizing their dissent and in the past, that has eventually led to bad things happening to the central government, and no one is more aware of what happens in China when the farmers are up in arms than those in the Forbidden City. Nervousness abides but solutions remain fleetingly obscure.  

In order to head off disaster, China willing to try anything, went to a flat tax of 8.4% and eliminated all of the other taxes that local bureaucrats were want to throw into the mix. In many cases, this made things even worse. In most areas, there was no longer enough money to run the local governments so on the sly, officials initiated what might be called off-the-books taxes. When the effect of the flat tax and the off-the-book extras that were being charged were added together, it literally turned out that the more successful you became, the sooner you went bankrupt. Because of the insensitivities of the system, most small farmers have been forced into taking another job to support their families. However, in the areas where there is no prospect of another job, this becomes a horse of a different color.

Water

In the old days, China used of system of well borings to bring up the much needed water that fed the crops. When water ran low, the well was dug a little deeper or a new one was sunk relatively close to the old one. This would only work for so long and as time went by, the water tables gradually dropped and deeper and deeper wells had to be drilled. Moreover, there were very few water treatment plants so that the reservoirs, the rivers, the lakes and the wells had become increasingly polluted as heavy industry dumped contaminated water back into the system. In addition, there was no system of water recycling and no pipelines or canals to move the vast amounts of water necessary for irrigational requirements. 

In short, China had become highly industrialized but had not provided the most important item for its continued growth, the careful utilization of its water resources. In many areas of the country, water rationing has already commenced and after several years of substantial drought, there are millions of people without adequate drinking water. Back to back crop failures have occurred in numerous areas because of the country’s inability to shift its water resources to other locations during dry periods, China is probably more susceptible to weather driven economic dislocations that any other semi-industrialized country on the planet. This situation will only get worse as more people leave their farms, a wealthier country demands premium crops that soak up more water while the industrial complex continues to lubricate itself on H2O.  

Redistribution of water resources comes at a heavy price and for example, the cost to insure that China’s capital Beijing is not caught short of the precious liquid will come to a tidy $3 billion in the next several years all by itself. One of the reasons that China was so late at attacking this problem was the fact that its own statistical data was highly flawed and did not show that this problem would occur for several more decades. However, not many years ago, had you asked a Chinese economist whether the kind of economic growth that is occurring in China could either happen or be sustained, he would have reported you to the authorities for being crazy.  

Moreover, in this type of system, there are substantial rewards for meeting and or exceeding the goals set by the central government. As the provincial leadership was serendipitously moving out of agriculture and into heavier industry, they still had to report to Beijing that they were continuing to follow ../../__147.css;the plan.” Thus, national agriculture production continued to meet lofty goals in spite of the fact that smaller areas were being cultivated by less people producing undesirable crops not called for in the grand scheme. As an example of how skewed these statistics can become; China has 31 provinces and each of these provinces must report its gross domestic product to the central government in intimate detail. In spite of this quest for accuracy, even though the country reported an increase in gross domestic product of 7.1%, every single one of China’s provinces reported that they beat this number. This is an extreme case of the hyperinflating economic statistics. With figures like these, it is a stretch to believe that any number that comes out of China can be relied upon for anything serious.

Industrialization

China meads out heavy penalties to those that don’t make their numbers but because the figures that are reported to the central government have become so skewed because of the incentivization, China has been forced to create new legislation outlawing the fudging of statistics. The China State Statistics Bureau in the summer of 2001 announced that there would be severe penalties and prosecution of any bureaucrats that fudged numbers in either direction. They also warned provincial leaders that they would be conducting in depth on the spot surveys of the statistics that were being provided and substantial jail time could result if the government’s survey orchestrated figures were substantially in variance with that of the province.  

However, it has become more difficult for even the regional bureaucrats to keep up with the fast paced changes in China. Local leaders had long ago figured out that Mao’s idea of a planned economy did not work any better in China than it did in Russia. These were chalked up as interesting dreams with no reality attached to them. In spite of specific government mandated objectives, the system is rapidly spinning out of control with central government planning being allocated to the garbage pail by the provincial and local leaders. Recent statistics show that almost 1,000 new and for the most part illegal businesses (red-hat firms) are started everyday by industrious Chinese entrepreneurs that are sick and tired of working for state enterprises.  

In spite of the fact that these businesses are not part of the plan, they are more than  tolerated, they are encouraged by government silence. The provincial leaders see this swing to the right as the creation of tax paying entities, but at the same time are aware that production goals in certain areas become compromised. The current thinking though is that if provincial leaders can bring home the economic bacon while both supporting themselves and sending a little something in the form of taxes to Beijing, the guys in the Walled City will not quibble. However, in spite of the benefits that may be provided by the ../../__147.css;red-hats”, they are only discussed in hushed tones because they operate in opposition to the basic system.  

These contemporary capitalists in China have become so successful that in many provinces, state companies have been permitted to totally atrophy; something that was inconceivable only a few years ago. As the ../../__147.css;state companies” close or just plain die of neglect, their workers go to work for the new entrepreneurs in many cases who have created businesses that produce the same items that were produced in the state’s now shuttered facility, but manufacture the items profitably. Everything works better and as the quality, the quantity and the tax payments to the state improve heads, are turned the in the other direction as not to notice what has just transpired. Thus, who’s to complain. It turns out that the answer is not a soul, but just don’t get caught talking about it. Statistics show that these ../../__147.css;privatized” companies are now producing almost 20% of China’s gross domestic product up from literally zilch just a decade ago. Moreover, when this statistic is combined with the production that has emerged from foreign joint ventures along with other non-indigenous sources, it shows that almost 50% of all Chinese goods and services come from businesses that not only didn’t exist only a short time ago but were illegal.  

In addition, each one of these enterprises probably took a small piece out of a state-run business and yet, we have not really heard a murmur from the central government relative to reigning in this practice. While in principal their is probably a lot of mumbling going in private at the highest levels of government, but the Chinese are practical people and were well aware that their state run businesses were producing products that were not needed, were continually adding to inventories of obsolete goods and were paying no taxes. The hell with the old principals but let’s not change the rules is the order of the day in China and as long as everything continues to operate smoothly, it will stay that way for some time. Moreover, there is another advantage to the state.

Privatization

The name of the game today among China’s more successful entrepreneurs is to purchase the government’s production lines, privatize them and use the current facilities to bring in efficiencies of scale, production geared to demand and to provide the business with intricate forecasting and planning. These principals were not required in a society that was more concerned with having people produce for the pure sake of mere production. However, even today there is no adequate government communication with state run facilities. If a widget is desperately needed in Beijing, no one has a clue of which factory might have it in inventory and a new one is produced in the nearest factory in spite of the fact that the product might well be lying covered with dust in inventory down the block. The amount of wasted production under the old system was colossal and nobody has a clue how much was produced, where it is located, what its condition is or whether or not it is even usable even today. And in truth, the provincial leadership is not really interested in having Beijing find out. In order to make their state set goals, a lot of items were produced that just were not needed, and if they were not needed then you can imagine what the demand for them would be years later.  

The unquestioned leader in this march to free enterprise is Jiangsu province which has seemingly danced to a somewhat different drummer for over a millennium. The province is and has always been a hotbed of privately owned and operated businesses with the percentage in some cities such as Suzhou amazingly running close to 100%. Even for so-called China watchers, this is an amazing statistic. Moreover, there is yet another benefit to this privatization by popular demand that is rapidly sprouting on China’s East Coast. Whenever a state run company is taken over by a private business, the province pockets the money charged for the takeover of the factory which is often substantial. In spite of the fact that the privatized property is not worth much, a high price is often paid just for the legitimacy the protection the certificate of privatization provides. As the process speeds up, the amount of money that will be going into local governmental coffers will skyrocket and most logical be thrown right back into infrastructure improvements which in turn will be helpful to business. Naturally, this comes after the bureaucrats take a reasonable cut of the pie. Thus, at least the eastern part of China they are evolving the ultimate self fulfilling economic prophesy with everyone getting a small piece all the way down to the most unimportant bureaucrat.  

In addition, some of that money goes to keeping those unemployed by this economic streamlining off the streets and other portions of the funds are funneled back to the banks for use in providing capital to other entrepreneurs to pursue their useful ideas keeping employment relative full. In order to justify this totally illegal form of enterprise, local bureaucrats often quote a press release that  came out of a meeting with the top Chinese Communist Officials in 1999 which indicated that the country’s success was based on, ../../__147.css;promoting various forms of ownership, fair economic competition and equal development.” This seems to have been all that was needed to be said to allow the changes that are now occurring at a breakneck pace. The 1999 statement had little fanfare attached to it and at times people were literally looking for an interpretation in order to know that the message had been clearly sent. This came at the time of the parities 80th birthday celebration when no less than President Jiang Zemin formally indicated that private business owners could join the 65-million other members of the Party. 

Politics

Naturally this raised constitutional issues and this were quickly eradicated by the indication that in September of 2001, at the Parties meeting the constitution would be changed to allow for the new, more aggressive thinking. Having something like this in the constitution would theoretically conflict with some of the major tenets of Chinese Communist Philosophy, among other, state ownership of the basic means of production and the theory of "class struggle." However, it was pointed out that Carl Marx lived over a century ago and was not privy to the nuances of today's global economies. Furthermore, the Chinese Government was being realistic in making this concession; should they not do it, the capitalists would find other ways to make an impact on the Central Government and that may come a rather high price. Furthermore, with membership in WTO now concluded, having the help of top industrialists to assist in folding in that membership with the Chinese Culture would only be a major benefit. 

The results of this union will not all be pretty. In order for the harmony and continued growth of the country, induction of capitalists formally into the culture will undoubtedly take bureaucratic corruption to another level. Moreover, there has historically been a single mindedness within the Chinese Communist Party which will vanish with the wind. Rather than being a philosophical organization thinking deep thoughts about how to create a more equal society, quite the opposite will be the order of the day. The more aggressive of the former group of deep thinkers may well jump ship and turn the country into a bed of capitalists having little interest in the old doctrine. After all, the party has said that Marx's Manifesto was for a different age, one long past, at least in terms of modern technology and economics.  

The economic climate in China is rapidly evolving into a true liaise fair type of environment, but it is happening with unbelievable velocity. However, just as the industrial revolution in China has outstripped the available water supplies, the environmental conditions and tax collecting abilities of the state; the unplanned privatization, although a boon for business has created a need for a greater economic safety net for Chinese citizens. Increased government revenues will go a long way toward solving the problems of the unemployed but not far enough. Keep in mind, in the rural China, social security was non-existent. Historically, the land and the children were meant to provide for the old and infirmed, not the state. Of course that was in an era when almost everyone lived on a farm, that is not true today by a long-shot.  

China is meeting new sets of unforeseen problems recurrently as it is forced to cope with impediments that were not inherent in the original system put in place by Mao. The country in almost every respect has joined other of the world’s economic powerhouses and will have to adjust to these new sets of problems. However, because China has moved more quicker toward these goals, their adjustment will have to take place over a shorter period of time, but when you are driving a monolith, they can sometimes be difficult to maneuver at the last second.

Charity Begins At Home

Bureaucrats are always looking for new avenues that might provide additional payoffs to augment their austere salaries. Charities in China have not been immune to their heavy-hand but for the most part, the government has been so embarrassed over these types of disclosures that they have not been widely disseminated in the press. However, as the Chinese news services become somewhat more aggressive in their reporting, the facts have gradually seeped out into the public view. The most recent but albeit slightly aborted pronouncement was scheduled to be published concerning the terrible things that were going on with Project Hope, one of the country's biggest charities. Southern Weekend a large Chinese newspaper had literally gone to press with a massive indictment relative to internal theft inside the charity when the Ministry of Propaganda stepped in and had the presses rolled back.

Charities in China are really anomalies of a sort. They are supposed to be totally independent from government but in reality, unless some department of the government sponsors them, they cannot exist.  In this case, Project Hope's sponsor is the China Youth Development Foundation, an affiliate of the Communist Youth League, a very powerful party organization. The story of the pilfering had been all over the Hong Kong press for weeks that the charity was really being run for the benefit of its top officials and instead of donating money to various youth organizations around the country, the charity's funds were being diverted to speculative investments benefiting the charities officials. Moreover, the donors to the charity were primarily foreign nationals but the great majority of the funding came  primarily from large American businesses and Chinese-Americans living in the United States.  In reality, while the donors thought they were giving financial assistance to poor children that would keep them in school, the money was being channeled into speculative investments controlled by the charity's officials.

There was no secret made by the Southern Weekend, which is owned by the Guangdong Provincial Communist Party and produces a tidy profit for its officials, that the article wasn't going to print. AS a matter of fact, the newspaper had published the fact that they were going to be doing a massive piece on the reality of what was going on in the charity. Moreover, Southern Weekend thought that too some degree they were sacrosanct because of their historically aggressive award winning reporting along with  their ownership by the local Communist Party, but that was hardly the fact. The Propaganda Ministry became concerned at the 12th hour about the effect that such an expose' would substantially put a damper on foreign hard dollar donations and explained to the newspaper's editors that if the almost five-page story ever saw the light of day, the editors would be working in China's coal mines, if of course they were lucky enough to live that long. This statement substantially dampened the newspaper people's ardor for the expos and the issue was summarily tanked by the paper's officials. Moreover, the people at the Propaganda Ministry further reminded the news people that they would not be allowed to print stories that would cause "ideological confusion" or ""social instability" and that they were obligated to figure out for themselves what was meant by those statements.

There are not a lot of charities in China and the ones that are there do not have a lot of money. This is primarily because the people don't have a lot of disposable income and that for decades everyone's welfare had been cared for by the state. This era has come to an end and the Government of China is looking in whatever directions it can at other potential alternatives to a social security system that has literally broken down. Obviously the leaders in Beijing feel that foreign donations especially by ethnic Chinese living abroad could substantially help a bad situation. In this instance, they were certainly not going to allow their benefactors to believe that the money they were giving to help Chinese children was being used to further the interests of Chinese bureaucrats in spite of the substantive evidence to the contrary.

Public Relations

However there is always a solution to any kind of problem. What is the first thing you do when you first become an economic Goliath whether you have everything together or not? That’s right, you run some kind of event to take everyone’s mind off of the slightly soiled underpinnings that are being left unaddressed. This should most probably be an event of such proportion that the world’s press will be obligated to be there and to cover it in depth. The opening of new factory won’t do it, a walk on the Great Wall is old hat, showing over 8% compounded economic growth won’t cut it anymore, but holding the Summer Olympics in 2008 in Beijing would give China a chance to show off its wares to the rest of the world leaving its tattered linen hidden in the basement and this would act as a coming out party at the same time. The competition for the award was fierce with Osaka, Istanbul, Paris and Toronto telling everyone that would that they were more entitled than China was based upon if nothing else, China’s absolutely miserable record on human rights. While that line did not make a particularly strong impression when mouthed by the Mayor of Istanbul; Paris, Toronto and Osaka on the other hand were able to make a deadly case.  

These cities threw just about everything they knew how at China and just when everything was looking really bleak, Amnesty International almost killed them off altogether by releasing a study that showed that China had executed more people in the previous three months than the rest of the world together had accomplished in the past three years. In addition, Amnesty wasn’t through, they went on to say that their tally of the number of people executed in China was only taken from publicly available sources, the number of people that probably were put to death under an anti-crime agenda that the Chinese called ../../__147.css;strike hard”, was more likely a geometric multiple of that number. 

However, Amnesty who does not believe in capital punishment under any circumstances, was by no means finished with their tirade, they went on to say that China was not just executing people for what we would call capital crimes but for more minor things like petty theft, bribery and the crime disrupting the stock market as well, whatever that is. Fundamentally, they were literally charging that the Chinese Provinces had been given marching orders to make the executions look serious and the leadership was up to the challenge. The rights group pointed out that the determination to prove that the country was not soft on crime had been ordered at the highest levels of government. These mandates were passed down by high ranking government officials to provincial authorities who were expected to show concrete results. Thus, Amnesty believes, that numerous innocent people may have been exterminated in this ../../__147.css;rush to judgment.” This bomb was dropped just one week before the Olympic Committee was to make their decision and that wasn’t all. 

In addition, there was the case of the American plane downed by the Chinese Air Force, then there was the ever-festering situation in Tibet, what about the ongoing problem with Taiwan and the dynamics of WTO membership? Worse yet, many were saying that by granting the Chinese, with their system of prison labor and position as the world’s leading supplier of medical body parts, we would be replicating the grant of the Olympics in 1936 to Hitler and his gang of thugs just before World War II. Moreover, in the most unusual twist of all, the United States strongly backed Toronto’s bid because it would give NBC, who had spent billions purchasing the Olympic rights, the ability of beaming the sports coverage back to its constituents, live and during prime time. The broadcasts coming from China would be a day earlier or a day later depending upon where you were or something like that../../._span style_.css"mso-spacerun: yes">    

Things began to look really bleak for China but they had a solution at least for local dissent. They began to threaten media people that were saying anything bad about the country and if they continued to mouth non-Beijing orchestrated platitudes, they would throw the bums in jail and close their publications. And in a most unusual move for China they involved themselves in a public relations blitz, the three tenors no less, Placido Domingo, Jose Carreras and Pavarotti were paid really big bucks ($10 million was the cost of the event) to appear at an event in the Forbidden City before 30,000 screaming citizens. Pavarotti was paid a tad extra to especially extol China’s virtues and extol he did it with panache. Think about what he said. ../../__147.css;I think Beijing deserves the Olympics in order to be with all the rest of the world recognized and hopefully these Olympics are bringing here a different kind of feeling and hopefully is the first step toward peace in the world.” Whatever that means but I am certain that it was well thought out.  

Well, maybe Pavarotti’s impassioned pleas made a difference or maybe it didn’t but China got the nod and when all is said and done, they will probably put on a great show. We hope that they will stop doping their athletes though so that we can get something close to a legitimate accounting. However, no matter whether they supply their people with drugs or not, you can bet that they will absolutely run away with the games and bury the likes of the United States and Russia because this is their chance to show the world where they are coming from, and they are not about to blow it. Like it or not, this is going to be the propaganda show to end all propaganda shows and they are going to take advantage of it in a fashion that Hitler and Goebels could not imagine. Take my word for it, the rest of the world is going to come in a poor second to this colossus.

Global Relationships

However, for the present at least, the Chinese seem to be getting their way in spite of minor obstacles and we certainly are entering into a new era with China becoming a full fledged member of the world of global economics. While this is much akin to putting a shark into a goldfish tank, it is what it is and time will only tell whether the disaster is survivable for the rest of us or not. The world has given China access to their trade, the Olympic games, and after substantial compromise and negotiation, membership in the World Trade Organization. Their success has not gone unnoticed and in cases like Japan who had been providing a substantial amount of reparations and a lot of plain old economic assistance, the situation had to be reevaluated. Japan has recently come to conclusion, as they face certain economic annihilation by their former inept sparing partner, that it is rather foolish to continue to pay for the opportunity of being economically destroyed. China is gradually doing to Japan in an economic sense what Japan did to China in a military sense. However, they are using the Chinese water torture and doing it a drip at a time.  

However, strangely they have not entirely cut out China’s allowance money and while being eaten alive they are still paying for the effort. The United States could have pulled the plug on China when they forced our spy plane down, but once again, made only a half hearted stand. Taiwan, who China threatens nearly every day, is literally financing a huge part of their economic growth and yet all of this is going on while China plays footsie with North Korea who is exporting sophisticated weapons of war all over the globe to anyone with the price of admission. If you are a rogue nation, you can bet your last dollar that you are getting some of the world’s most advanced missiles directly from them.  

However, China is walking the tightrope even closer to the edge when they religiously seem to jail U.S. citizens based in China. The stories of Gao Zhan and Qin Guangguang have been all over the American press. These folks have literally disappeared from sight and have been cut off from communications with anyone in the outside world including their families. Gao has not been heard from in about six months but Li’s fate may be worse if that is possible. Chinese authorities have circulated the story that he has confessed to spying for Taiwan and that is not considered a good thing to do in these parts. American authorities are convinced that if he did confess, it was probably beaten out of him as routinely happens to Chinese prisoners. Once he confessed he could possibly have been executed for his trumped up crimes. The United States has responded to the Chinese by fearsome President Bush hitting them with a limp noodle. ../../__147.css;We have expressed our concerns to China, sometimes they listen, sometimes they don’t.” Hey man, that’s serious diplomacy. The guy sure sounds like Teddy Roosevelt and his big stick to me. 

However, in spite China’s reputation as jail keeper to the world, they don’t just lock up whoever seems to offend them at the moment. They are most selective jailers. Chinese officials are painfully aware that they are supporting a ruthless and out of control government in North Korea. They are also aware that the country does not produce enough food to even feed a portion of its starving population. In addition, China is a signatory of the United Nations convention that bars the forcible return of political refuges. With that as the background material it is extremely difficult to make a case for China’s sending these starving refugees back to certain execution in North Korea when they are caught crossing over the border looking for food, shelter and a chance to start life anew. This hardly seems the proper action for a country that is trying to enter the global brotherhood. Accepting China’s use of slave labor is a stretch but conceivable, returning these hapless people who are nothing but hungry is quite something else. With allies like North Korea, China doesn’t need a lot of enemies.  

From a political point of view, the whole region is up for grabs and this doesn’t allow the sanctity of a lot of security;. Jane Perlez of the New York Times put the picture into perspective with her August 5, 2001 story: ../../__147.css;In most countries – including China, where a succession looms next year – political leadership is in flux. In Indonesia, one president was pushed out and another was sworn in during a transition that remains an unfinished story. In South Korea, Mr. Powell (Secretary of State) met with a lame-duck president, Kim Dae Jung, while North Korea’s leader, Kim Jong Il, trekked off by train to Moscow, ignoring an invitation by Washington for talks. And while the Japanese had just elected a popular new prime minister, Junichiro Koizumi, their country’s economy remained tormented by a decade of stagnation.”   

As we have said before, Japan has taken a tad of China’s allowance money from it and that has caused no end of trouble. Not only does China believe that it unfairly cut its allowance but it also believes that Japan is being restrictive in the products produced by China that are allowed into the country. Kind of a carrot and a stick approach which China is more than offended by. However, it may well be that there are two sides to the equation. From Japan’s point of view, the Chinese were dumping various products, and beyond that, their belief was now that China was now a grown up and was entirely capable of supporting itself. Furthermore, the wily Japanese had come to the overdue conclusion that China had one more agenda, that was to protect its own rapidly expanding industrial base. Historically, everyone knows that Japan has been a rather poor sport when it comes to international trade.  

They are always wondrously happy when their balance of payments figures show that they are sticking it to everyone else, but let someone else try to enter their tightly closed markets and it is as though a volcano has just erupted in downtown Tokyo. Last year, China, in Japanese terms certainly was not playing the game fairly and had almost a $22 billion trade surplus with them, the largest of any country in the world, and the locals didn’t like it one bit. This year, that surplus is going to look like small change, however a change has taken place, the formerly negative consumers in Japan now find that they are being blessed with substantially lowered prices on these items and realize that over the years they had been ripped off by their own companies. This has caused the wall to come down and the Japanese government doesn’t know what to do next.  

Peter Wonacott in the Wall Street Journal put the matter into total perspective, ../../__147.css;China’s Strong-Arm Trade Tactics Prompt Concern Over WTO Entry”../../._span style_.css"mso-spacerun: yes">  ../../__147.css;China last year exported to Japan $150 million of shiitake mushrooms, leeks and the rushes used for floor mats – the items that were hit by import ../../curbs. After Japan adopted __147.css;emergency” safeguards to restrict these products, China retaliated by announcing it would impose 100% punitive tariffs on imports of Japanese autos, air-conditioners and mobile phones. These exports brought Japan about $515.8 million last years. However, with Japan now moving more of its production to China, those companies will suffer no dislocation whatsoever. This is a form of selective torture that the Chinese are applying. They are creating a double bang for their tariff buck. They are frightening Japanese companies that are not manufacturing their to move the production in that direction and they are sending a strong message to Japan that restrictive trade is not going to work.   However, their recent admission into the World Trade Organization has prompted international trade organizations to adopt a wait and see attitude as to whether another shoe will fall.

This situation is compounded by the fact that the Chinese items that are being embargoed are all agricultural products and that segment of China’s population has started to make waves over the fact that they are being treated like poor relatives in an economy that seems to be benefiting everyone else but them. China does not need a revolution on their hands and if the Japanese have to suffer over China’s internal problems, that’s just going to be Japan’s problem. And as far as the rest of the world is concerned, it certainly doesn’t appear that Japan has made a lot of friends. Japan becoming more than a little concerned has started beefing up its military and changing some of the restrictive regulations in its constitution../../._span style_.css"mso-spacerun: yes">  However, they also seem to have rewritten some of the history of World War II in the process and this time they seem to have won. This has not sat well with those oppressed by Japanese aggression at that time. Japan is acting clumsy to say the less as it deals with China.  

While South Korea never had China on an allowance, they also felt the wrath of the Mainland. As a matter of fact the Chinese might have even done a tad worse to the Koreans as imports of chemicals, textiles and metals were banned entirely from that country. However, China did not get up one day on the wrong side of the bed and determine that South Korea was no longer their friend. No way, South Korea has a well deserved reputation for being available to be anyone’s friend for a price. As a matter of fact, South Korea is known as one of the best friends money can buy. No, it wasn’t that at all, it was the fact that South Korea was trying to protect its minimalist garlic industry and made the fatal misstep by raising tariffs on this truly unimportant product../../._span style_.css"mso-spacerun: yes">  The rule in dealing with China seems to be written in stone, don’t mess with their agricultural sector../../._span style_.css"mso-spacerun: yes">   

Would You Believe Salt?

One of the products that China had enough of but was not utilizing properly was salt. A lack of the iodine that is a salt by-product can cause serious illnesses and create substantial downtime within the population. Health problems such goiters and would you believe? low IQ is a result of not getting enough of this readily available substance. Historically, salt had been a monopoly in China over two millennia ago and so the situation remained for quite some time. The people were aware of the fact that without iodine’s bare essentials, there would be substantial health risks in overall community. Over the years, the country had gotten away from the monopolistic aspects of salt distribution and village elders seemed to forget that salt wasn’t just a nice seasoning for food. This serious problem was pointed out to the central government officials a number of years ago and they took immediate action. Somehow or other, we fail to see why a monopoly would have better provided this essential element to the people but then again this is China and who are we to say. The scenario unfolded something like this:  

It was determined that the monopolistic approach was best because by giving the job to one company, if everyone in the community did not get their proper salt rations, there was no question of where to place the blame. (well now this is beginning to make sense) In the meantime, all other salt distributors were put out of business by the government. The next move was to raise the price of salt so that the conglomerate controlling its distribution could make a profit. (That would certainly seem to make it more available to everybody) While this worked fairly well, with the price rise came black market dealers offering the product at more competitive prices. (free enterprise at work) China seeing that this could cause even more serious problems then had existed before formed what they called the ../../__147.css;salt police”, a totally independent police agency with extensive powers to make sure that the monopoly continued to function in the manner that its charter demanded and that those that sold unauthorized salt would be treated as criminals and subjected to whatever punishment the ../../__147.css;salt police” believed to be fitting. (selling salt illegally and at lower prices should be punished at least by death or something even worse in our opinion) The program has become a substantial success and the only people that are unhappy over the results are the small independent salt manufacturers and distributors that are no longer in business. We are loath to point out that this may be the first time in history that anyone ever sold a black market product of this nature at less than the market price. I mean, copies of movies, music or other electronics, but food and medicine? Really!

Family Life

When China sets their mind to change their society, they often attempt to accomplish their goals literally overnight. While this no nonsense approach shows that they are serious about doing constructive things, the distortions that are created by the programs which are not fully researched can have disastrous results. The country’s elders determined, probably rightly that their population was growing to fast and that if it continued at that rate, it would sap the economic strength of the country as a whole and it would ultimately relegate China to a fourth class status. A program was embarked upon which limited each family to one child. This law was forcibly regulated, however it wasn’t long before the results became somewhat skewed.  

The Chinese family had always been lead to believe that the boys in the family would always stay to till the plots of land that produce the food that sustains their kin. They were also the ones that had the obligation to take care of their parents when they become infirmed. The daughters on the other hand would always move in with their new husband’s family and take care of them, often having little contact with their own parents from the time that they marry and move out of the house. Because of this fact, the was little question that boys were favored over girls but because Chinese families tended to be large, there was no reason to become prejudicial over the matter.  

Having only one child on the other hand created a new situation. If the one child that the union produced was a girl and when she moved away, who would take care of the parents in the old age? This was considered to be a very serious problem because in China there was no social safety net under these folks, especially those from China’s rural areas. Abortion soon became commonplace and female fetuses were disposed of and the attempt to have a son was reinstituted. There is a much more in depth discussion of this later so we will not deal with the whole subject at this time. Obviously the results of this selective process was the fact that China soon had substantially more men than women in its population causing a social crisis. United Nations figures show that no less than 50 million women are missing from the population. Statistics show that there are 120 boys for every 100 girls among rural couples. This has caused a spate of kidnappings in China, after all, how could families produce sons if they did not have girls for wives producing boys for families that have not yet produced a male heir? This became a philosophical problem that even the ancient Greeks could not have dealt with.  

The feudal practice of paying dowries has once again reared its ugly head in China but it is really a form dowries in reverse. Rather than the woman’s family  paying the man money or goods upon the completion of the marriage ceremony, here the process is totally reversed, it is the man’s family that pays the bride’s parents, and if they are not able to come up with a substantial enough sum, the deal is off. The girls are not thought to be anything more than bargaining chips as no matter who gets them, the parents will probably have little further contact with them. Thus, the girls have become commodities, are given little schooling, and are thrown into backbreaking work around the household at an early age. Once they are married there is little change in the situation, they not only have to take care of their own household, but they are obligated to take care of their in-laws as well.  

More importantly though, from the man’s point of view, with dowry prices ballooning out of sight, it is cheaper to buy an abducted or kidnapped bride than be forced to deal with parents that have an over optimistic view of how much their daughter should bring. One way or the other, rural women are treated as chattels and have little to say in the entire matter. If they are kidnapped, often they are taken to villages far away from their homes and lose all contact with their parents or even where they are. There are now telephone booths in rural China nor any Western Union offices so communication is next to impossible. The police are of little help because the girls are often taken to live in neighboring provinces where local officials have no jurisdiction. Once these girls have children they most often lose the incentive to move back home. It may be that they can leave the village but more likely than not, they cannot take their child with them. Faced with a Catch-22 they remain where they are at.  

Interestingly enough, when the kidnappers strike they make no discrimination between the women that are married and those that are single. Thus, many of the women that are abducted are already married and already have families. If the woman’s husband knows where she is, he can organize a paramilitary team of his cohorts in an attempt to retrieve her. This often can lead to substantial bloodshed, as they would be trying to pry her loose from a village that is the home of her new husband. More often than not, early on in the abduction, the woman is handcuffed to the new husband so that she is not able to run off again. Those that are not shackled often become unruly and run off again and again. This certainly applies if there is not enough work in the village where they live. Home life in rural China is hardly what it used to be.

Money and Taxes

Women aren’t the only commodities that seem to vanish in today’s China. Money vanishes regularly in China, which literally robs the country of its ability to collect taxes and take better care of its people. Magically disappearing money is a really good trick especially here where the penalties for playing around in the international banking business are a very serious crime. On the other hand, because no one in China willingly pays taxes and because of the fact that the Chinese Government tends to be a little overbearing at times, it is considered to be a good strategy to have a large bankroll abroad. The Chinese Government does not make this an easy thing to do.  

However, where there is a will, there is a way. One of the most successful methods of moving money offshore used by Chinese entrepreneurs is the old; ../../__147.css;gee I put the wrong price on that item trick and would you believe that I sold it too cheaply?”. The way it operates is that, when an item is sold by a Chinese company to a buyer abroad, more often than not it carries two prices, the first being the price that the government sees that the goods are being sold at. This price usually substantially below market for the item but this is not something that is carefully looked at by those Chinese government personnel engaged in monitoring the export markets. (this is an area in which the government usually stays out of, it is left to individual companies to determine the price at which they will sell goods, unless they are state enterprises and they too have a lot of leeway)  The second price is the difference between the orally agreed upon price and the posted price that government officials see. The difference is more often than not deposited into the account of some nominee Hong Kong company into a bank in that country.  

The evidence supporting this fact is rather convincing; last year alone according to Hong Kong banking figures $64.3 billion flowed into Hong Kong in the form of foreign direct investment (FDI). The term, foreign direct investment is usually meant to define money that is going into a country for investment there. If that much money were to be invested in Hong Kong in one year, the country would come apart at the seems. As a matter of fact, it couldn’t absorb that kind of money in a decade. Obviously something else is going on. In addition, inconceivably, that figure is almost double the amount that flowed directly into China itself, the country that received more foreign direct investment that any other country on earth. Moreover, that figure is over 400% higher that the total FDI that flowed into Hong Kong one year before China took over in 1999. Moreover, even in that year, there was substantial money flowing into Hong Kong illegally from the Mainland. While there are other potentials for hiding the real profits accrued by Chinese companies, this one is the most logical and as we well know, its brother, transfer pricing is probably used by every major multi-national on earth as a way of bringing down its taxes.

Stock and Bonds

However, there are other ways; Chinese companies have on an off and on again basis, become the financial darlings of the investment community. After all, in what country on earth is there the raw potential that exists in China. When investors and brokerage firms spot a Chinese company that appears to have potential, a line starts to form and the bidding process begins. More often than not, these companies are financed offshore, in places like Hong Kong and the United States. By and large, the vehicle that the company uses for its domicile for these underwritings is usually a tax advantaged location where  no one asks a lot of questions relative to the names of the sellers or from where they come. This money can also be substantial and usually wends it way back to Hong Kong and then seeps into the mainland as foreign direct investment. This methodology is heavily utilized by both the government and private sector so that they will have a nice bundle secreted abroad when the time comes either for retirement or a hasty exit due to some unforeseen circumstance../../._span style_.css"mso-spacerun: yes">   

Many people have expressed some concern that the amounts leaving Mainland China are so prodigious that the structure of the economy itself could be endangered in the same way as occurred in Russia when money left that country as though it was scooped up by a giant galactic vacuum cleaner../../._span style_.css"mso-spacerun: yes">  However, the difference between Russia and China is substantial, at least in terms of perception. While little or no FDI is coming back into Russia from its own people, there is a regular and substantial inflow to China, through foreign entities. Much of this is attributed to the same people and companies who took it out illegally to begin with.  

This is money laundering at its most sophisticated because the Chinese are not particularly concerned about reinvesting money as foreign entities but are deathly concerned of doing so under their own names. So although the situation is serious, because it continually returns, at least in part, it has not reached the panic stage and as long as it continues coming back even though totally laundered and disguised, China will not blow the whistle. There seems to be no question that the amounts in question would not be possible without substantial assistance from government officials who for a price either close their eyes to what is going on or participate under aliases with accounts in off shore banks. The amount of bribery of officials and bureaucratic shakedowns have become legendary in this country; thus, why not an account in a friendly offshore bank?

Investing By the Enemy

There is a unique wild card in this already complex equation. Taiwanese are not allowed by law to invest directly in China but anyone that has observed what is occurring in the Pacific Rim knows that there have been substantial investments in Mainland China made by Taiwanese investors. As a matter of fact, in many instances there has been no attempt to cover-up this action at all. However, in spite of this, the law is the law and this money is probably commingled in Hong Kong all of the rest of the money that is simultaneously coming out and going into China. In the total scheme of things, Taiwan’s investments represent only chum change in the overall scope of things. Banking in Hong Kong has been likened to the ocean tides in that what comes in once again goes out and the process repeats itself over and over again.  

Meanwhile, back at the ranch. Investing in Chinese companies, everything that glistens is not always gold, as a matter of fact, to stockholders, very little of it is gold or anything like it. There really are no independent auditors in China, no GAAP, no transparency, no Securities and Exchange Commission fillings, no nothing. If one of these little gems is underwritten in the United States you can bet your last banana that there is going to be transparency a fair shake for the investors but as far as most the rest of the world is concerned and as far a China in particular, there just isn’t anyone at home watching the store. Take the example of one of the hottest stocks that the Chinese market has yet produced, Guangxia Industry, a little gem that says they are making big money exporting a Chinese herb and vegetable extract products used for medical relief.

Watching The Store

These guys didn’t make up much other than how much they were selling, how much they were making, who they were selling it to, who was working for the company or just about anything else. This company has become the example used when the China Securities Regulatory Commission (CSRC), China’s answer to the America’s SEC, talks about the bad things going on in the Chinese market. There is no question that the stock markets of China are akin to the Wild West in the United States where anything was ok with the exception of telling the truth. Interestingly enough, that fact is oddly coupled with the fact that the Government of China owns approximately 75% of the shares listed on the country's exchanges. Thus, one could make the extreme case that not only is the country condoning illicit actions in its securities markets but it is indirectly participating in the problem as well. 

The real difficulty in China though, is not the lack of precision on the part of the CSRC, it is the fact that there are no third party journalists involved in evaluating the prospects of Chinese public companies on an objective basis. In several instances there have been questions raised relative to the merits of some of these companies by outsiders. The stocks have dropped due to these opinions and the authors in some cases have barely escaped with their lives as they caused precipitous drops in share prices.  

In the meantime, China has been forced to adjust to another ../../__147.css;fact of life”. They are a world class economy and as such, there is a need to legitimately hedge various elements of their economy in the international markets. Foreign exchange, metals and grains are certainly logical items which lend themselves to this type of activity if for no other reason than to smooth the ups and downs of the economy and allow for more accurate central planning. The problem that China faces is that almost every time they have allowed one of their agencies to become involved within the international financial markets, something seems to go wrong. It almost seems that the people trading for the Chinese lose their cool the second they get started and the government has suffered enormous losses coupled with international embarrassment o numerous occasions when ../../__147.css;no risk” transactions have gone south. Because of the nature of the business, in the future we would tend to see more of the same but the Chinese will not allow their missteps to be publicly acknowledged this time around../../._span style_.css"mso-spacerun: yes">  There is a fundamental fact; that is China is a country of innate gamblers and most of the population would bet on which fly would leave the table first, if they had the money. So it is with international markets. The race track in Hong Kong is by far the largest in terms of dollars wagered in the world and the gambling tables in Macau are ten deep on an off night.  

As China becomes more sophisticated in terms of worldliness, a certain amount of interaction is required. The more interaction the more that China begins to learn the downside of opening up their country to quickly to the rest of the world. The Chinese are a susceptible to intravenous drug use as the next guy and with it comes HIV. In addition, modern China is seeing an ever larger gay community as its society becomes more sophisticated. The number of people that have been infected with the malady is hard to pin point because high-tech testing for this disease has not been utilized and even if it were, it would not cover the rural communities. Be that as it may, whatever the exposure may now be, China’s highly transient population with over 100 million migrant workers traveling the length and breadth of the country is a causation for the rapid spread of all diseases. China is neither equipped or of a mind to put a halt to this nomadic work oriented migration nor is it equipped to handle the downside that it brings. The spread of diseases is greatly magnified under these circumstances and there is little question that this type of mobility can result in epidemics. China is at present unable to pay the economic price for treatment nor is it truly willing to admit how out of hand this problem has gotten../../._span style_.css"mso-spacerun: yes"> 

Hard Feelings

The Falun Gong headed by the highly revered Li Hongzhi who is now living a secluded life in America, started simply enough as a spiritual movement. Their leader who had some charismatic qualities was not above changing the facts to suit the situation. One of the key messages that he espouses is the fact that he is the living Buddha and has substantial supernatural powers that will protect his followers. In order to insure that his flock could more easily accept that view, he changed the date of his birth to coincide with the birthday of Buddha. Given a substantial public relations push, Li determined that the group should go even further in getting their message across. Many people in China see membership in the group as being an easy way to obtain an American Green Card as a religiously prosecuted minority. This seems to be about the only logic that can account for some of the heavy-duty thinkers that have joined the religion. 

The Falun Gong staged a massive protest in April 1999, which drew substantial attention from Chinese officials. Moreover, one thing lead to another, and literally a war was declared between the religion and the national government. The Chinese government has not shown a proclivity to handling descent well and as the stakes were continually raised, the sentences handed out to the faithful became substantially more severe. Instead of reorientation along with job demotions, we are talking about long prison terms at hard labor. But what is this religion all about and why is that China is so dead set against it?  

../../__147.css;Gong? The movement has been drawing attention in the West for the last two years. Some Western China scholars are even praising it for the scientific basis of its principles. Falun Gong has drawn the attention of Chinese intellectuals too, particularly those searching for a spiritual movement that is grounded in traditional Chinese thought but takes account of rational, scientific and modern considerations. Whatever their educational background or technological knowledge, all Chinese lean towards wearing a ../../__147.css;Confucian thinking cap, Buddhist robe and Taoist sandals.” I am no exception.” ([2])  

The hardly seems to qualify as a contemporary combination of science and religion. It would seem that Li Hong-zhi has established a pot pourri of witches brew by mixing some reasonable facts with some of the most outlandish statements made since Kansas banned the teaching of evolution. He teaches his followers that illness and misfortune are caused by the evil deeds that they do. He also teaches that inanimate objects such as stone, wood, earth, steel and air are purveyors of morality../../._span style_.css"mso-spacerun: yes">  He envisions tall buildings standing on sea bottoms, Atlantis style and is certain that people populated the earth hundreds of millions of years ago. If these cockeyed concepts weren’t enough, it appears that he is readying a wheel to implant in the stomach of his followers in order to protect them from harm. Naturally, Li has been able to protect his disciples from harm and whenever an example of a miraculous escape or cure crops up, the leader of the Falun Gong steps up to take credit for it. Li writes:  

            ../../__147.css;These incidents are so common that they are no longer worth counting…You might or         might  not encounter them, but I will guarantee that you will have no danger. That is what I will give you. My saintly body will protect you until you are able to protect yourself.”  

We would wonder what his followers that are being tortured in Chinese jails fell about Li’s gospel. In reality, so far, there has been little backlash and if anything, the number of his followers is increasing. However, this is exactly what the Chinese were afraid of and their war against Li’s clan increased dramatically. This escalation in turn brought a greater reaction from the Falun Gong’s irrepressible leader who felt substantial comfort when cajoling his flock to withstand in whatever ways available the government’s onslaughts against.

 

However, he was issuing his fighting words from half way around the world by e-mail, hardly front line duty. His cries for action achieved the desired result and a number of religiously orchestrated self-immolations took place in the name of the Falun Gong, which received worldwide press coverage. Each side would continually raise the stakes in their poker game and neither side has come even close to a victory. Nevertheless, one thing is certain, this tiny religion has come closer than any other group in China since the end of World War II, to becoming the mouse that swallowed the elephant. Li’s statement can be well categorized with the following:  

../../__147.css;For example, some students were arrested and imprisoned. When they couldn’t endure the severe torture, they wrote repentance statements. But in their minds, they were thinking: ‘This is to fool them. I’ll still practice after I get out, I’ll still go out to validate the Fa (another name for the Falun Gong) and I’ll still go to Tiananmen Square in Beijing, the site of protests.’ But this is unacceptable. It’s because this kind of notion is something developed in the human world after humans have become depraved. But gods aren’t like that. They don’t have thoughts like these. Once they’ve decided on a certain path, they’ll definitely stick with it to the end.”  ([3])  

A Strange Diet

With a landmass of 3.7 million square miles, China is only slightly larger than the United States../../._span style_.css"mso-spacerun: yes">  Of all the countries in the world, only Russia and Canada are geographically larger../../._span style_.css"mso-spacerun: yes">  China, contains the highest point in the world, Mt. Everest, and one of the lowest, Takia Makan, an oasis, which is over five hundred feet below sea level../../._span style_.css"mso-spacerun: yes">  The Yangtze River is almost 4,000 miles in length, and only the Nile and Amazon exceed it in size../../._span style_.css"mso-spacerun: yes">  The land for the most part is unsuitable for agriculture as mountain ranges make up much of China's terrain../../._span style_.css"mso-spacerun: yes">  It has 22% of the world's population and only 7% of its arable land../../._span style_.css"mso-spacerun: yes">  Yet, it is agriculturally self-sufficient due to the use of highly sophisticated production techniques../../._span style_.css"mso-spacerun: yes">  On the other hand, the food is only of the subsistence variety, and as the country's wealth increases, it is likely that the population will desire a more varied diet../../._span style_.css"mso-spacerun: yes">  Under those conditions, it is doubtful that China can maintain the delicate balance that it has established between production and consumption.  

Chinese eat many foods that may appear strange to westerners such as Bird’s Nest Soup, which comes from the secretions of the cave or cliff swallow and is considered a delicacy, or jelled blood, a concoction made from pig or duck blood, which has a gelatin like appearance but has a salty flavor. However, when you are in a particularly festive mood, bull penis is always recommended but is usually reserved for holidays and special events. Nevertheless, more expensive but excellent is drunken shrimp which is served live, swimming around in a bowl of rice. At expensive restaurants, the shrimp are allowed to swim around in a highly flammable liquor which first gets them higher than a kite and when they are plowed, they are then set ablaze, and the shrimp are consumed piping hot and while still alive but totally off the wall.  

If this exciting palate tempting morsel doesn’t do it for you, then we are certain that boiled fish flotation bladder would be an acceptable alternative or if not, certainly monkey brains would do the job. In order to get the full flavor, the brains must be eaten directly from the open skull of a live monkey. This is something that is sure to tempt the palate of the most adventurous eater. However, many people have an aversion to eating live animals and perhaps you would prefer to have your dinner not attempt to get off the plate while you are eating it. Dead, cooked rat fits this scenario to a tee. Rats are said to have an excellent flavor and at one time were highly abundant in China. The fact that their taste is so much in demand has diminished both their population in China and to a larger extent, the diseases that they normally carry. You say that still doesn’t to it for you. We are sure that we can please.  

Well then how about Sa Kuo Yu Toe, or fish head soup. The heads bobbing about in the soup tureen give off a sensational flavor, but looking into another animal’s eyes while eating can become slightly disconcerting. For an aperitif after a great meal, there is nothing like fine snake wine in China. It is only a bottle of fine wine containing a small snake that has been immobilized and drowned in an alcoholic bath. After the wine has been served and the bottle finished, the snake makes an excellent morsel for dessert.  

An alternative desert that is highly prized by the natives is Cho Do Fu which means ../../__147.css;smelly tofu” Many have said that the only problem with this dish is that it smells like an outhouse. ([4]) ([5]) An even more important part of the Chinese diet is the exotic camel tendon chowder, which most gourmets have put in another league from cow tendons, which tend to be grainy. Another Chinese dish that has taken the country by storm is the ever-popular Tiger Penis Soup, which originated in Korea. This hard to come by delicacy is only available to the very rich and is probably the most expensive dish served in the country.  

The gentrification of China has literally occurred overnight and while most feel that the new China provides substantially more opportunities that the old one. However, in order to get in on the potential you have to move to where it is happening, that is the big cities. The young people in China who are historically, very family minded; suddenly find themselves without their traditions and without old time friends. In order to fill that gap an alternative is springing up and taking the country by storm. In rural areas, surrounding the bigger Chinese cities a new and very successful business is burgeoning. Old style cooking down on the farm style. Resorts similar to those that had sprung up in the Catskill region of New York are growing like Topsy in China, bringing the people back to their roots, but primarily only on the weekends. Below is a story of Mr. Liu, one of the entrepreneurs who has become very successful in bringing the city slickers back to the farms.  

../../__147.css;His main aim, he says, is to ../../__147.css;give the guests what they demand.” Mostly, that means such nostalgic mainstays of Sichuan life as rice scooped from a communal wood bucket, cold plates of local pork and rice liquor straight from the clay jug. But it also means setting out tables amid the greenery for games of mahjongg – the favorite pastime here. Sometimes, work units Chengdu rent the entire place for parties, especially at Chinese New York, in a home-spun version of the corporate retreat…I May, you can’t find a spare chair to sit-down,” says Mir. Liu. Even on chilly winter weekends, with hardly a leaf on the sycamores, lunch tables are full, the gardens packed with game players in overcoats.”[6]

Social Security

Historically, the country had been like a big brother, with all workers theoretically being employed by the state in some capacity or other. These state-owned enterprises (SOEs) in turn would take care of the people, literally from the cradle to the grave. As China moves towards a more market oriented economy in which the SOEs are not the only employers, another system had to be substituted. China has now determined to go with something more similar to the American Social Security system in which the people make direct contributions into a fund run by the national government and when they retire, they are in turn paid out of that endowment. 

The fundamental reason for the change is the fact that, as in most other countries, the Chinese population is getting elderly and the SOEs are no longer able to take care of the workers and remain competitive at the same time. However, the system will primarily function only for those people that live in the cities where the industries are located. It would appear that no particular consideration has been given to the 800 million rural peasants who live on farms. Apparently, the central government believes that they these people can continue to live off the land, the same way that they have been doing all of their lives.  

../../__147.css;China’s Minister of Labor and Social Security, Zhang Zuoji said: ‘In rural areas… the main form of insurance is still provided by families, which completely conforms to the national condition and ethics of China’” ([7]).  

However, it seems that China has missed the point. They are trying to bring the country into the current century and have chosen to move people off the farm and into the cities to work in industrialized facilities. As the young people are uprooted, or in the alternative uproot themselves, looking for a better life, they may be leaving the infirmed behind, thus unable to take care of themselves. However, it would appear that there is method to the Chinese madness, it would seem that with this one move, they have addressed the nomadic population that has taken hold in China, moving from job to job, and from city to city. Living in the rural areas has now become a road to nowhere and loyal family members are going to think twice about looking for the good life and leaving their revered parents behind../../._span style_.css"mso-spacerun: yes">   

The World Bank in a recent report indicated that while the world's economy was growing at a rate of 2% a year in the first half of this decade, during that time, China beat all comers by averaging a global high of 12.8% but this of course was a from a very low base../../._span style_.css"mso-spacerun: yes">  Of the top nine countries in the study, all but Kuwait and Jordan are from the Pacific Rim../../._span style_.css"mso-spacerun: yes">  The runners up were Kuwait, New Guinea, Singapore and Malaysia in a dead heat, Thailand, Vietnam, Jordan and Indonesia.  

The Female of The Species

China has even shown some improvement in how it relates to the female of the species. Historically, as prosperity arrives, so does a man’s interest in expanding his relationships of the sexual kind which  increase geometrically. Having a wife along with a lover of two is a male sign of high level of testosterone or in lieu of that, a super-sized ego either one of which shows that a person has truly arrived at an elevated station in life. And so it has been flaunted over the years in places like Paris where every politico is expected to have a mistress or two or in the Arab countries where it is a sign of great wealth and prominence and in England where the royalty would dry up like prunes with political scandal. 

The early kings kept harems, and marauding generals took the most beautiful women in the territory they had conquered. Through the centuries, the accumulation of attractive and sexually active women has readily followed the male accumulation of wealth, as night has followed day. It is not necessarily the handsome or the strong that win the battle of sexual accretion, it is always the powerful. King David, one of the earliest historically annotated womanizers, was able to back up his amorous interests with an entire army. Everyone at that time strongly believed that David had done the decent thing or they got a spear in the labonza.    

Nature, too, has prescribed that to the powerful should go the spoils. There seems little question that this is good for the genes and, in the long run, for the species as well. In nature it is often inherited guile and conniving that really wins the hearts of the herd, as opposed to sheer force. If sheer force was a factor, ../../__147.css;The Rock” or ../../__147.css;Tyson the Carnivore” would have accumulated more than their fair share of lovelies../../._span style_.css"mso-spacerun: yes">    However, as we have grown more civilized, man has become more monogamous, not by choice, but by law, and nowhere does this present more problems than it does in the world’s newly emerging economies. The anomaly has two causes. First, multiple women act as a statement that a man is powerful, and can what he wants whenever he pleases. This syndrome is as much a part of the male psyche as death and taxes. Sadly for the rest of us, there is only one alpha male in each herd. But back to our story.  

However, woman’s roll has changed as well. Formerly, women were shackled to the home and to multiple children that were necessary to till the soil and provide for their parents’ old age have become pass’. Women’s roles have changed and their attitudes have matured with their education. In turn, they have also learned the to deal with exigencies of birth control and family planning. No longer in emerging societies are women population factories, they have become individuals and more importantly, in civilized societies, they have become voters. Women make up the majority of the global population and vote in greater numbers than their male opposite numbers. 

Women have different views of the world and need are not of sexual security as opposed to sexual conquest. This security can be provided by either a loyal husband, a successful job or the sale of her body to the highest bidder. Women are not the first one’s hired in emerging economies so that statement is of no consequence. However, as economies emerge, bidding becomes more frequent and more intense with the price rising and falling with the underlying national economics. In those countries where opportunities for women are limited and where there is still a degree of male domination, the sale of their bodies is still the rule and not the exception.  

If nothing else, China is a unique place. However, in many respects it is extremely democratic. Maybe this would be better put if we had said that in China, everyone is equal provided no one is rocking the boat. To a large degree, China’s laws protect men and women almost equally, but the country’s power is vested within politics and the politicians are for the most part alpha males. In China, politics does not pay well, but then again nothing else does either other than innovate thought and entrepreneurship coupled with superior execution. 

Laws and All That Jazz

Speaking about law in China and we evolve into a must peculiar subject. Laws on not followed to the letter all of the time and for the most part, they are reactive in nature. When the country's leaders feel that a particular problem has gotten out of hand or that the country's tax base has been seriously eroded, a crackdown is ordered. Such was the case with smuggling a decade ago, which interestingly enough was primarily a diversion of the People's Army A number of years ago, the government indicated that arrests, convictions and executions should be made and orders went out around the country. After a time, as news of the executions spread throughout China, the smuggling to some degree was alleviated and the government went on to more important venues. Then problem that had become an epidemic was corruption and the Government proceeded to handle it in exactly the same way, arrest, execution and publicity are currently the guidewords that is until the Government finds another crusade. Usually they come one at a time to maximize the public relations value of the situation. 

China has been averaging over a dozen executions a day and there are currently 68 crimes in that country that are punishable by death. Oddly, 28 of them are not related to violent crimes and they include what we would call "white collar" crimes of tax fraud, embezzlement and graft. Interestingly enough, bribery does not become a capital offense until $12,000 or more changes hands. This brings us to the ultimate difference between laws in China and those in much of the rest of the world. In China, it is not the crime itself that is the critical element in sentencing, it is the effect that crime had on others that seems to by the guiding factor. The current political climate is the critical element that is taken into account in sentencing. Is the government currently on a campaign to eliminate graft by politicians, if so, the sentence could be death, if that is not momentarily on the government's agenda, the culprit can get off with an admonition. Courts in China have tremendous latitude when it comes to sentencing but they are expected to follow the government's lead.   

An interesting case was recently heard in one of China's outlying provinces where several buildings were blown up and a great number of people were killed.. Neither the reason for the blast or the person who committed the crime are of any importance in this story. In the village where the bombs were purchased stands a large quarry which provides building materials for numerous construction projects that are being conducted simultaneously by various builders. . A cottage industry has sprung up in this small village that allows the people  to produce blasting powder for the quarry. This powder was usually made in the homes of the villagers. The man that blew up the building happened to buy the powder from the home of a widower with children to support. 

Justice is swift in China and both he and she were summarily executed. He for killing numerous people, she for supplying him with the powder with a shot to the head. The industry is still pervasive within the village and business goes on as usual  with the people still producing the powder in their homes. Nobody else has been arrested nor will they unless another incident like the one we spoke of happens again. There was nothing unusual about the purchase but this women just happened to sell her production to the wrong guy, it could have happened to anyone else in town. She was just unlucky and paid a capital price.  In China, justice is the luck of the draw.  

Graft and the Better Things In Life

Politicians in China control the high calorie end of the food chain. Graft, something almost unheard of in China only a short time ago, at the local level has become legendary and as the country’s economic prowess evolves, the amount of graft that can be levied increases geometrically. Thus, the local politician has by default become king of all he surveys and his territory has become more like a fiefdom than that of a political unit. He tends to view his domain as his personal property and that has indeed caused a major problem in China as a substantial part of the country’s gross national product is winding up in the pockets of bureaucrats and the funds are not being re-circulating within the economy../../._span style_.css"mso-spacerun: yes">    

Politicians become attracted to local beauties and are more often than not able to afford a number of them. This is something that neither the other men are jumping for joy over nor are the women that are left at the starting block. More important to the Chinese Government though is the fact that a harem can be expensive and political leaders in order to support their habits have found it necessary to increase the tolls in their communities so to speak. There is always a breaking point where more graft become economically disintermediating. In other words, the higher the price the less able to pay, the more the local economy will head south. The local leader, unwilling to give up his assortment of beauties must resort to other means to feather and pamper his nest and more often then not, raises the ante one more level by stealing from the local treasury or worse.  

The problem was becoming overwhelming from both an economic and a political point of view and the men in the Forbidden City were really starting to feel the heat, from the men, from the female advocates, from the taxpayers and from the tax collectors. The system was breaking down and sex was the devil that was causing its demise. The wise men in the City thought long and hard about what to do and although there was a law on the books against bigamy and one against cohabiting with someone other than one’s wife and against behavior that is not conducive to monogamy, the penalties for any and all of them were not strong enough to send a married man with hundred woman harem to jail for even one day.  

The old men thought long and hard about Xu Qiyao, ../../__147.css;the 57-year old head of Jiangsu province’s construction department who lavished nearly $2 million on his 20 mistresses – buying them Cartier watches, stereos and sequestering them in several love nests dotted throughout eastern China.”[1] I am not sure that this was the straw that broke the camel’s back for them, I think it was the fact that he did it on a salary of less than $100 per month. While Xu had always been known as a big saver, this was beyond anyone’s comprehension. They talked about the fact that Chen Xitong, the former mayor of Beijing itself and a man held out to be a model citizen, husband and father was able to maintain a harem the extent of which has never been properly delineated on miserly salary. An they debated long and hard over what Gao Changli did. This man was a justice minister for the government who had kept his mistress on the ministry’s private payroll. All of these men were severely punished for their indiscretions but the punishments were not for having harems but were for stealing money to maintain them.  

The wise men acted, they determined in their infinite wisdom that it was an accumulation of women that make men steal and do ghastly things in the workplace. If women could some how be made to become men’s equals or something similar, perhaps the bribery and thefts that were so severely eroding China’s economy could then be brought under control. The government agreed and China has now made it official, men are no longer allowed to have extra marital affairs or at least, they were not longer allowed to bet caught in the act. We believe that this shows that China has truly become joined with other developed nations all of which whom universally make a practice of passing useless laws that assuage the electorate and yet remain as worthless as the paper they are written on. We applaud both the old men in Beijing who no longer care about sex and the young and powerful men that will continue doing exactly what they were doing before these laws went into effect without missing a stroke so to speak. We must join in praising China, a country that has now truly joined the civilized world.

The Financial Times on August 2, 1998 ran a story about what happened to Chen Xitong entitled "Jail looms for Beijing's once Mighty Mayor" and it is worth quoting a paragraph as it talks about the fact that he received bribes, a gold ring, a silver carriage and horses and a house in the countryside equipped with massage chairs, It then goes on to say: "But these may, in fact be mere trinkets in the Chen Xitong affair. More than 40 officials connected with Mr. Chen have been arrested so far and an internal report last year said he had amassed a personal fortune of $24m. He was also implicated in a series of financial schemes which may have totaled $2bn in value." Relatively you are talking very serious numbers here. 

History and International Paranoia

China has a long and worthy history, which includes a substantial number of major, globally important innovations, in spite of the fact that for a good deal of its recent history, China was basically isolated to the outside world../../._span style_.css"mso-spacerun: yes">  Since the early 1800s, the country to a large degree has been in turmoil, with power largely decentralized and revolutionary movements becoming the order of the day../../._span style_.css"mso-spacerun: yes">  Historically, China could well have fallen into a series of fiefdoms without Western assistance in suppressing these revolutions. Witness the Boxer Rebellion in 1900, which was brought under control primarily by the United States Marines../../._span style_.css"mso-spacerun: yes">  In spite of Western attempts to keep the country on an even keel, Imperial China (the Qing Dynasty) collapsed in 1911, leaving China in chaos../../._span style_.css"mso-spacerun: yes">   

China’s allegiances shift with the wind; this is evidenced by the fact that they were on the side of the Anglo-French during World War I, for whatever little that meant../../._span style_.css"mso-spacerun: yes">  In exchange for mostly vocal support of the Allies, which is about all they could give, they were promised the German concessions in the province of Shangdong at the end of the war../../._span style_.css"mso-spacerun: yes">  As often occurs with these types of things, someone screwed up big time and the Treaty of Versailles and gave the property to Japan../../._span style_.css"mso-spacerun: yes">  Enraged, the people gathered in Tiananmen Square to protest on May 4, 1919../../._span style_.css"mso-spacerun: yes">  This event marked the beginning of what became known as the "May Fourth" nationalist movement../../._span style_.css"mso-spacerun: yes">   

Chiang Kai-shek took over the leadership of the Nationalist Party (KMT) in 1925 and began unifying the country by force../../._span style_.css"mso-spacerun: yes">  This created the conflict between the Nationalists who were pitted against the Communists. As often occurs in these types of encounters, the Communists eventually won control of the countryside and the Nationalists, the urban centers../../._span style_.css"mso-spacerun: yes">  As Chiang Kai-shek's troops were closing in on what could have been the decisive battle of that long engagement, in 1934, the Communists used a great deal of sense and turned tail and ran../../._span style_.css"mso-spacerun: yes">  They didn't know where they were headed but they didn't stop moving for over a year, and by that time, their forces had been diminished by over 95%../../._span style_.css"mso-spacerun: yes">  This became known as the "Long March" and it went for such a length of time because local leaders, who were basically ../../__147.css;warlords,” were not overjoyed to see this motley crowd setting up camp in their regions and the group was asked to move on../../._span style_.css"mso-spacerun: yes">  Among those on the march were Mao Tse Dung and Deng Xiaoping who ultimately became two of the most important leaders of modern China.  

Meanwhile, the Japanese were busily occupying Manchuria and by 1937, much of China itself../../._span style_.css"mso-spacerun: yes">  If it were not for Japan's attack on Pearl Harbor in 1941, China might well have become a part of Japan’s empire../../._span style_.css"mso-spacerun: yes">  However, Japan was forced to turn its attention to the advancing Americans, who after a slow start soon began leap-froging the Pacific../../._span style_.css"mso-spacerun: yes">  Before the American forces had finished decimating Japan, the Japanese had killed at least 20 million Chinese and had ravaged China's industries../../._span style_.css"mso-spacerun: yes">  During that period, the American Commander in that region, General Stillwell, tried to get the United States Government to supply materials to help the communists fight the Japanese by using the seemingly logical argument that the Nationalists were inept and corrupt../../._span style_.css"mso-spacerun: yes">  In spite of the argument's logic, the General was turned down because the United States Government was backing the Nationalists, probably for all of the wrong reasons.  

On the other hand, as soon as World War II had ended, the Nationalists and Communists resumed their conflict with a vengeance../../._span style_.css"mso-spacerun: yes">  The Nationalists courted disaster by their continued corruption and mountainous debt../../._span style_.css"mso-spacerun: yes">  The corruption endemic to that entire regime was never addressed../../._span style_.css"mso-spacerun: yes">  The Chinese Nationalists solved their debt crisis by printing mountains of worthless paper money../../._span style_.css"mso-spacerun: yes">  This phase of the war was short and by 1949, the Nationalists were ensconced in Taiwan (Formosa) and the Communists were solidifying their hard-earned victory throughout Mainland China.

However, not everything went well with the Communists either; Mao's "The Great Leap Forward,” an attempt to make China agriculturally self-sufficient in 1958, ended in failure with 30 million people dying from hunger../../._span style_.css"mso-spacerun: yes">  His government blamed the weather, but the facts argue correctly that it was a case of very poor planning../../._span style_.css"mso-spacerun: yes">  In 1962, China broke with their former communist ally, Russia, and in 1966, Mao began what was called, The Great Proletarian Cultural Revolution, unleashing the plague, which eventually became known as the "Red Guards.”  In bizarre fashion, the Red Guards soon began attacking everything in sight but when they took on the Chinese Army the Government began to have second thoughts relative to the monster that they had created. The Red Guards had become an equal opportunity assaulter and when they were not indulging in beating up on the army itself, needing new world’s to conquer, they started attacking each other, causing riots throughout the country in 1967.  

The Cultural Revolution ended by proclamation in 1969, and the country returned to relative calm../../._span style_.css"mso-spacerun: yes">  Mao died in 1976 and Deng Xiaoping, who himself had been purged twice during the Cultural Revolution, assumed leadership. ../../__147.css;Deng had been a work-study student in the early 1920’s. He joined the Chinese Communist Party in 1924. When fighting between the Chinese Communists and the ruling Nationalists broke out in china in 1927, Deng threw himself into revolutionary work. As on of the military leaders who led the Chinese Communist Party (CCP) to victory in 1949, he developed a reputation s an outstanding military strategist as well as a skilled administrator. After the revolution succeeded, Deng worked briefly in his native province in southwestern China before moving to Beijing, the capital , where in 1956, he was appointed general secretary of the CCP, then one of China’s highest posts.”  

Although Deng was closely associated with Mao Zedong during the revolutionary years, he was always more practical than the visionary, indeed utopic, Mao. As Mao’s policies became more radical during the late 1950’s and early 1960’s, Deng increasingly found himself at odds with the top leader. When Mao launched the Cultural Revolution in 1966, which was an attempt to return Chinese society to Communist principles, Deng, after president Liu Shaoqi, became the second most prominent victim of Mao’s purges of party officials. While exiled from power, Deng worked part-time in a tractor factory in rural Jiangxi province in south-central China.’ ([8])   

 He immediately instigated reforms, primarily in the field of agriculture, eventually making the country nutritionally self-sufficient../../._span style_.css"mso-spacerun: yes">  The people took Deng's more benevolent leadership as a sign that reforms had become the order of the day in China../../._span style_.css"mso-spacerun: yes">  However, they soon learned that repression was still alive and well../../._span style_.css"mso-spacerun: yes">  In May 1989, it appears that the people overstepped the unspoken guidelines that had been laid out for them in secret by the Government. The Tiananmen Square massacre occurred, sending a very clear message that those in power in Beijing were not yet ready to accede anarchy to the populace.  

Deng died at the time China initiated its own Industrial Revolution, and at one point the country was utilizing fully one-half the concrete poured in the world../../._span style_.css"mso-spacerun: yes">  Moreover, during this period, control over the city-colony of Hong Kong and then Macao reverted to China../../._span style_.css"mso-spacerun: yes">  When the story of the first half of the 21st Century is written, it will state that China in a relatively short period of time became the leading producer of industrial products in the world../../._span style_.css"mso-spacerun: yes">  As to this potential industrial prowess to create even greater achievements from here, we have no doubt../../._span style_.css"mso-spacerun: yes">  To realize the potential, China, must overcome the problem of internal population dislocations../../._span style_.css"mso-spacerun: yes">    

The globe has been recently been faced with enormous temporary movements of people seeking work in wealthier countries../../._span style_.css"mso-spacerun: yes">  At times, this process causes massive dislocations when conditions suddenly change, such as when some very rich countries in the Pacific Rim like Malaysia discovered that they could no longer afford the luxury of foreign laborers and had to send people packing to all corners of the globe. Serious problems developed when many of these foreigners choose not to leave and when the countries of original origin became unhappy taking back vocally unhappy refugee groups../../._span style_.css"mso-spacerun: yes">   

Some 1.6 million Asians and citizens of the Middle East were working in Kuwait and Saudi Arabia before they fled Iraqi War in 1991, and naturally they all also wanted to leave at once. This caused severe breakdowns in the area's transportation systems as these work-nomads conflicted with the logistics of the war effort.  Tens of millions of global workers have left destitute regions for more affluent ones, in pursuit of higher wages and improved opportunities../../._span style_.css"mso-spacerun: yes">  At least 2.5 million ../../__147.css;undocumented” Mexicans live in the United States, let alone millions with visas or naturalization papers.

A Land Of Nomads

China is a country where millions of people recently began following seasonal employment throughout the country in order to better themselves../../._span style_.css"mso-spacerun: yes">  This recent phenomenon has taken hold more so in China than anywhere else on the planet; dissimilar income distribution also has raised crime rates and driven international migration../../._span style_.css"mso-spacerun: yes">  It is currently estimated that there are over 100 million nomadic workers in China../../._span style_.css"mso-spacerun: yes">  Obviously, any deterioration of the economy will create a need for social support services that could seriously disrupt China’s attempts at economic stabilization. In addition, any major slowdown in the economy will obviously dislocate itinerant laborers first and cause a massive disgruntled segment of the population that the government will have to delicately deal with.  

State companies in China have admitted that there are 27.53 million surplus workers (redundant and jobless according to the Ministry of Labor) being forcibly carried by the government../../._span style_.css"mso-spacerun: yes">  This is an increase of over seven million since the previous time these statistics were released, and it is commonly believed that even these redesigned numbers substantially understate the bureaucratic nepotism practiced by managers to keep the people from becoming discontented.  

China had already acknowledged the existence of over 20 million unneeded workers in the ailing state sector, which is now undergoing radical restructuring../../._span style_.css"mso-spacerun: yes">  The commentary emphasized that the new figures did not include about 130 million surplus rural laborers../../._span style_.css"mso-spacerun: yes">  It is difficult to harmonize these almost unlimited numbers of Chinese Gypsies nomadic wandering the country as most of the rest of Asia still for the most part lies in economic ruins../../._span style_.css"mso-spacerun: yes">  Yet in spite of nomadism, the Chinese leadership has taken an inflexible position relative to its currency: "There will be no devaluation despite growing pressure to do so,” Deputy Prime Minister Zhu Rongji, said in a newspaper report../../._span style_.css"mso-spacerun: yes">   

Because of the recent depression that infected other countries in the Pacific Rim, foreign investment in China dropped a substantial 35% in 1998../../._span style_.css"mso-spacerun: yes">  Other countries in the area devalued their currencies and because of it, now may have become economically more competitive than China../../._span style_.css"mso-spacerun: yes">  China's export advantage to some part is derived from unpaid prison labor, may soon be lost to a tougher foe in the form of the devalued currencies of its neighbors.  

However, we believe that China poses a serious challenge to the entire globe should its economic machine grind to a halt, civil unrest will grow and the country loses its already waning agricultural self-sufficiency../../._span style_.css"mso-spacerun: yes">  At this point, China could once again become isolationist and withdraw from the global economic arena../../._span style_.css"mso-spacerun: yes">  The disastrous consequences for its domestic economy can be easily imagined. While this scenario is highly unlikely, China is now in a position to undercut world prices in literally every manufactured product../../._span style_.css"mso-spacerun: yes">  

Globally, nations are being beaten up by skyrocketing oil prices on one hand, unemployment on another and Chinese competitiveness making up the third corner of a deadly triangle. Should things get even worse, China has plenty of room to lower prices even more sending even more Latinos and Europeans into the unemployment lines. As unemployment increases, tax collections diminish creating an economic death spiral for all countries involved. Sooner or later, this will be the unpleasant scenario that we will all have to face.  

This problem is hardly limited to China, but China’s problem is of a much larger dimension than that of other countries../../._span style_.css"mso-spacerun: yes">  As opposed to the orderly migration of the past, which in its greater sense, historically resulted in personal transference of allegiance and the ultimate permanency of citizenship[9], the migrations or dislocations of today have created an itinerant workforce that wafts dangerously from one country another country../../._span style_.css"mso-spacerun: yes">  

This transient army survives by plying the globe, scavenging work from indigenous populations for what would be considered to be locally unacceptable compensation with little hope of governmentally approved permanent residency within either the national or the regional borders ([10])../../._span style_.css"mso-spacerun: yes">  These will be the new mercenaries ([11]) of the 21st century, and as population problems intensify, borders that are flexible when people leave may not be open when it is time to return. In Asia, workers can be allowed in and thrown out as the need for additional bodies waxes and wanes.  

In Europe the situation is not so simple, borders are porous for several reasons, the first and foremost is the fact that the people of all of the European Community countries have equal access to each other’s borders. Thus, the laborers in Portugal, Spain and Greece have gravitated to the higher wage paying countries of Germany, France and the Nordic countries. The EU will eventually only tend to equalize the suffering of Europe, The second reason that Europe acts as a ready home for nomadic laborers is the fact that many countries on the continent either don’t or physically can’t their borders because of corruption or geographic impossibility. Italy is one such country and peoples from all over the world are able to slip in Europe by heading in that direction../../._span style_.css"mso-spacerun: yes">    

In the Pacific Rim, the richer countries had imported millions of workers from the poorer nations. Malaysia and Thailand were particularly big in bringing in foreign workers to do the more menial work. When their economies collapsed, the respective governments determined that it was time for these migrants to return from whence they had come and it was so ordered. These poorer nations by this time were in even worse shape, places like Indonesia and the Philippines could not reabsorb such prodigious elements of their population and resisted taking their own people back. In addition, the transient laborers were not exactly excited to going back to poverty and they also did not line up for the ferry ride home. This created serious problems with many people being killed during this period of time.  

The United States in all of its prosperity is not exempt from not having a clue relative to what to do about it immigration problem. With unemployment at record low levels, the approach that the United States has been using recently, of excepting professionals that have particularly needed talents no longer seems to fly. It is the menial laborers that are now in demand and as the population of the United States becomes even more upwardly mobile, the problem will become more intense. The immigration regulations are now undergoing an extreme tinkering and a dramatic shift in the type of people that immigrate will be seen in the near future. But what happens here when the economy starts to back up which it looks like it is doing now?  

This process of nomadic migration is gaining momentum with the occurrence of a particularly unique trend../../._span style_.css"mso-spacerun: yes">  Whereas previously women never migrated, at least without a male partner, but they are doing it today and in greater and greater numbers../../._span style_.css"mso-spacerun: yes">  As productive land becomes less and less available to indigenous populations and the rural poor also become part of the itinerant poll of migrants../../._span style_.css"mso-spacerun: yes">  Both of the above factors have accelerated as poverty, at least on a relative scale, becomes worsened.

Population

India, with a population of 949 million people, and estimated to be on target to overtake China as the world’s most populous country by the year 2047, with a then population of 1.62 billion, certainly represents an appetizing target for global business; a market with pent-up demand for almost every kind of product and a middle class that can afford to purchase them../../._span style_.css"mso-spacerun: yes">  Before your mouth starts watering too much, lets look at the situation, as it exists today.  

It has been perceived as strange by the uninformed as to why China has peaked the interest of so many of the world's major industries and India, similarly positioned, has been treated by global investors as a pariah../../._span style_.css"mso-spacerun: yes">  The global perception and the actual facts in this case are one in the same. Pure and simply, the Indian government is extremely reluctant to go through the painful process of creating a favorable business environment, which in turn has resulted in a startling relative constriction of foreign direct investment../../._span style_.css"mso-spacerun: yes">  This is illustrated by offshore funds infused into China last year were twenty times more than those earmarked for India. Although China is not exactly free of bureaucracy, India has created new meaning for the term and stultification has risen to a level heretofore unheard of in global business relative to democratic country.  

This is not unusual when analyzing the attitudes towards business normalization practiced by the diametrically different governments../../._span style_.css"mso-spacerun: yes">  Whereas China until recently had no infrastructure, India’s has fallen apart from abuse and can only be restored at a staggering cost../../._span style_.css"mso-spacerun: yes">  In spite of the fact that India had a national phone network decades ago, by the turn of the century, callers will be able to reach almost all of China and literally none of India../../._span style_.css"mso-spacerun: yes">  What roads China had were literally, only usable by foot traffic, animals and some bicycles../../._span style_.css"mso-spacerun: yes">  Today, China is putting the finishing touches on a band of four lane highways connecting the length and breath of the country, while India’s congested thoroughfares make traveling any distance a painful experience.  

China has embarked on massive projects to create power, dams, and grids while energy plants can be seen rising throughout the landscape../../._span style_.css"mso-spacerun: yes">  By contrast, the absence of adequate power supplies acts as a major deterrent to factory construction in India. Any attempt to attract foreign labor, financing or other assistance is met with unconscionable bureaucratic bungling, political paranoia and restrictive regulations. While China is not necessarily idyllic when it comes to bureaucracy, India has given bribery and indolence new meaning.  

China has gone from agrarian state to industrial one in less than two decades../../._span style_.css"mso-spacerun: yes">  It used to be a nation that could not meet its own people’s needs../../._span style_.css"mso-spacerun: yes">  Now it wants to supply the globe../../._span style_.css"mso-spacerun: yes">  Through the use of low wages, forced labor and modern, more sophisticated production equipment, the country has seized many markets from its neighbors/competitors, Thailand, The Philippines and Malaysia../../._span style_.css"mso-spacerun: yes">  However, China in their rush to a market economy has seemingly forgotten their vaunted healthcare system for the rural poor. The free clinics that once serviced the medical needs of the farming communities and the so-called ../../__147.css;barefoot doctors” have all but vanished. In decentralizing its system, Central Government planners attempted the shift the burdens of healthcare and education away from the federal government and unto the provincial bureaucrats. 

Welfare or a Lack of It.

While this was a logical concept, there are 800 million Chinese peasants in rural communities who mostly do not earn enough to even pay for food and taxes and the outlying provinces are hard-pressed to afford anything let alone expensive subsidies such as  these. ../../__147.css;The rural health system has become a hodgepodge of hospitals and clinics that are often privately run and almost always prohibitively expensive, where treatment for a cold can eat up two months income and giving birth in a hospital tow years of hard-earned cash.” ([12])  

In China’s new, pay-as-you-go economy, the government clinics that formerly dotted the countryside are still there, but they have now been privatized and have been turned into profit making institutions. Doctor’s visits that used to cost 60 cents, still do, but it is the extras that eat your lunch, important things like medicines have gone through the roof. Even formerly free immunizations now costs money and a system that provided for everyone is now producing a recurrence of tuberculosis which has quadrupled in the last 15-years. Giving birth in a hospital can take up to two-years income and the only alternative is to have children at home. However, for the most part, there may not be any running water or sanitary conditions. Infant deaths have risen substantially in recent years because of this fact. If is both the lack of available educational and health facilities that are causing many, whose families have tilled their own land for hundreds of years, to leave for the cities and a potentially better life. It couldn’t be any worse but maybe China figured this out as the only way to fuel their massive factories and production quotas.  

With this type of steamroller competition, there is no longer any margin for error in the economies of China's Pacific Rim competitors../../._span style_.css"mso-spacerun: yes">  China now suffers excess capacity problems in many industries, and factory prices have fallen over 10% in just over a year, and are headed lower../../._span style_.css"mso-spacerun: yes">  Having built and maintained industrial facilities that are adaptable, it can convert relatively easily from one production line to another../../._span style_.css"mso-spacerun: yes">  This is not the time for other macho governments in Asia to prove who is has the biggest ../../__147.css;credentials”; it is time for their leaders to take a constructive stand before they are eaten alive by the Chinese.  

A Serious Problem

Another disease that in a relatively short time has become literally, a plague within the interior of China is AIDS. Many villages in China have the highest rates of HIV in the world and for good reason. Local bureaucrats encouraged citizens to both sell and contribute their blood to government sponsored pools that retained that blood within a pool for the donor should he or his family have the need or sold it if they felt that there was an excess. However, the sanitary and medical precautions that should have accompanied these massive donations were either wanting or unknown. The selling of blood had become so commonplace that many have estimated that as many as 95% of the Chinese population within certain districts were involved at one time or another. As many as 60% of these people have been stricken with the disease. 

    "In the early 1990's, Chinese biological product companies -- some with foreign partners -- started relying on China's isolated impoverished heartland a an ideal place to get cheap, clean plasma, the part of the blood that is used to make medicines like gamma globulin and clotting factors. Health officials in the province (Henan) often became enthusiastic middlemen, setting up blood-collection stations. Some profited personally from the trade, while others saw it as a harmless way to bring cash into a destitute region with few resources. Because of the plasma collection methods routinely used at the time throughout China, even those who donated only a few times ran a high risk of becoming ill, experts said. Blood from dozens of sellers was pooled and put into a "huge centrifuge," the villagers said, where it was spun to separate the desired plasma. The remaining fraction, mainly red cells, was divided up and transfused back into the sellers, who felt the process to be healthful because it limited the blood loss." 

    "That highly unsanitary process meant that once one blood seller in a village was infected with HIV or hepatitis, the rest were quick to catch the disease, since the viruses from other people's bodies rode along with the unwanted red cells back into their veins. Since the sellers were not losing red cells with each donation, which would have resulted in severe anemia, the method also disastrously meant that the farmers could sell frequently  -- raising their chance of infection." (New York Times 5-28-2001 Deadly Shadow of AIDS Darkens Remote Chinese Village. 

The saddest part of this whole situation is the fact that the villagers received on about $5 dollars for each pint they donated and when they got sick, no one really knew what they had or how to treat it. Officially, the Chinese Government is treating these villagers as having the plague. In other words they are really not interested in the outside getting the notion that the disease even exists here. However, it does exist and it has become a big-time problem in spite of the fact that bureaucrats wish that it would go away.  In addition, the people that were originally infected because of unsanitary needles or being re-injected with tainted red cells did not realize that the disease could be transmitted by other means even once that stopped selling their blood. This double whammy has recently begun to infect another generation and has caused an epidemic to say the lest. Most interesting of all, the medicines that are used to great effect in Africa to prevent mothers transmitting the disease to their children have not seen the light of day here in China. 

Some people in Henan Province became aware of the HIV related problems that the unsanitary collection and sale of blood was causing earlier than others. One of those people was Dr. Gao Yaojie, who in spite of government resistance worked tirelessly to help the villagers coupe with literally unsolvable problems. Dr. Yaojie literally toiled alone due to the fact that the Provincial Government did not want to bring outside attention to what this highly profitable but morbid business had produced. However, in spite of China's attempts to hide the truth from the rest of the world, the good doctor’s efforts were ultimately noticed by outsiders. 

When the international community came to realize the magnitude of her accomplishments in helping AIDS sufferers, she came in for substantial global acclaim. However,  bringing this serious medical problem to the world’s attention by vocally  fighting for medical help for the people of Henan she stepped on some important toes of  the governmental agencies did who did not even want to admit that the problem existed. Many bureaucrats in China were displeased to say the least. In attempts to discredit her, local governmental officials tried every trick that they had available including the indication that she was sponsored by foreign governments that were seeking to undermine China. They also indicated that these unnamed enemies of the state were footing the bill in her fight in spite of the fact that they were well away that the money had come from her own meager resources.

For all of these things, Dr. Gao Yaojie was had bestowed upon her the highest acclamation in that field of science, the Jonathan Mann Award for Health and Human Rights awarded annually by the Global Health Council. Fittingly, Secretary General Kofi Annan of the United Nations was to be the presenter, but sadly, this great humanist will not get her public 15 minutes of fame, as the Chinese Government attempts to create an iron-wall around the entire affair. They have refused to allow Dr. Yaojie the opportunity of traveling to the United States to claim her just deserves because it was felt that this would only magnify the publicity of this dread diseases spread. Adding insult to injury, while publicly China now talks about the wonderful work that she has done, privately, she is forced to work alone within a massive sea of intellectual darkness. 

The fact that Aids or HIV were not particularly well known until recently is not an oddity in this country. After all, sex was seen as something not to be talked about during the early years of communism. Parents didn't discuss it with their children and it certainly wasn't anything that you learned about in school. Premarital sex was unusual and it was a literally taboo subject in the media. There were no centerfolds or playmates in this era,  There were hardly any cases of sexually transmitted diseases in China until at least the middle 80s when a rapprochement with the West was commenced. This relationship brought along everything the West had to offer which included both the good and the bad. 

An interesting example of this is the fact that there were almost 500,000 cases of sexually transmitted diseases in China in the year 1997. In 1985 there were only a tad over 5,000 sexually transmitted cases recorded in the country.  However, during this time of increasing numbers of diseases that are sexually oriented, private clinics have sprung up that give quiet consultation and medication to those that can afford it so that the state does not become involved. If these often unspoken figures were added to the previous number, there is little question that the final amount would have been substantially larger.

While sexually transmitted diseases are becoming increasingly a problem in China, strangely, the blame cannot totally be laid on the fact that many of the people were only trying to pick up a few extra dollars. Getting shots is almost a cultural happening in China and they are given for literally everything and anything and from cradle to grave. However, there is a difference between the conditions under which shots are given in China and the way they are administered in the rest of the of the world. The United Nations Common Country Assessment for China in 1999 indicated that this is exemplified by the chilling statistics that show that no less than 60 percent of total Chinese population is infected with the deadly hepatitis "B". As a matter of comparison, their Japanese and American counterparts only have a 1 percent infection rate among their populations.  Thus, the number cases of liver failure and cancer are geometric greater in china than in other countries. As a matter of fact, while cancer of the liver is extremely rare in the west, it is the preeminent cancer killer in China.

Even those medically oriented people in China that practice conservative medicine, that is the giving of one shot from one hypodermic needle and than discarding it are really unable to stop the flow of Hepatitis "B" from infected needles. In reality, the country of China has become a gigantic materials recycling machine and while that is environmentally sound and economically logical, there is a potential downside. Somewhat similar to the anecdotal story about the fact that when the meatpacking companies in the United States got finished with a pig, they had made use of everything but the oink and were trying to find a way to capture that as well. In China, when the garbage is thrown out, all of its component parts are subdivided and then re-subdivided once again.  

In the case of the materials used in the giving of shots; there is no legitimate method of monitoring the progress of the needle's dismantling  along with the plastic IV tubing as it wends it way from one recycling facility to another. Often the process in China becomes derailed when a substantial bid, that is too good to turn down comes in for the still blood stained total product. Statistics in China show that that the number of cases of Hepatitis "B" and HIV are directly correlated to the number of shots a person receives each year, condemning the needles themselves. China has become a massive production line turning out endless quantities of infected people because they seem to be unable to stop practicing poor medicine.   

Body Parts

People were ostracized in those years if they even talked about the subject of sex in public, but then communication began in earnest with the rest of the world and sex reared its ugly head. Today, sex shops are as ubiquitous as vegetable markets all over the country with their strange assortment of rubber products, the subject is taught in schools, discussed in the media and prostitution abounds. Viagra is a big seller and herbal remedies that promise sexual Nirvana are plastered on billboards all over town. It is no wonder though that when sex arrived in China, the gory details of what it brought with it were not subjects that the government was interested in exposing to its own citizens. They no have become quite adept at it but are not sure yet what it is.   

However, this does not change the fact that China in many cases has literally no labor cost because their factories are often located on prison sites../../._span style_.css"mso-spacerun: yes">  In such plants, the only fee a criminal gets is bread, water and another day on earth../../._span style_.css"mso-spacerun: yes">  Despite these low labor rates, China has been caught in the vortex of down-drafting currencies../../._span style_.css"mso-spacerun: yes">  For many prisoners, bread and water in exchange for 20-hour workdays is the good news and life sometimes can get even worse for those incarcerated under the Chinese system../../._span style_.css"mso-spacerun: yes">  When a prisoner's production falls below acceptable levels, he is no longer considered useful by the state../../._span style_.css"mso-spacerun: yes">  

At that point, his body, which is thought of as state property, is summarily reclaimed sometimes even before the prisoner has official been pronounced dead. Interestingly enough, the mining of peoples body parts against their will is illegal in every country in the world with the exception of Iran, but this doesn't bother Chinese officials in the least. And in spite of the fact that many organs are in short supply worldwide, kidney donors stand outside of hospital rooms in both India and Iraq offering to donate for a $1,000 or less. While not always of the bargain basement variety, kidney donors seem to be readily available in the especially, Palestinians from Jordan, and locals in Philippines, Turkey and Singapore as well. Turkey and Iraq have also become a focal point for organ transplant surgery.  

The hapless Chinese convict is executed, usually by lethal injection, which tends to preserve organs for export more effectively than competing methods../../._span style_.css"mso-spacerun: yes">  The old method of ../../__147.css;skinning, quartering and chopping people in half at the waist”[13] does not cut it when internal organs are needed../../._span style_.css"mso-spacerun: yes">  The victim’s organs are medically removed and packaged for resale internationally or if required, the recipient can receive his new organ within China itself../../._span style_.css"mso-spacerun: yes"> 

 

Chinese ../../__147.css;parts salesman” are discreetly sent on global marketing missions in search of those in need of body upgrades../../._span style_.css"mso-spacerun: yes">  In a recent New York City arrest of Chinese organ dealers, the available menu was found to include kidneys, corneas, pancreases, skin and lungs guaranteed to come from non-smokers, all neatly catalogued with prices attached../../._span style_.css"mso-spacerun: yes">  The traveling parts salesmen also offer cut rate transplants if the buyer wants to have the surgery performed in China../../._span style_.css"mso-spacerun: yes">  As body component orders in this industry increase, crimes that the government considers capital in nature have been substantially expanded to meet production demands../../._span style_.css"mso-spacerun: yes">  Currently, according to the New York Times[14], robbers and counterfeiters sit on death row../../._span style_.css"mso-spacerun: yes">  The growth rate has been prodigious thanks to industrious and sophisticated sales and marketing techniques employed by the Chinese.

 

Amnesty International stated that in 1996 that China executed more than 4,300 people, which would mean that it did away with more criminals than the rest of the world combined and made a shambles of the runner-up Ukraine, which could only dispense with several hundred../../._span style_.css"mso-spacerun: yes">  China sentenced an additional 6,100 to death, thus insuring an adequate supply of organs for international sale in the ensuing years. While china has indicated that it is changing its ways, international organizations have seen little change in their policies../../._span style_.css"mso-spacerun: yes"> 

   

Of particular interest to Chinese economists are the facts that this industry has not suffered capacity problems and sales are made almost exclusively for hard currency../../._span style_.css"mso-spacerun: yes">  The materials are readily available in whatever quantities are desired, at little or no cost, and the economic crisis in the Pacific Rim has not impacted business../../._span style_.css"mso-spacerun: yes">  Socially, the business makes even more sense, as society's undesirables are eliminated at a profit to the State../../._span style_.css"mso-spacerun: yes">  Although Amnesty International, the United States State Department and other governments are upset by the practice, China appears not to give a damn one way or the other../../._span style_.css"mso-spacerun: yes">   

Before getting to sanguine about the Chinese transplant process, it would be interesting to point out that while Americans have an aversion relative to going overseas for organ transplants, American hospitals are leaders in allowing both live donors and organ recipients into their operating rooms. As opposed to most other countries, there is no national legislation regarding this and therefore, it has become primarily an economic consideration when local hospitals determine to do the medical procedure. 

The United States does have a law against the sale of organs and it is a felony to negotiate their purchase or sale on American soil according to a Federal law passed by congress in 1984. Nevertheless, this has not stopped people who are desperately in need of violating these provisions in spite of the fact that the penalty for getting caught is substantial and includes up to five years in jail and/or a fine of up to $50,000. Furthermore, and probably just so that no one gets the wrong impression, it is illegal for a person convicted of a crime residing in an American prison to donate or agree to donate an organ currently or after his demise. Moral and legal considerations that motivated this law; its intent is logical and its meaning crystal clear. However, if you live in China and are convicted of even a minor crime, you face the removal of any and all of your organs.  

China, a country that executes more ../../__147.css;criminals” than all of the other countries on the face of the earth combined, often holds mass executions if only to send the message that they are being tough on crime. In China this is known as ../../__147.css;killing the chicken to scare the monkey.” To maximize press exposure, the authorities often schedule executions on national holidays. It is at these times of the year that everyone who could possibly profit from organ transfers queues up to get a share of the spoils. Mass killing are often organized for army budgetary reasons.  

The organizations that benefit from organ harvesting from executed prisoners observe an inflexible pecking order. The army gets first choice and probably receives up to 70 percent of the total number of organs removed. In China, as opposed to most other countries, the army is basically on a pay as you go basis, and must come up with various ../../__147.css;for profit” schemes to support itself../../._span style_.css"mso-spacerun: yes">  However, its influence within the central government is substantial, and it enjoys unique perquisites. 

Moreover, there is a tacit agreement between the army and the government that these outside enterprises are meant to enhance the senior military pay scale and to relieve some of the tax burden of the civilian government, which has been none too successful in the collection of taxes. This relationship also tends to keep the army in the government’s pocket and the balance of power firmly entrenched in Beijing. However, the army, is forced to kick back part of the fees that it receives to those who make available the fresh corpses for harvesting. To insure quality control, most of preliminary medical analysis occurs in military hospitals to which prisoners are transferred before execution.  

../../__147.css;Money from patients purchasing organs is dispersed among those who provide access to the prisoner’s body. Hospitals even pay judges to tip them off when they sentence a suitable donor to death. The money goes to officials all of the way up the line. It goes to the courts, the people in charge of the prisons. It goes to the doctors, the hospitals, everything.” ([1])  

However, it is at this point that the orchestration really begins. The execution must be carefully timed so that it will conform to the scheduled transplant surgery. The more quickly that the organ can be transferred from one body to another, the more likely it is that the procedure will succeed, an important ingredient in the word of mouth advertising in this underground occupation. While the subject is taboo, this is unquestionably big business in China, and nobody wants to get a reputation for a botched job that would kill off a substantial income stream. In these cases it is critical that all of the participants in the genocide, the army officials, the judges, the hospitals, the surgeons and the recipient,  coordinate the time of the prisoner’s execution in order to maximize the probability of success. An appeals process would throw this whole intricate mechanism into a cocked hat, and therefore is discouraged by the actors in this obscene drama../../._span style_.css"mso-spacerun: yes">  There are no last minute reprieves for the condemned when the execution’s time and place have been set.  

../../__147.css;In China, human rights groups say, citizens have been executed for nonviolent offenses like taking bribes, credit card theft, small-scale tax evasion, and stealing truckloads of vegetables. Political dissidents have also been sentenced to death…Forced labor from China’s laogai has always been a source of cash for the country’s rapidly advancing economy. And punishment doesn’t necessarily end at the point of death, usually a single shot to the back of the head. Families are often forced to pay for the bullet used. But the laogai turned into Execution, Inc. less than 20 years ago after the introduction of Cyclospoine, an immunosuppressant drug that prevents rejection of organs by the recipient’s body.” ([2])  

The inmate is terminated in a manner that will not jeopardize the particular delicate organs that have already been pre-sold; after all, you wouldn’t want to shoot a man in the heart of your were going to do a transplant of that organ or in the brain if you needed corneas. More often than not, a shot in the head will suffice, when a liver, kidney, spleen or the like is needed and one to the heart should there be demand for eyes. Thus, the demography of each unwilling donor must be carefully analyzed as to which of his body parts would do the best elsewhere and these are carefully cultivated with consideration given to the relative synergy of the body parts in question../../._span style_.css"mso-spacerun: yes">   

Whether or not the victim is in good health is critically important to the recipient and surprisingly in Chinese jail, apart from any other countries in the world, the healthy have a much higher ../../__147.css;accident rate” than the ailing. Non-smokers have a much shorter life expectancy in prison than smokers and unbelievably, people with incurable cancer and AIDS seem to live much longer than healthy young men../../._span style_.css"mso-spacerun: yes">  However, in China, if you are a wealthy person desiring the better things in life, you can get various perks for a price, these menu items include but are not limited to better accommodations, the designation of a particular surgeon, a more careful surgical match to avoid the possibility of rejection and a choice execution date. However, this sword cuts on both ways; heaven help you if you get your transplant and during your recovery, your funds suddenly run out. More often then not, you would find yourself without the necessary anti-rejection serum and you too could suddenly become a candidate for being someone else’s salvation. No one ever said that life in China was easy.  

Bullets are considered a luxury in China and are not always wasted on the condemned. If the organs can be quietly removed while the convict is still alive, it makes for a garden-fresh transplant and can command a premium press. Moreover, in these cases the prisoner is heavily sedated, the desired organs are removed and the unwilling benefactor is buried, whether he has expired or not.  

Occasionally the highly orchestrated procedure comes unglued and the army doesn’t discover an upcoming execution. This is when the locals can get into the act and really clean up. First, the local head of a prison where the condemned man is awaiting execution pays him a visit and discusses the fact that he could, for a price be allowed to sell his organs upon his death. In this way, he is told, he will be able to leave his family the money that is earned on the sale which will undoubtedly help them immeasurably. However, the warden or his bag man must be paid a fee for going to all of this trouble, and the fee has to be paid upfront by the man’s family. More often than not, the hapless prisoner acquiesces and his family, borrowing from everyone in sight, ultimately comes up with the cash.  

The prisoner is executed and the organs are transferred to an anxiously waiting beneficiary. Moreover, it is at that time that the convict is immolated according to a prearranged plan. This, though, is the stage at which the rub comes in; the victim’s family attempts to collect the fee derived from the organ sale and is told that the prisoner’s body did not produce a salable harvest and his innards could not be utilized by the donee and that the entire matter has become a disaster for which the family is directly responsible for because of his inferior interior. Furthermore, they are told that the State went to great expense to see that this medical procedure was finalized, only to be left with a massive problem, a failed surgical procedure. It is indicated to them that if they do not shut up about the situation that they have personally caused, they will be charged for the botched job caused by their relative’s inferior innards. The shamed family skulks off in permanently insured silence.  

Ask a Chinese official if this organ harvesting for pay practice even exists and you will be met with either a denial or no comment at all. If the official would say anything, he might quote directly from one of the Chinese laws which states, ../../__147.css;for a prisoner to be a donor, prior consent must be given by that person or remaining family, unless the body is unclaimed.” The bodies of the majority of executed persons go unclaimed because, more often than not, the families have no clue as to where their loved ones are held or of what crime they stand accused../../._span style_.css"mso-spacerun: yes">  Moreover, for health reasons unclaimed bodies are normally cremated. ../../__147.css;Unclaimed” means that about five minutes after the desired organs have been harvested, the body is taken to the oven and converted to ash for use as fertilizer on nearby farms.  

Life is comparatively cheap in this part of the world and everyone wants to get in on the act. As a matter of fact, the Chinese as even established a procedure that must be followed to the letter in these cases: ../../__147.css;Surgical vans must not display hospital logos; surgeons must not wear hospital uniforms when at the execution site, guard must be present until the organ is removed; and the corpses should be promptly cremated following the removal of the organs.” Essentially what these procedures envision is keeping the practice as far from prying eyes as is humanly possible../../._span style_.css"mso-spacerun: yes"> 

Supply and Demand

However, while Americans gladly get their transplants from China, they want to get their post operative treatment and anti-rejection drugs from the United States. More often than not, the reason simply put is that no matter where the organ came from and no matter how illegal and immoral the procedure was, the patients are entitled to not only treatment in American hospitals but to Medicare, Medicaid or whatever other insurance they may have. Furthermore, if they can not afford to pay (which would seem unlikely if they had the money to fly to China, buy an organ and have the surgery there) they cannot be denied treatment in U.S. Government-operated hospitals../../._span style_.css"mso-spacerun: yes"> 

However as much as the Chinese wish to cover up the fact they are indeed the largest supplier of organs to the human market, folks like ex army doctor, Wang Guoqi continually undermine their attempts at stealth. It seems that Wang somehow or other got out of China and one of his first stops was testify in front of the House Committee on International Relations June 27, 2001.  What he said left little to the imagination. He stated that he was an army burn specialist by training and as such he was assigned to run a unit that would remove both the skin and corneas from the bodies of over 100 victims of executions in China's prisons. Wang proceeded to tell the American Congressmen that once the court officials had been paid off their standard stipend of $40, the prisoners were given a dose of anticoagulant heparin and were then summarily executed.

If you have the stomach for it you can read Dr. Wang's description of how his work was accomplished in gory detail. "A circumferential cut was made around the wrist, the ankle and the shoulder joint as deep as the subcutaneous fat layer or the layer above the muscles. A longitudinal cut was made on the inner side of the upper limb linking both circumferential cuts, either from top to bottom or in the opposite direction. After twenty minutes or so, what was left was an ugly heap of muscles, the blood vessels still bleeding, or all viscera exposed. The skin was processed and chilled for use in later transplants in which patients were charged 100 Yuan for each 10 square centimeters of skin, the other organs were also sold."

Dr. Wang who couldn't take it anymore and stopped doing the body unbundling and resigned after first signing a stipulation that he would never talk about what he did to anyone else. He sneaked out of China and now is waiting tables at a restaurant in New Jersey. A Chinese spokeswoman when told  of Wang's charges only indicated that these procedures were approved by the country's highest court in 1984. 



[1] China’s Execution Inc. by Erik Baard and Rebecca Cooney, Village Voice, May 2–8-2001

[2] Ibid

 

 

Currency Fluctuations

There are not enough niche markets available to deflect the recent currency devaluation of China’s neighbors, and there is not much question that the Yuan had become relatively overvalued../../._span style_.css"mso-spacerun: yes">  China now faces a situation where they have over capacity in most areas of production, a gypsy labor detachment of over 100 million people wandering the country looking for work, and a currency that has effectively appreciated in value 50% on a comparative basis../../._span style_.css"mso-spacerun: yes">  Although China’s economy has held up admirably under the circumstances, the jury is still out as to how much long that this can continue in the dog-eat-dog competitiveness of the Pacific Rim../../._span style_.css"mso-spacerun: yes">    

Moreover, China, which does not have excessive foreign debt, is holding the line relative to devaluation[15], more because of ../../__147.css;face” than practicality../../._span style_.css"mso-spacerun: yes">  On the other hand, there is not much question that if China devalued at this vulnerable time for the region, it could well bankrupt almost all of its Pacific Rim competition and send the countries back into the Stone Age../../._span style_.css"mso-spacerun: yes">  China's leaders seem to by aware of this delicate balance and are rightly concerned, it would appear that they are waiting for the Pacific Rim to recover before further considering if and when they may devalue the Yuan../../._span style_.css"mso-spacerun: yes"> 

The risks involved are tremendous, and the other countries know it. Korea which is going through a Japanese style reorganization because of their inherent system of supporting under-managed companies that have managements that could not make money if they were given the keys to Fort Knox and a wheel barrel, has taken the position of offering buyers long-term contracts at substantially reduced prices. This is what it is going to take to stay competitive with China’s newly discovered instincts for economic survival make it an awesome competitor../../._span style_.css"mso-spacerun: yes">  When the time comes to close the trap, it is likely that its leadership's timing will be impeccable../../._span style_.css"mso-spacerun: yes">     

Chinese Vice Premier, Zhu Rhonji, in a meeting with then Deputy Treasury Secretary Lawrence Summers told him that, ../../__147.css;China’s unequivocal commitment to hold the current Yuan exchange rate” was in cast in stone../../._span style_.css"mso-spacerun: yes">  But you had better believe that in some places stone doesn’t last as long as it does in others, and this particular stone may be of the short-lived variety. 

Fraud

Just as everywhere else, China has its share of fraud in spite of still being a communist nation where extreme wealth stands out like a sore thumb../../._span style_.css"mso-spacerun: yes">  On the other hand, the bureaucrats that run the country need their creature comforts, and who can blame them../../._span style_.css"mso-spacerun: yes">  It seems that during the building of a series of dikes along the Yangtze River to protect the hundreds of thousands of people who live along its banks from flooding, officials who had to visit the area as part of their work were extremely inconvenienced by a lack of five-star hotel facilities near the construction site../../._span style_.css"mso-spacerun: yes">  

All being of the same mind, they plucked $120 million from the dike allocation funds and built a hotel at which they would be proud to stay../../._span style_.css"mso-spacerun: yes">  This money represented almost forty percent of the total allocation towards the system of dikes and forced workers to use inferior products to finish the work../../._span style_.css"mso-spacerun: yes">  On the other hand, the hotel has become a major money loser because no one in the region has the money to afford one night, let alone several../../._span style_.css"mso-spacerun: yes">  Thus, when the dike bursts because of the inferior products that went into it, the downstream hotel along with vacationing bureaucrats will probably be swept into oblivion, a fitting end to this saga. But this is life in modern China.  

The Chinese Government insures the availability of food for its population by buying agricultural products and storing them in various warehouses around the country until they are needed for transshipment to their final destination../../._span style_.css"mso-spacerun: yes">  These purchases by the State literally are the life’s blood of 900 million people whose livelihoods are agriculturally based../../._span style_.css"mso-spacerun: yes">  The basic problem with the system is the middlemen../../._span style_.css"mso-spacerun: yes">  The system is highly complex and its nuances are so substantial that they do not lend themselves to repetition in this commentary. However a short form explanation of the process would be as follows: the provincial governments borrow money from the State to make purchases and these loans have to be paid back when the agricultural products are sold.  

A recent audit by the Finance Ministry and the Central Bank has shown that the Chinese equivalent of $25.8 billion has literally vanished from these state grain-purchase funds over the last six years../../._span style_.css"mso-spacerun: yes">  This is surprising for several reasons../../._span style_.css"mso-spacerun: yes">  The first is the enormity of the disappearance, and the second is the government's admission of an internal error, an admission that highlights the Government's view of the gravity of the problem.  

Feeling secure in the inventory figures that they were receiving, the Central Government initially had no concerns regarding agricultural self-sufficiency../../._span style_.css"mso-spacerun: yes">  It was only after early audits showed dramatic slippage that the government went into orbit. Now, the Central Government was faced with their second problem../../._span style_.css"mso-spacerun: yes">  In China, the provincial governments function autonomously../../._span style_.css"mso-spacerun: yes">  While everything is eventually reported to Beijing, this can take substantial time../../._span style_.css"mso-spacerun: yes">  In addition, regional leaders sometimes feel that when they owe money to the Central Government, the stated amount of the debt is only a guideline, not an obligation../../._span style_.css"mso-spacerun: yes">  Thus, in the course of the investigation it was found that the money had been spent on things regional leaders viewed as more pressing, fun things such as cellular phones, cars, stocks, futures trading and investments in apartment buildings and hotels../../._span style_.css"mso-spacerun: yes">  Buying high and selling low is where most of the money went when bureaucratic novices though that they could beat the markets.  

The extreme oddity of this situation is the fact that this wasn’t the action of one rogue province run by a maniac, it was pattern that repeated itself within all regions of China almost like spontaneous combustion../../._span style_.css"mso-spacerun: yes">  In reality, the fault lies to the some degree at the feet of the Central Government../../._span style_.css"mso-spacerun: yes">  While the rules stated that all agricultural production had to be sold to the State, when the bottom fell out of prices a decade ago, the government turned a blind eye to farmers selling their products directly../../._span style_.css"mso-spacerun: yes">  When prices recovered, the Chinese Government never reined in the practice../../._span style_.css"mso-spacerun: yes">  As a result, two virtually diametrically opposed policies existed for a period, side by side../../._span style_.css"mso-spacerun: yes">  Farmers went where they could do the best../../._span style_.css"mso-spacerun: yes">  If prices dropped, they sold at a "floor" rate set by the Central Government to the Central Government../../._span style_.css"mso-spacerun: yes">  If prices rose, the farmers would sell to the highest bidder../../._span style_.css"mso-spacerun: yes">  That, coupled with the poor administration of the State Grain Bureau, caused much of the problem.  

Still leaders in Beijing are at a loss to explain how these billions of dollars could have gone up in smoke under their very eyes../../._span style_.css"mso-spacerun: yes">  Worse yet, the offenders seem for the most part to be the leaders themselves, the provincial governments and the farmers.

Playing The Game

Moreover, the Chinese stock market has become a legitimate method of separating the hopelessly nave pheasants from their hard earned money. Inconceivable amounts of currency were removed from mattresses and other hiding places and the funds used to purchase securities in the emerging Chinese securities markets. The only problem with this that the regulations governing the marketplace in China are toothless and for the most part not enforced. The bad guys, using Internet and countless other strategies are able to spin stories about Chinese companies and their prospects which would put Ponzi to shame. Unbelievably, a common chicken-breeding operation with about as much growth opportunities as rock was touted as the second coming in the Chinese stock markets.  

The stock’s price went into the stratosphere and it was at this time apparently that the company’s management started to believe their own propaganda. They raised $250 million from local banks, telling them that the money was  for expansion  purposes and proceeded to use the borrowed funds to prop-up the chicken ranch stock when it started to go south../../._span style_.css"mso-spacerun: yes">  Eventually, almost everyone lost, the banks, the company and the investors. A number of senior executives of the Chicken company felt obligated to beat a hasty retreat from the country../../._span style_.css"mso-spacerun: yes">  The Chinese equivalent of our Securities and Exchange never monitored the company’s growingly optimistic announcements, the banks never checked to see where their money was being used and the poor investors weren’t even certain what business the company was in. Moreover, no one really knew  where to go to find information about the company in spite of the fact that the chicken operation was listed on a major Chinese exchange. Chinese stock markets are the ../../__147.css;Wild West” of the global securities industry and no one is watching the store. The money that has been already lost is incalculable.

Little Time Politics

While China in theory has joined the ranks of global leadership, its political infrastructure is little changed../../._span style_.css"mso-spacerun: yes">  The local Communist Party Chief is in charge of all small towns and rules dictatorially../../._span style_.css"mso-spacerun: yes">  The local police who act as his right arm back him up../../._span style_.css"mso-spacerun: yes">  Salaries for Party Chiefs are not high and they augment their earnings through extortion and other sundry crimes../../._span style_.css"mso-spacerun: yes">  Effectively, each city, town and hamlet has a similar feudal system, with the Party Chief acting as a Lord and exacting tribute; the police are the knights that enforce its collection../../._span style_.css"mso-spacerun: yes">  The Lord's coach is almost always a black limousine, and paying jobs are sold to the highest bidder, set at a predetermined scale based on the annualized bribery related-income of the home office.  

The Central Government states this type of corruption is rare../../._span style_.css"mso-spacerun: yes">  However, an article in the March 11, 1999 New York Times indicated otherwise:   ../../__147.css;…corruption is now virtually built into the middle levels of China’s vast authoritarian apparatus, under an ideology that has become a hollow shell while the new market economy swells around it../../._span style_.css"mso-spacerun: yes">  Westerners often decry human rights conditions in China, citing political restrictions on writers and intellectuals in the large cities../../._span style_.css"mso-spacerun: yes">  But for hundreds of millions of ordinary Chinese who live in towns and villages, it is the unrestrained authority of a local party chief that is usually most oppressive.  

” Hu Angang who is a professor of the School of Public Policy and Management at Singh University stated ../../__147.css;that illicit siphoning of funds from projects and companies wiped out the equivalent of 13% to 16% of China’s gross domestic product, or about $150 billion, over the last decade…it is of the Government’s top challenges. They are fighting a kind of social pollution…Last week; authorities in South China’s Guangdong province sentenced seven people to death for tax fraud. Among them were two tax officials who used fake tax receipts to claim rebates on exports. Dozens of senior Chinese officials have also become entangled in smuggling scandals uncovered in the coastal cities of Xiamen and Shantou.” ([16])    

Guangdong Province sits in the important southeastern tier of China. Because of its strategic location and substantial resources, fully fifty-percent of China’s export earnings come from this area. While in theory, all of China is equal; there is not much question in anybody’s mind that Guangdong has been more equal than others. This equality manifests itself in the provinces historic independence. Some say that this came about through an arrangement made between Marshall Ye, a General who was a leading figure in Guangdong in the 1970's and Deng Xiaoping, who was involved in a power struggle for control after Mao Tse-tung’s death in 1976.  As the story goes, Ye was asked for his support by Deng. Ye said he would go along but wanted a little something in return. This arrangement purportedly solidified an arrangement whereby the Central Government of China was to let the administration of the province alone.  The agreement cast in stone a system of corrupt leadership that traversed the province from one end to the other. Whether the story is factual or apocryphal is not an issue; the province is run by the politicians with an iron hand and for a while they believed that they could do no wrong. 

The province created a for-profit private company with the auspicious name of the “Guangdong International Trust and Investment Company (GITIC)"; soon the company became the envy of all China. Its shares for a time were the highest fliers on the stock exchange. Hong Kong raised debt financing for them any number of times, bringing in Western investors by the score; institutions from all over the globe were buying the stock. But sadly, GITIC and other companies set up by the province created international and internal debt that exceeded the province's annual gross revenues. Things might have turned out ok in the long run, but the collapse in the Pacific Rim doomed Guangdong's experiment. Provincial revenues were no longer enough to pay the freight and GITIC sunk into bankruptcy taking the savings of half of the people in the province along with it.  

China’s entire budget was thrown into a cocked hat and Beijing’s leadership quickly invaded Guangdong, installing new leadership that would report directly to them. One collapse followed another.  The savings of the people was literally eaten away by the demise of so many companies in the stock market and by so many enterprises that had gone bankrupt. This led to mass layoffs with numerous people thrown out of work. Historically, another negative result of this hanky panky was the fact that  liberal foreign loans were no longer rolled over automatically international and China has suffered a black eye along with a lot of face by not taking control of the matter early on. The Chinese Central Government became so mesmerized by the commerce generated by that province and the income that went into the Government’s coffers that they were unwilling to pull the plug. As a result of this dalliance , China was no longer able to get credit at the drop of hat.  Worse, when money is made available, the price for loans to anyone with exception of the Central Government is now sky-high. Unless China cleans up corruption throughout its provinces on a timely basis, the collapse of Guangdong may be repeated elsewhere in China.

Rampant fraud is now getting so out of control that it literally has to be addressed. China, a country that has not even been able to figure out how to collect taxes is now being pulverized by high-tech tax cheats. Moreover, they have been getting away with in massive numbers. However, on March 1, 2001, the Central Chinese Government sentenced seven people to death in the province of Guangdong for tax fraud. This turned out to be easily by the biggest case of corruption in the Communist era. The fraud was relatively simple to pull off due to the fact that China has little or no controls in place. A former prosecuting attorney and two high ranking tax officials along with four others have been accused of using shell companies with no offices, employees or business to issue fake tax receipts effectively collect rebates from the central government for non-existent exports.

BANKING 

The Chinese, traditionally a frugal people, on average manage to save almost forty percent of their income. People in China tend to place their funds in local banks that are either run by the provincial or national government, chiefly because alternative investment opportunities are rare.  

Chinese banks are run a lot like politics in that under-educated and unqualified bureaucrats are appointed to senior positions. These political appointees are often only aware that they must insure that their patrons are well treated when they need loans. Because political repayments make up a substantial percentage of all loans made in China, some economists are now estimating that fully fifty percent of the loans that are on the books are either non-performing or bad.  

Although the IMF and World Bank issued warning signs some time ago, two recent incidents caused Chinese authorities to address the issue. Their delay in facing the facts may have caused a hole in the banking system today of more than $400 billion. The people had been sanguine as well because banks just did not fail in China; the Government would step in and flood the failing institution with dollars until it regained monetary health. Suddenly the band stopped playing that song. 

Hainan is an island located 1,500 miles east of Beijing in the South China Sea. The State owned a bank there that particularly catered to a wealthy land speculator who was very close to the Hainan Bureaucracy. The bank began making loans to the speculator because of his connections and because of the cash gifts that he bestowed on bank employees in gratitude for the loans that they were kind enough to supply. Before much time had passed, the land speculator slowed his repayments and ultimately stopped paying altogether. When the damage was assessed, over $200 million had gone down the tubes, a prodigious amount for Chinese banking.  This, in turn, caused the bank, which had a capital base of $3 billion, to fail. When the final tally was made, twenty-eight credit unions, which the investor also used for credit lines, went down the drain. 

Officials of the bank (Haifa Bank) have been charged with everything from soup to nuts, including but not limited to, accepting bribes in order to make loans, paying customers illegally high interest to deposit money, and falsifying all of the bank’s books and records. National Banking Officials in an effort to assess the damage have written legal letters to most if not all of the bank's credit customers, most of whom have not responded. Depositors, as is the custom in China, were repaid by the successor bank, Industrial and Commercial Bank of China, one of only four state-owned commercial banks.  

The collapse of the Haifa Bank happened almost simultaneously with the GITC fiasco in Guangdong. So many companies have been allowed to just close there doors without state intervention or assistance, that it is too early to access the totality of the catastrophe.  Only massive intervention by the national government will save the provincial banking system from total failure. 

The New York Times on February 18th, 1999 wrote the following; “The real estate glut in China is at the heart of a banking mess perhaps more serious than anywhere else in the world. Chinese banks have lent heavily to construct buildings that are now largely vacant and worth little. Three of the four major banks are effectively insolvent by a huge margin, even though these are boom times. So long as depositors keep their money in the accounts, the banks can keep functioning indefinitely. But the moment depositors start asking for their money back, the banking system in China will face the possibility of collapse.” 

“China’s bad bank debts are staggeringly large, totaling about 40 percent of gross national product, compared with 3 percent in the United States during the savings and loan crisis. Non-performing loans are about 25 percent of the total at the big banks, significantly higher than in other countries when they were hit by the crises.” The Times concluded the article with a special concern about the multitudes of people that will lose their jobs as companies that are unable to repay their creditors are shuttered. It would take a miracle to save the economy. 

Finally, China created a new government agency formulated by the four major banks to take over bad loans from closed institutions and repackage them for sale or write them off as the case may be. This will be the first time that banking problems have been dealt with at the national level in a realistic manner. Chinese economists have proposed floating a bond offering to increase indigenous bank capital back to acceptable levels while simultaneously addressing loans that should have been written off long ago.  

All of these proposals are admirable, but until China stops tying banking and politics together with one ribbon, the problem will continue.  Political cronies will continue to minister to the needs of their friends under the guise of making sound banking decisions. The price that China will ultimately have to pay for their fiddling while the banking system burned will be extraordinarily high if the do something soon. If they don’t, there may be nothing left to save.

Taxing Times

China has a policy of supporting local industry by offering substantial rebates on their 17 percent value-added tax, which is normally levied on the production side in exchange for hard-dollar exports. So far, tax officials in Beijing are already talking about the fact that the fraud has already eclipsed the 50-billion Yuan ($6 billion) threshold and is rising. ../../__147.css;A series of cases of export tax rebate fraud are under investigation which may involve 50 billion Yuan,” an official from the Shanghai Customs Office told Reuters. For the most part, this particular scheme was unique in that it addressed non-existent companies and goods, but it is common practice by Chinese companies to receive their export credits and then resell their products into the domestic market.  

../../__147.css;This is quite a common practice, you simply sort out the export papers and then sell the stuff on the domestic market. It’s money for nothing.” ([17]) Interestingly enough, the Central Government caught on to the fraud by a ninety-five percent increase in export tax rebates. In Guangdong, the rebates soared  a startling one-hundred-eighty-five percent, a number so large that it could no longer be ignored. Meanwhile, back at the ranch, national police chief, Li Jizhou was placed on trial for acting on behalf of smugglers and taking bribes. This was a case in Xiamen in which eighteen people have already been convicted and are awaiting the execution of their death sentences. It seems as though the sleeping giant is slowly waking up, at least as far as tax fraud is concerned.

China supports the world’s biggest bureaucracy and their people earn every penny that they are paid by having the largest number of forms per transaction ratio in the world. It is a simple matter for these underpaid national employees to help people through the paper morass for a fee because the government scarcely pays them a living wage. One of the reasons that these people are so poorly compensated is the fact that the Government of China has one of the poorest tax collection systems in the history of man. In a country now turning out high tech products that are the envy of the many of their competitors, tax collection at every level is both arbitrary and manual. Tax assessments can be made to order by a countless horde of underpaid government officials no one can be the wiser. 

At the retail level, all sales are recorded manually if at all and no usable records exist so that a national or even a regional sales tax can be enacted. Avoiding taxation has become a national pastime and an example of what has happened in just one industry will suffice. China has 18 million registered mobile phones and another 5 million phones that have been smuggled into the country. The tax revenue that is avoided by using those 5 million illegal cellular phones amounts to over $600 million a year.  

Hit or miss tax collections along with high import ../../duties have caused people to take the line of least resistance.css; smuggling has joined tax evasion as an art form. Because of the fact that the National Government does not take in much tax revenue per se, the provincial governments are assessed and their collections are forwarded to the Central Government. From there, the Government has to deal with paying the military, almost five times as large as the second largest military in the world, the United States, they have to pay their bureaucrats, a legion fully 50% larger than the throng that regularly mucks up India’s economy with unending regulations and government invitations to bribery.  

We anxiously await the day when China learns how to pare their massive government employment, which brings corruption and ineptitude. They say they cannot afford better, at least now that is. At the rate they are going, there may not be a later.        

 

The World Trade Organization

The Government of China is literally allowing some of the corruption in the country to proliferate because of their own exigencies../../._span style_.css"mso-spacerun: yes">  China's acceptance as a member of the World Trade Organization has created a demand by other members of that august body who want to know that everything China is doing in this arena is squeaky clean in spite of the many outrages the members themselves may commit../../._span style_.css"mso-spacerun: yes">  However, this is not stopping what is literally tacit approval by China’s leaders for their denizens to promote the copying of current western movies on videodisc../../._span style_.css"mso-spacerun: yes">  The Chinese population has recently gotten caught up in the play-at-home movie hysteria syndrome, according to the Government, but they cannot afford Western prices to legitimately purchase the discs../../._span style_.css"mso-spacerun: yes">  Thus, large factories exist in China whose sole purpose is to copy this intellectual property illegally.  

We should not underestimate the economic importance of these unlawful industries to their host nations. China, even when facing loss of  “Most Favored Nation Status” from the United States, continued turning a blind eye to massive factories generating immeasurable quantities of software, movies and music in direct contravention of international law. Although much of the material that is used in China doesn’t originate there, most of it comes from Macao, which has no intellectual property laws, but has porous boundaries and bribable customs officials. Any effort to stop sales of black market goods only seems to occur around the time that the U. S. Congress reconsiders most favored nation status. 

The Chinese have an avid desire to view western movies, so first run American moves which sell for about $2 a copy in China were particularly hard hit. No special effort has been made to insure intellectual property rights in this field. It isn’t so much that anyone is giving China a free hand at copying and distributing this material, it is just that American enforcement in practically nil.   

Because these movies are easily available at modest prices and are openly sold at local stores, they have spawned a massive industry in Video Compact Discs (VCD) which are very similar to the American Digital Videodiscs (DVD). China is mass-producing these VCD which are priced in the range at which almost all Chinese can afford them. With current production in China at over 50 million of these little devils a year and rising, the video industry will potentially have an enormous market for its products when everyone wakes up to what is going on now.  

We do not mean to suggest that China is unique as a counterfeiter. Some of the most inveterate counterfeiters on earth are domiciled in western-thinking Hong Kong and Macao. Pirates in Pakistan will supply Windows XP, Microsoft Office, Word, Excel, PhotoShop, Aldus Freehand, Corel Draw and others on demand. ([1]). Some of the most fragile emerging economies of Eastern Europe depend on similar industries: “Recording industry officials estimate that 95% of Bulgaria’s CD production is accounted for by illegal knock-offs being sold throughout Europe” ([2]) while Microsoft estimated that last year, Vietnam had a 99% software piracy rate. As the Asian crisis continues to spiral out of control we would expect that the sale of illegal software will become even worse. This may eventually mean that no one pays for any of it. 

CHINA AND THE WORLD TRADE ORGANIZATION

The membership of the United Nations opposes counterfeiting and violation of intellectual property laws.  Most of the member countries are already signatories to documents such as the Berne Convention, the WTO, ([1]) and the WIPO Copyright Treaty, which embodies this thinking.  However, that is not quite enough, The problem is that nations must be encouraged to enforce these agreements, and usually when economics are involved, it always takes some serious prodding. ([2]) One of the best examples of this would be China, who recently became a WTO member in spite of holding contrarian views on just about everything the organization stands for.  Overlooking the intellectual property issues, which previously pervaded the talks, China found topics to shift the direction of the negotiations away from its continued violations.               

China’s fundamental problem was that its negotiators said that they had a hard time controlling the ministries that dot Beijing like fiefdoms, eager to protect the industries they oversee, rather than open them up to competition. Concedes Yu Xiaosong, a top trade negotiator at the State Economic and Trade Commission: “There are different opinions in different levels of the government on WTO’”.  What China was saying is that they had literally no control over their own industrial production. Instead of the WTO saying, "we will talk again when you can tell us that this problem is solved", they caved in.

However, most of China’s go-slow negotiating approach was deliberate. China, for example, wants to protect its automobile industry for 15 years. The U. S. led Western countries that blocked its membership favor protection for only half that time. Protectionism is diametrically opposed to everything the World Trade Organization has stood for and one of the prime examples of too much of it imploding in your face is the way India has delayed implementing even the most rudimentary elements of leaning in the other direction. Their economy is a shinning example of what happens when you protect industries that the state can't afford any more. India had become an economic democracy and a business socialism, two concepts that cannot co-exist. China, by pulling the wool over the WTO's eyes on this matter is only prolonging their archaic social state.  

Beijing also offered minimal concessions on trading rights - the ability to import and sell products without using a Chinese middleman. Earlier this year, China announced that foreign and Chinese companies would get equal trading rights three years after it joined WTO. It turned out China meant that foreign companies could import products into China, but not distribute them to customers. For that, government-run trading companies would have to be hired.  Once again, China, by demanding this concession was not gaining anything but prolonging bureaucratic free lunch, another habit that India can't seem to brake. China's entrenched bureaucracy is world class and its layers have layers.

The State Planning Commission is proposed price controls on drugs that would limit the amount companies can charge to production costs plus a set profit. WTO rules allow price controls as long as foreign and domestic companies are treated equally, but the new Chinese regulations discriminate against foreign companies by excluding research and development done outside of China. This effectively forces foreign drug companies to accept reduced profits or charge more for their products.” ([3]) However, on this count the  jury is still out. In the pharmaceutical arena, it would appear that everyone has their own rules no matter what the WTO has to say; thus why shouldn't China be allowed to join that silly little party.

China believed rightly that if they stood firm, some of the issues will be swept under the table because of a global desire to bring China into the mainstream. In time, the benefits of membership will outweigh China’s interest in protecting outlaw industries, and conformity to neutral judgment would win the day.  China was right and won the day, however some of the biggest victories my in the future prove to have been pyrrhic in nature.   

 


 

[1] The great majority of the United Nations members are already signatories of the Berne Convention and WTO, and it is expected that by the end of 1997, this will be the case WIPO as well.

[2] “Despite newly strengthened Chinese efforts to close plants and smash stocks of fake compact disks, CD piracy in China is soaring as manufacturing machines used to copy movie, music and computer disks keep flooding in illegally, mostly from Europe. According to one estimate, nearly 200 million illegal CDs are stamped out each year, almost 60% of them from China.” Wall Street Journal, P1, Robert S. Greenberger and Craig S. Smith Double Trouble 4/24/1997.

[3] WSL, May 20, 1997, By Ian Johnson and Eduardo Lachica.

 

 


 

[1] “The sources attributed to the proliferation of the pirated software to the lack of action against the illegal trade under a copyright act passed three years ago. Asia Times, 6/11/1997.

[2] Wall Street Journal, 4/24/97, Robert S. Greenberger and Craig S. Smith.

 

Freedom of Speech and all That Jazz

China’s Central Government has not shown a lot of tolerance for competing political parties and a number of leaders of the China Democracy Party were sentenced to long prison terms is for only the act of existing. Then we have the Alliance for Democratic China whose leader’s, Wang Yigzheng; only known crime was advocating political reform to combat corruption. An Jun, the founder the nongovernmental organization Corruption Watch, was sentenced to four years in prison on April 5, 2000 on charges of inciting the overthrow over the government when it seems that he was only trying to get the bureaucracy to accept the fact that bribe taking was siphoning to many assets out of the Chinese system. Although the country’s fathers are well aware that corruption is a serious problem in their country, they are just not interested in hearing about it in newspapers, the Internet or in public forums.  

../../__147.css;China Finance Information Network was shuttered shortly after it published a report on corruption. Moreover, on September 19, 2000, a Hebei court sentenced Qi Yanchen, a founding member of the Quasi-independent China Development Union, to a four-year prison term, in part for posting parts of his book, The Collapse of China, on Internet. Huang Qi, who ran a website out of the Sichuan province, was charged with subversion after he poster letters criticizing the 1989 massacre. Officials in Sichuan accused Jiang Shihua, a high school teacher ad Internet caf manager, with subversion for posting articles critical of communist authorities. In August, state security police in Shandong province shut down New cultural Forum, a website set up by pro-democracy activists.” ([18])  

Worst yet, at least for the bureaucrats, were the series of articles on bribery and graft published by Southern Weekend, easily the most aggressive newspaper in China when it came to saying things like they are. However, longevity sometimes can be short in China when you start to step on the wrong toes. Apparently, this is exactly what the editors of Southern Weekend, Chang Ping and Qian Gang, the later being a former senior colonel who was stripped of his rank when he took part in the Tiananmen Square protest, did with some of the recent stories.  They were dismissed from the paper and no one seems to know what has happened to them. 

Loose Cannons

Interestingly enough, all Chinese newspapers are owned by the government but as time has gone on, the various editors in many cases have gotten rather aggressive in their reporting. The editors of the Southern Weekend top them all. Southern Weekend is affiliated with the Southern Daily which is the newspaper of the Guangdong province branch of the Chinese Communist Party. However, the removal of the offending editors was ordered by the State News and Publishing Bureau which is a Central Government Agency and thus higher in the peeking order than the provincial government. Apparently the article, which certainly touched a nerve told about the case of Azhang Jun who was in charge of a group of vicious hooligans that dealt in robbery and murder. The gang accounted for no less than 28 murders in a period of eight years and the paper indicated that the cause of them according was Zhang's younger years, which were apparently spent at a Chinese prison where he was terribly mistreated.  

This is a big business with China itself manufacturing 20-million VCD players annually../../._span style_.css"mso-spacerun: yes">  By the end of 1998, the last to figures were published, about 50 million homes owned these players, probably more than the number in use in the Untied States at that time../../._span style_.css"mso-spacerun: yes">  Movies on the street sell for a little as 80 cents according to the New York Times, while the players can be had for around $70../../._span style_.css"mso-spacerun: yes">  Thus, an American movie is often dead in the water before it even hits the Chinese theaters due to the fact that it has literally been seen by everyone and even if it hasn’t, for around a buck, a family of eight can buy the show, a heck of lot cheaper than going to the theater../../._span style_.css"mso-spacerun: yes">   

The normal time it takes these pirates to crank up their copying apparatus is two days from the time an American Movie premiers. That is pretty fast action when you consider that it takes almost that long to fly the copy to the Mainland../../._span style_.css"mso-spacerun: yes">  Officials say that they are doing their best to crack down on the illegal industry, but in an business where the machinery can be readily repositioned and set up again in less than three hours, what good would it do to close a plant../../._span style_.css"mso-spacerun: yes">  An official of a legitimate Chinese movie maker that had their own films ripped off said that trying to put a stop to the practice is ../../__147.css;just like drawing water with a bamboo basket”.  

In spite of the pervasiveness of corruption, China’s leaders are loath to make any drastic changes../../._span style_.css"mso-spacerun: yes">  Corruption is only punished when offending officials make too much of a show of their newfound wealth../../._span style_.css"mso-spacerun: yes">  Opulent homes and mistresses are historically unknown in rural China and are sure tip-offs that improprieties have been committed../../._span style_.css"mso-spacerun: yes">  In the meantime, the system continues to flourish../../._span style_.css"mso-spacerun: yes">  The quality of leadership is ever more diluted by a downward spiral of incompetence exacerbated by inexperienced people with bags of cash assuming high-ranking municipal jobs for which they are totally unqualified../../._span style_.css"mso-spacerun: yes">  Novice office holders seeking to maximize the yield on their investment are constantly on the lookout for new ways to shake down their constituency../../._span style_.css"mso-spacerun: yes">  How long before this system reaches the breaking point is anybody’s guess, but retribution is not far away.

Movies

While China's alter ego, India, has gone move made producing substantially more films than any other country on earth and geometrically increasing their output, China has literally no movie screens and none are being constructed. As we have indicated, earlier, the Chinese people prefer to see their movies on VCD players and watch illegally printed Western style movies from the convenience of their homes. However, the Chinese Government would like to see that change and in order to increase the number of movies shot in that country they have begun offered nominal fund matching programs for production. However, this diminutive amount of money the country is willing to contribute comes at a heavy price in state censorship. That is not to say that movies not financed by the state are not being censored, censorship has always been a way of life here and that does not seem ready to change very soon.  The government does not want Chinese life portrayed in anything but the best light, however that does not conform with reality and serious movie producers are desirous of making movies that have some resemblance to reality. Because of the fact that reality is not always slightly, there is a constant battle between filmmakers and government officials regarding what the ultimate product will look like.

Government censors are against depicting gambling by Chinese citizens in movies in spite of the fact that the people are among the biggest gamblers on earth. They are against the showing of the small and sparsely furnished residences that the Chinese population lives in and yet, that is the way the great majority of the population lives. Furthermore, censors would like to have people playing everyday citizens dressed to the nine's with clothes befitting Fifth Avenue sports on Easter Sunday which is hardly the case. Censors would like to promote the "big lie" and make China into something that it is not and the people have little interest in seeing fairy tales.   The biggest quirk of all seems to be the fact that after the film has been duly tormented by full time censorship on the set with bureaucrats getting in everyone's way and complaining about just about everything that is going on; when the film is put in the can, the government usually will not let it be released overseas. This indeed creates a strange conundrum. There are almost no movie houses in China and there is no overwhelming rush to build them, the Chinese made movies are so inferior that there is also no rush to turn them into VCR's so that they can be played in the only way they can be viewed within the country and they are not often allowed to be exported so that they are never seen by the outside world.

No one has yet been able to discern exactly what the government here is thinking about when on the one hand they promote Chinese indigenously made films by supplying studios, film, money and expertise but on the other they put these films on the shelf after they are made; never to be seen again. Most strangely, the best Chinese movies are not produced officially and these "underground films" once finished are quickly hustled out of the country to be shown in film festivals all over the world. Such a movie was "Devils on the Doorstep" which won the Grand Prix in Cannes but was never shown within China. However, legal or otherwise, China makes movies the same way they make everything else; "cheaply". To spend more than $100,000 on a movie here is considered wasteful and if the film can then be safely spirited out of the country, it doesn't take long for the principals to get their investments back.

In order to encourage the making of movies, Beijing has created studios throughout the country where wanabee movie-makers can go to get the films finished and distributed. However, this is what they are told, but in reality, when the film is finished it is usually spirited into a warehouse where it will sit for eternity gathering dust. You see, the bureaucrats in the movie industry are the same as the bureaucrats in any other field, they are given an quota by the government and god-forbid they don't make it.  However, if the movies are ever locally screened there could be parts of it that would offend Chinese leaders and the heads of the studios are not willing to gamble on that. The heads of the official Chinese studios are only obligated to see that a certain number of films are produced, but being shown is quite another matter. And even if this was not a problem, the distribution would cost substantial money and bring no return:

        "Since theater ticket sales are dismal in China, especially for domestic films, there is no prospect of making money here. The   only real opportunity for profit is distribution at a foreign film festival. But films must obtain new permits each time they travel.  Indeed, when Mr. Wang (a local legit producer) decided he wanted to take "Go for Broke" to the Rotterdam Film Festival in the Netherlands in late 2001 -- more than a year after it had been approved for viewing in China -- he and his business partner, an American named Corey Vietor, were forced to steal a print of their own movie when the formal approval was slow in coming."

        " Shortly before the festival, a Shanghai Film Studio representative had accompanied the print here for the addition of English subtitles. Unbeknownst to the representative, Mr. Wang replaced the nine reels of film that were in the trunk of the studio man's car with nine reels of advertising, thus liberating "Go for Broke." It has since traveled -- with approval -- to festivals in Tokyo and Vancouver, B. C., as well." (Making a Movie in China the Hard Way: Legally, Elisabeth Rosenthal, The New York Times, April 25, 2002.

The bottom line, China is no India when in comes to the making of movies and most interestingly, the Chinese have no egos when it comes to the clich, "made in China" when it comes to films. Chinese produced product just doesn't do it for these people that are looking for a semblance of reality and a close look at how the rest of the world looks.  Moreover, we see no change any time in the near future.

Mother China

Having set the stage, now let us tell you about the real China../../._span style_.css"mso-spacerun: yes">  The country is conservative and it is paternal, an almost paradoxical combination../../._span style_.css"mso-spacerun: yes">  The government plays the role of both mother and father to the people, attempting to create the environment that they think in the long run will most help China’s overall manifest destiny../../._span style_.css"mso-spacerun: yes">  Chinese leaders have substantial flexibility because of the fact that China is not a democracy in any sense of the word, and when something is placed on the drawing board that makes long-term sense, the leaders usually jump on it../../._span style_.css"mso-spacerun: yes">  However, China, as opposed to its neighbors, has not taken advantage to any great degree of its substantial economic resources because much of the industry in the country operates both indigenously and autonomously. 

The Government is making a concerted effort to pull things together and are starting to issue plastic identification cards containing a microchip to the entire population. These cards be able to give bureaucrats substantial knowledge of what is really going on in the country. Interestingly enough, in China, everyone already carries a card bearing an identification number, a photograph and a picture of the holder. The new cards will carry far more information and can be used to carry medical records, determine whether the holder is a taxpayer or not, act as a medium for exchanging money and or borrowing and repaying it (debit card) and a host of other highly sophisticated operations. This will bring China's tax collection system into the 20th century and tie the provincial regulations together. It will aid the  enforcement of various laws and help eliminate China's vast underground economy. The systems will require five-years before all of the people in China will have the cards with college students being the first to try them out. Talk about big brother!!  

The world is a strange place and the things that happen are often not what they appear at first blush. The Chinese and the Americans can not appear to be giving in to  each other and between the Chinese entry into the World Trade Organization, U.S. spy planes taking long looks at what goes on in China and the Taiwanese always never knowing what the Mainland is going to do next. And now and again they have done really weird things. Lin Ti-chuan a Taiwanese legislator was slipped a Mickey while visiting Mainland China, collapsed, wound up in a hospital where she was pronounced dead. 

Some say, a kidnapping gone wrong, others say that it was a message to Taiwan that the Mainland is deadly serious about there intentions relative to what they consider to be their own territory. The Mainland issued all the right regrets and apologized profusely but the deed was committed on their territory and a message my well have been sent.  However, the United States has some trump cards that it is holding and can play them with a degree of impunity. However, while China was awaiting word on the WTO vote, which as we known know was in their favor, they suddenly found some religion and started acting like well behaved world citizens. Now that this is a done deal, we will await whether they continue the act. China threatens to wreck havoc on Taiwan or to shot American spy planes out of the air, at that time, they were calmly told that their admission to WTO hung in the balance, now we have little to threaten them with. . However, the rules state that neither can rain on the other's parade.  

A Game Of Chicken

This is best exemplified by the fact that China regularly announces war games just off of the Taiwanese Coast and pretends that they are invading the country. No one ever knows in advance whether they are serious or not but almost everyone is well aware that this has been going on since the Communists took over China. In the Pacific Rim, incidents like these are only meant to show the size of the leaders male organs to the rest of the world and once they have exhibited their private parts, they stick their military might back in their pants and go back to business. The Wall Street Journal in a story by Charles Hutzler recently put this high risk game into perspective.  

    "Beijing's decision to hold and publicize the war games now shows how deeply domestic     concerns are driving Chinese politics. Internationally, the exercises appear ill-timed, coming on the eve of the annual fractious debate in the U.S. Congress on whether to renew China's low-tariff trading rights. But domestically, Chinese leaders can't be seen as giving in to Washington. And the Bush administration has raised the stakes in recent weeks, selling Taiwan a large array of weapons, vowing to defend the island from Chinese attack and letting the Taiwan president visit the United States. A coming political shuffle in China is also pushing political leaders to court the military. Politicking among party bigwigs has already begun ahead of a shuffle of posts late next year; taking a stronger stance against the U.S. is seen as one of the best ways to win points with the military." 

Interestingly enough and in spite of opinions to the contrary, China who has the largest standing army on earth has neither a well trained or well equipped military. Their navy is almost non-existent as a modern fighting machine and only China's ability to deliver nuclear warheads sets them apart from being a third rate military force. The country's  leaders are well aware that a nuclear war is not a viable alternative and China's military spending is somewhere in the neighborhood of what Japan, a country that has constitutionally banned offensive weapons spends, you can get some idea how under nourished the Chinese military really is. Their military outgo absolutely pales when compared with that of the U.S. who outspends the Chinese by at least seven to one. The Chinese are now becoming more acutely aware that their modest nuclear arsenal may well be checkmated by America's plans to cover the United States with a sophisticated missile shield which will destroy whatever bargaining chips may still exist.  

For whatever that is worth, a future American missile curtain has not stopped China from flexing its muscles at least as it relates to Japan among others in the Pacific Rim. Japan believes as do most other nations, that their territory begins 200 miles from their shores. China which never stops stirring the pot against their age old enemy, Japan on no less than seventeen occasions last  year alone, Chinese ships toyed with Japans hallowed space. However, Japan has been supplying China with hard cash in the form of soft loans and its people are beginning to wonder, why on earth are they paying a tithe to a country that invades its territory whenever the whim seems to strike. However, even should that problem be solved, it would still leave the sore created by the unsolved problem of what the Japanese call the Senkakus  Islands and the Chinese call the Diaoyu Islands. Surprisingly these are the same islands only with different names. While these islands are of no particular value and are totally uninhabited, it gives bureaucrats in both countries the opportunity to rant and rave about the other's transgressions and cravings. Should either of these nations determine to homestead on  these East China Sea territories, the semi-friendly jostling could quickly escalate into a much more serious situation. 

China has never admitted or discussed the use of germ warfare but a Russian defector has charged that high ranking Soviet officials were able to determine that a Chinese  experimental attempt to turn the hemorrhagic fever virus into a biological weapon had backfired and caused an epidemic. What was particularly dangerous about this accident was the fact that this disease causes profuse bleeding followed quickly by a painful death. Of course the Chinese should have known better as they had been used a guinea pigs by the Japanese during World War II who killed thousands with the insidious biological attacks. This action caused  China, a country not big on signing treaties,  to be signatory of the 1972 treaty barring weapons of this sort.  

Controlling the Environment

In the meantime, it is not only China's external enemies that they have to fear. The country has evolved at breathtaking speed causing internal dislocations in many areas. However, it all boils down to the fact that the people feel that they are entitled to more freedom. Even at the very top of the Communist Party in China they are beginning to admit serious problems with the masses relative to religious, ethnic, political and economic differences of opinion with the government. People in China are tired of massive corruption , official arrogance and bureaucratic delays. This has shown itself in numerous ways but passivity seems to be on the way out and the party brass is becoming extremely concerned. This is more than a small religious minority demanding certain rights, this is a grass roots problem which doesn't want to go away. The International edition of the New York Times put the problem into perspective in an article by Erik Eckhom on  June 3, 2001 relative to what is called "China Investigation Report 2000 - 2001."

    "...The 308-page report cites growing social and economic inequality and official corruption as over-arching sources of discontent. The income gap is approaching the "alarm level," it says, with disparities widening between city and countryside, between the fast-growing east coast and the stagnant interior, and with urban populations. The report describes corruption as "the main fuse exacerbating conflicts between officials and the masses. Protests of all kinds have become more common as China changes from a state-run economy - a risky course the leadership feels is necessary to China's long-term growth - and as the public becomes more assertive about rights...The report provides no estimate of the number of disturbances but its strong language suggests that the scale of demonstrations and riots has been greater than revealed by the official press or in reports abroad..."In recent years some areas have, because of poor handling and multiple other reasons, experienced rising numbers of group incidents and their scale has been expanding, frequently involving over a thousand or even ten thousand people," it says."

The bottom line simply seems to be that the more the Chinese people get educated and can inter-relate to Western ideas, the more unhappy they will become with continuingly oppressive Central Government edicts. The  recent Chinese admission into the World Trade Organization is only going exacerbate this problem. Among the numerous reasons for this will be the underlying problem that their recent WTO membership potentially  brings with it massive Chinese unemployment. It will also directly bring the knowledge to the people on how the other half of the world lives. They already have television and Internet  and are not at all pleased with what they are seeing. Far from being a homogeneous mass of mindless people walking around in a daze, the Chinese are educated, industrious  and historically independent and are not going to sit still very long for a government that does not have the people's  interests predominant in the government's order of importance. The disparity between rich and poor in this country, once not an issue when communist philosophy was the guiding light, is now a sore that will not soon close without substantive remedial action.  

INTERNET 

Within and without, China's Internet is hardly the window onto the globe that its proponents had in mind. The Ministry of Posts and Telecommunications has been authorized by government edict to have all channels run through those that are government controlled. Bureaucratic thinking has it that this will create a "healthier exchange" of information. Thus, the 20 Internet service providers that interface with the global Internet, are highly restricted and apparently that is the way they will stay for the near future.  

Authorities indicate that these regulations were initiated in order to protect the Chinese people from "obscene and pornographic materials" as well as insuring that state secrets stay behind national borders. At the moment the subject is fairly mute because the Chinese net is mostly in English which only a relative few can understand. In addition, computers are out of the reach of most Chinese and while it is a media that has substantial interest, it is a little like automobiles, the great majority of the population, just can't afford the price tag.  The cost of commercial Internet service alone is equal to half of the average person's salary.  

China is really not in a position to allow full-blown communications between its citizenry and the outside world because it will cause a restiveness that could lead to insurrection. When the standard of living has been raised substantially, the government will no longer have the same problems with showing the people what the outside world is really like. For the moment, the average person in China is still living on rice, rice and more rice and at best riding a bicycle. He can be as much of a spendthrift as he wants on his $40 or $50 per month.  China will be forced to open this electronic gate, but not until it will not cause a revolution.

Internet Travel  

For the people living in China, these must be heady times. For the most part, it is the foreign educated Chinese that are now bringing new industries to the country that had previously not existed here before the rise of the Internet. for the most part, China's industries were local in nature and whatever you needed had to be available in the local town that you were in or you weren't going to get it. Communication was difficult, transportation was poor and not allowed for the people themselves and even if you could travel, you didn't know where to go for what you wanted or even if it existed. If your province produced shoddy merchandise at very high prices, that's what you were stuck with. With foreign educated students returning to their motherland every day, China has become ever more worldly and innovations like the "yellow pages" of the telephone book have come into vogue. In China for the first time the people can indeed let their fingers do the walking and yet this is something that we have taken for granted literally ever since the telephone was invented. 

More esoteric but just as necessary is travel. Because people were not allowed to do it, no travel agencies or facilities of any kind had sprung up to assist  a traveler in making reservations. People could not even tell what hotels even existed in each city and if they did, what there rates were and  what there facilities were being offered. When the government began allowing people to travel they started out by packaging tours that began at a place certain and ended just as singularly. You had to go for the specific number of days allocated and by the transportation mode that the government had picked no matter how much money you had or how inconvenient the schedule was.  The rooms would be the same and everyone would go on the same tours whether they wanted to or not. Internet gave entrepreneurs the opportunity of changing that and today, hotels, means of transportation, restaurants and shops have all made it to the net along with travel agents that will take care of your itinerary for a price. The work in putting this together must have been back braking, but so many of those things that we take for granted in the West are only now becoming a way of life in China. How can anyone live without yellow pages or travel agents. Maybe that is why China has one of the best records on longevity in the world in spite of being a population that is smoking itself to death.

Slogans

This is also a land of slogans. The people are able to judge the government's direction from the signs that are plastered on the country's billboards and woe unto anyone that misinterprets their meaning. These messages do not appear as if by magic and they proliferate primarily for three critical reasons. The first is that for many years banners bearing sayings were literally the only way in China to get a message across. Ornate signs hung from tall buildings in critical parts of town were read by everyone and their messages could not possibly be misconstrued. The second is that commercial outdoor advertising was banned for many years by the government and for that reason, the government still dominates the choice locations which they had gloomed unto early on.  The third reason is just as important as its predecessors. The government decrees by law that advertisers must contribute 3% of all advertising space to their propaganda. China had a flying start at this slogan oriented propaganda thing as it probably started with Mao who made up slogans faster than a speeding bullet. He had a saying for just about everything that could happen and that seems to have set the precedent for what has occurred since. 

During World War II, both China and Japan waged a slogan conflict with each side trying to outdo the other. The Japanese used the slogans to pacify, the Chinese to inspire their people  to fight back at their oppressors. However most students of sloganeering say that the grandest age for this art form occurred during the Korean War when all of the people in the country were urged to work harder and harder for victory against the oppressors. After Mao died, Deng Xiaoping directed sloganeering into another arena. Deng was much more interested in the country's economic growth so that the slogans that appeared everywhere during his regime cajoled the people to better themselves economically. The urge to produce more and better products appeared everywhere during this period. As time passed,  the use of slogans became much more sophisticated and suggestions to act became much more subliminal in nature. People were no longer being hit in the head when advised what to do. Eventually we will probably see the Government of China hiring a Madison Avenue Advertising firm in an effort to better get their message across. At that point we can be assured that China  will have arrived as a real economic partner to the West. 

China has overcome many problems in its attempt to build a better life for its people,. however, a better life consists of many parts and the Government is attempting to address everything at once. If any part of the chain collapses, the entire system will fall apart and that is something that can not be allowed to happen according to the heads of the government. China has built massive amounts of new housing, created new and wonderful ways of stimulating agricultural production, addressed its infrastructure and has become the world most powerful exporting nation. It has occupied Hong Kong and added their hard currency reserves to its own and has become a world political and economic power in the space of less than a decade. A prodigious feat.

China is flexing its new found muscle in many directions but if it cannot find the necessary energy reserves, all else will fail. The people have become mobile and they have learned of the better things in life. New industry in China is becoming more thirsty for energy. These luxuries require boundless amounts of fuel that presently do not exist in China. China's own internal estimates show that they will have an oil shortfall within this decade of over 3 million barrels a day and many economist feel that this number is extremely low. In order to supply enough natural gas during the same period of time, China will have increase their proven reserves by 400 percent, a virtual impossibility. Neither of these is an easy task, especially when you consider that the only way that this is going to happen is for China to find reserves in its southwestern most region, which borders an area occupied by neighbors,  Afghanistan, Uzbekistan, Kyrgyzstan and Kazakhstan. 

This part of the world is in a state of upheaval with religious fundamentalists causing substantial commotion. The Taliban's brand of radical fundamentalism has been exported to these nations and because of this has gotten the entire region off balance. Moreover, because this fact, an association has been formed by a group called the "Shanghai Five". It is actually made up of six countries which include Kazakhstan, Kyrgyzstan, Tajikistan, Russia, China and Uzbekistan, the last to be admitted. This group is in theory is supposed to work together to solve political and economic problems that are pervasive in the region. It appears though that they have formed some sort of group that is only looking to defang the Afghanistan religious fanatics before they infect any of the smaller countries in the region and cut off oil and gas supplies. There is little question that Russia is already looking for an excuse to put the Taliban out of its misery but would like to have some company when it attacks. Mr. Putin is not going to put up with these folks for very long with or without assistance. 

Should the influence of the Taliban continue to expand, China would then be forced to take matters into its own hands as well to insure a guaranteed supply of energy. They are much more dependent on outside energy needs than the Russians.  There is little question that any and all of China's neighbors could well become diner for either of these large countries if they are taken over by fanatics and start to play hardball. China has already started building a pipeline to carry fuel from this region to Shanghai, which if things go according to plan should be completed within the next several years. Now they have to hit oil. It seems to me that if I was a member of the Shanghai Five, I would be having someone check to see that armaments were left at the door. 

Oiling The Machinery

Life is riddled with anomalies. More often than not yesterday's friends are today's enemies and vice versa. One of the biggest hates on earth was contained in the messages that China sent Indonesia after the fall of their Suharto headed government. During that period, riots were regularly conducted against the wealthy indigenous Chinese population which had achieved living standards far beyond that of the natives. The jealousy that had built for a long time, was allowed to take a more physical form and many Chinese were driven from the country. Many left in such a hurry that they left their possessions behind them. Moreover, the Taliban or their counterpart Muslim terrorists had made substantial inroads into the Indonesian way of life and training camps were constructed for these mass murderers within that country. Worse yet, these camps were being constructed with the tacit approval by the Indonesia government officials. China was already fighting a war with these folks in their southwestern provinces and already had their hands full. Along with this occurrence, foreign investors had already run for shelter and the funds that in previous decades made Indonesia a monolith in the region, dribbled to an abrupt stop. Indonesia had suddenly. at least from an economic point of view had indeed become a pariah state and no one had much interest in what went on in this, the largest Moslem country in the world.

However, in spite of the fact that the country had become almost an anarchy while one inept government after another had shown no ability to lead the people;  there was little question that Indonesia had been well endowed with natural resources. Among the products that this country had in abundance was oil and China seeing the fact that by acquiring investments in Indonesia could insure a steady source of supplies from a nearby country no matter what happened in the rest of the world. China had been estimating that because of a dearth of new supplies being found on its mainland that they would need to import 100 million tons of oil per year by 2005. This was forcing a readjustment of their entire economic plan and they had been unable up until this point to pin down a reliable source. Government officials assigned PetroChina and CNOOC, the two largest Chinese oil companies, the task of locking up this supply. Moreover, they were the ideal candidates because they both had recently raised substantial funds through the use of stock offerings of their public stock.

Given free reign to purchase whatever was necessary, in April of 2002, PetroChina Company bought Devon Energy Corporation and CNOOC Ltd bought Repsol-YPF SA's properties in Indonesia. The fact that foreign owners were all too happy to get out of the Indonesian morass did not stop these Chinese companies for a second. In one fell swoop, CNOOC became Indonesia's largest offshore oil producer and when combined with the purchase by PetroChina, the two when combined now accounted for 12% of Indonesia's total oil production of 1.4 million barrels a day. Interestingly enough these acquisitions came on the heals of ExxonMobil's forced, halt in operations in Aceh Province because of a rebellion there and a dangerous situation rearing up in Sumatra where the population has been demonstrating against Chevron Texaco there. Probably what brought about this sudden thawing of Chinese - Indonesian relations was the visit that President Megawati Sukarnoputri paid to Beijing during which time she told them that not only would Indonesia not object to these acquisitions but that they would welcome them, an abrupt about face from what had been the facts of life between the Chinese and Indonesians.

Moreover, because oil companies from the western nations were concerned about the political events taking place in Indonesia, oil production had been diminishing since 1998. In addition, new exploration had come to a grinding halt with oil companies wanting to take their cash out of the country rather than explore for new fields with their cash flow. Having found what they believe to be right partner, there is little question that Indonesia will also tempt China further with promises of gas from the Tangguh field in eastern Papua, one of the world's largest non-producing fields. The problem in developing the field had been that there was literally no market for the production unless a major client could found to purchase the output. There is little question now that CNOOC will be given a substantial interest in the field in exchange for their promise to develop the field and purchase the output. This is not a stretch because China is developing one of the largest LNG terminals in the world at Guangdong and has yet to contract for feed stock.

It is only a few years ago that these folks were fighting like cats and dogs. Interestingly enough, new economics seem to create better neighbors and both countries had developed a real need for each other in an economic sense. However, China could well have problems in the future with their large investments here as the country from a political point of view remains dramatically  off kilter and could come apart at the seams at almost any given moment. The masses here are not great fans of the Chinese and if the country turns into an anarchy, the Chinese investors will be sent packing in a skinny minute.

China – Large Projects 

China doesn’t build small projects. Since they rejoined the civilized world after centuries of hibernation, the Chinese have been playing infrastructure catch-up with a vengeance, creating legendary construction products that have regularly used over half of the world’s annual cement production../../._span style_.css"mso-spacerun: yes">  The dam at ../../__147.css;Three Gorges”, the country’s road construction and the rejuvenation of cities like Shanghai, where 3,000 skyscrapers were erected in just a few years are the things that set China’s evolution apart. When China hosts the 2008 Olympics, it will show us how it is done all over again. It is interesting to note that they won the nod at the time of their 80th anniversary of the founding of the Chinese Communist Party. While their only real competitor in the colossal construction game, Japan, plans and carries out massive construction projects just to keep people busy and on the payroll, China’s projects are of the much needed infrastructure variety, and each one is a more dramatic addition to the landscape than the last. By contrast, disasters such as Japan’s bullet train have put that Government so far behind the eight-ball that it may never get out of debt.  

Multi-billion dollar price tag projects have become de rigueur all over the world,  with airports, railroads and dams leading the way in terms of massive expenditures. However, the world’s economies are entering an era in which the inexpensive movement of energy is becoming critically important; any project that can facilitate this aim is sure to get priority../../._span style_.css"mso-spacerun: yes">  The United State’s Alaskan pipeline, which linked oil fields to warm water harbors from which it could be transshipped to the lower forty-eight states has been dubbed one of the great wonders of the world. However, there are projects on the drawing board all over the planet that will dwarf that effort. One of them is the pipeline that will stretch across Turkey and into Europe to supply oil to that continent. Another such project is the West-East pipeline that is being built in China, which is currently estimated to cost a tad over $20 billion, a prodigious price tag, even for infrastructure development.

Energy

China, one of the largest countries on the planet, has a unique problem. Almost all of its energy production and reserves, coal, oil and natural gas are produced in the far West, while all of the country’s major population concentrations are in the East. In addition, China is not exactly an easy country to cross. Its geographical divisions are some of the most treacherous on earth../../._span style_.css"mso-spacerun: yes">  High, jagged  mountains, steep gorges and wild rivers abounding in the area in which the pipeline will be laid. The project ../../__147.css;belongs” to PetroChina, a quasi-corporate unit of China National Petroleum, publicly traded in Hong Kong../../._span style_.css"mso-spacerun: yes">  PetroChina actually makes money, and wields a lot of clout because of its dual public/private role.  

This duality will help PetroChina put a lot on the table to attract assistance Western energy companies as joint venture partners. As a government agency PetroChina has unquestionable authority to make a binding agreement. As a public company, no one can question its profit making motives. Among those in hot pursuit of a deal are Exxon Mobil, BP PLC  and Royal Dutch, each of which could provide substantial and much needed expertise to this play to pay venture. The pipeline originates in the Tarim oil and gas region, where a great abundance of natural gas has already been discovered. However, many believe that the discoveries to date represent only the tip of the iceberg in one of the greatest energy finds outside of the Middle East../../._span style_.css"mso-spacerun: yes">   

China has traditionally rejected any business terms that ../../__147.css;compromised national integrity,” including foreign corporate partnerships, concessions or sharing natural resources. In this case, though, China has a desperate need for rapid production of internally produced energy. The country has immense coal reserves but they are primarily of the high sulfur variety, which is no longer in vogue. Oil or natural gas are acceptable alternatives, but any substantive reserves are located in the far West. The distance from Tarim in the Xinjiang Province to Shanghai is 2,500 miles across no less than 40 rivers../../._span style_.css"mso-spacerun: yes">   

Currently, natural gas supplied only 2% of China’s energy, a figure which the Central Government has targeted to grow to 10% in the next several years, an incredibly difficult task. However, in China, the incredibly difficult can often be accomplished in a few short years. Foreign assistance is highly desired, not because of the money that those companies can throw at the project, but because foreign logistical and technical assistance can accelerate the project’s completion date../../._span style_.css"mso-spacerun: yes">   

Politically, though, there is more to this project than meets the eye. Western China has been shortchanged by China’s infrastructure investment strategy, and it is payback time. Competing ethnic groups and religious fundamentalists are fomenting unrest. China needs a fire extinguisher in the form of a substantially higher standard of living../../._span style_.css"mso-spacerun: yes">  This priority far overshadows the country’s desire to slow its loss of foreign exchange spent on imported oil and speed the conversion from high sulphur coal to cleaner natural gas.  

But all that glistens isn’t gold; international geologists have some serious questions about exactly how much natural gas is really located in the Tarim Basin. While foreign oil consortia are more than interested in putting their toes into to the water to test the temperature, PetroChina is offering only expensive concessions in the more questionable seismic areas../../._span style_.css"mso-spacerun: yes">  Thus, foreign companies are standing in lines to buy tickets in the bleachers and they may be so far from the playing field that no one can see the game. However, this is standard operating procedure for negotiations in China. Offer foreigners nothing to begin with, and when they are given a scrap, they will appreciate it.  

Another and possibly more serious problem from an economic point of view is the fact that gas from the East China Sea is quickly coming on line and Shanghai is going to be getting electricity from the highly lauded Three Gorges Dam. Everything in the energy field seems destined to wind up in Shanghai, which will have an embarrassment of riches. Moreover, China National Petroleum Corporation has projected energy needs that are unjustified by current industrial growth rates. With a world recession on the horizon, this project may be one of the great over-reaches of all time.  

However, in spite of the possibility of a multitude of substantial energy resources coming on line simultaneously, that is not preventing China from reaching out in whatever direction they deem necessary to add to their growing cache of reserves. China’s newly enlightened leadership is reaching out in many directions and in a host of industries to force the country’s continued high level of growth. Moreover, this leadership strongly believes that energy represents power, which you can never had enough of and if nothing else and they are convinced that those who control power will be in the global catbird seat../../._span style_.css"mso-spacerun: yes"> 

Taiwan Relations

The Mainland’s state owned, China National Offshore Oil is the primary company responsible for exploring property claimed by the government that is not located within its physical borders and the company is the third largest energy producing entity in the country. They have found a relatively unexpected collaborator in Chinese Petroleum, a Taiwan Company based in Taipei. The two country’s have set up a test-drilling joint venture that could possible tap into some of the largest oil and gas reserves in the world. In addition, in spite of what is commonly believed, the companies have been working together for some time in the area that separates them, the Taiwan Strait and have just put the final touches to an agreement by the two for joint drilling of some of the choicest locations.  

The two have gone so far as to create a jointly owned company that will be based on neutral territory somewhere within the general region. However, this is not the first time the two countries have reached agreement on a joint venture to harvest the would be riches of this very choice location. The original agreement between the two was signed as far back as 1996 and ratified by both countries in 1998. Things were moving along swimmingly until the following year when the Mainland determined that Taiwan was not moving fast enough in the direction of becoming a Chinese appendage and all of the understandings were put on the shelf. The negative rhetoric has died down somewhat and the Mainland view on its relationship with Taiwan has changed somewhat.  

China knows that there are big bucks and a lot of good technology available in Taiwan that can be utilized on the Mainland. The more aggressive nature of the government towards a lot of things is gradually rubbing off as it looks like Taiwan will soon enter that arena more directly. After all, if the Mainland can let the once hated entrepreneurs into the Communist party, an oxymoron if there ever was one, they can certainly manage to deal with their own relatives living only an island away. The Central Government want to tap those resources now and no longer believes as strongly that dealing with Taiwan will impede their long term goal of reunification.  

In addition, China Eastern Airlines which is the third-largest carrier in China has concluded a deal to sell 25 percent of its cargo carrying subsidiary to China Airlines, the largest airline in Taiwan. However, the fact that the two companies have inked the contract still does not guarantee that the deal will go through. Moreover, this transaction is more ../../__147.css;Pomp” than ../../__147.css;Circumstance” because of the fact that, at the moment you can’t get there from here. In other words, Mainland China does not allow direct flights from Taiwan. If anything, however it is Taiwan that has been the reluctant bride and is somewhat reluctant to conclude this and other transactions. They have been following a policy of ../../__147.css;no haste, be patient: relative to the Mainland which was instigated by Taiwan’s President, Chen Shui-bian.  

This transaction might send a signal that the Taiwanese Government is having second thoughts about the careful approach which has produced no discernable results. However, if this transaction goes through, the Taiwanese side will have little to say about management and the company will remain in the control of present officers and directors. As a matter of fact the seems little downside for the Mainland Chinese because they are giving up next to nothing in exchange for a substantial injection of money. For their part, the Taiwanese, get to give China a lot of money and hopefully get some goodwill in exchange, however, we doubt that.  

Moreover, these is not the only deal being actively pursued by the countries and while the pace of negotiation is often painfully slow, there is no question that there is substantial inertia present to get something done between the two logical partners../../._span style_.css"mso-spacerun: yes">  The only problem with the deal which is still being refined is the fact that the Mainland does not allow direct transportation of anything directly between the two countries so that the logistics of transporting whatever materials that are needed  by joint venture and whatever recoveries that are made is still being worked out../../._span style_.css"mso-spacerun: yes">  There is no longer any question though that unless some unforeseen political disaster strikes, the issues will be solved and watch for deals to be made in numerous industries as the two countries move ever closer together in spite of the delays caused by  the inevitable bickering.  

Yale University

China has made some stranger bedfellows in the past than Taiwan. It has a relationship with America’s Yale University that has remained passionate for a century and a half which seems to be picking up even more steam. More foreign students from China make up Yale’s student body than from any other country; over three-hundred which for a school of its size is a prodigious number. The liaison has almost taken on the luster of diplomatic relations between two countries. Now, when high ranking Yale administrators visit Beijing they are occasionally invited to receptions at the Great Hall of the People, an honor usually reserved for foreign state officials. However, whatever honors that have been bestowed upon the American University seem to be richly deserved. Yale has hung in there through thick and thin at no perceptible gain to them. Their theory has been that China is the populated country in the world and it is critical that someone is their keeping the door open.  

A substantive piece of the more liberal new criminal laws that China put into place recently were innovated at Yale in workshops with high ranking constitutional architects from that country. In addition, the University has started a Chinese Law Center for educators and politicians in hopes of creating a more level legal playing field in the country. Lawyers and regulators along with educators from Yale are working with members the American Securities and Exchange Commission and their Chinese alter egos in an effort to create better laws, more flexible trading practices and increased transparency within the Chinese stock market system. When someone in China is told to buy a stock, there is literally nowhere that they can find legitimate information on the company and for this reason, many people have gotten severely burned.  

Behind the scenes training of medical professionals in the area of AIDS education has been going on at Yale long before China admitted that their country even hosted that disease../../._span style_.css"mso-spacerun: yes">  Great strides have been admittedly made in China in the areas of prenatal AIDS care and work has been done in the area of preventing transmission of the disease between mothers and their children. Yale has also developed programs in many other medical areas in which the Chinese appear to be deficient while associates of the University that set their roots down in China at the turn of the 20th century, built a teaching hospital in the province of Hunan long before this sort of thing became fashionable../../._span style_.css"mso-spacerun: yes">   

The relationship between the two strange bedfellows began primarily as method for some of the more overzealous graduates of Yale to bring Christianity to China substantially before the turn of the century. Most early expatriates were Yale educated missionaries seemingly with a zeal to impart the wisdom of Western religious beliefs on a country that was then relatively nave and backward. For some strange reason, this didn’t seem to overly offend their sensibilities and when it came time for high-born Chinese Children to attend college, Yale became the school of choice and so it has gone for decades. If anything, Yale is now attempting to ramp up its relationship with the Mainland to the degree that their president talked about how important the country now is at the University’s commencement with other department heads singing a chorus based on the same tune. More importantly, the relationship seems to continue unabated without the ebbs and flows that sometimes effect countries because of extraneous outside political problems. In all of these years, no teachers have ever been recalled by either country when their governments were feuding or when the United States refused to back a Communist Government in that country. Education seems to transcend politics as well it should and this seems to be as good a place as any for nations to meet on neutral territory, that of the university campus where agendas don’t have the same anxieties attached to them../../._span style_.css"mso-spacerun: yes">   

Infrastructure

While China always seems to be able to put together the manpower and the technical skill necessary to build infrastructure, it is not  always as successful with industrial projects. As we have pointed out, China is in the process of completing a national highway system that goes far beyond its immediate needs. When the project is completed it will encompass a series of highways crossing the length and breadth of the country while connecting every major city, and even now the few vehicles on the roads cannot fully utilize the highways that have been built. China keeps its truck and car import tariffs high, hoping to fill the roads with home-built wheels.  

This is truly the only country on earth where the manufacturing of cars and trucks is a cottage industry../../._span style_.css"mso-spacerun: yes">  The first totally indigenous Chinese car was produced in the early 50s and since that time scores of companies have gone into that business../../._span style_.css"mso-spacerun: yes">  There are some production facilities that crank out less than two-thousand vehicles a year, a number that would be considered hopelessly uneconomically elsewhere, even with reference to ultra-expensive limited edition models produced only for high-end customers. In most other countries differing types of automobiles are produced on the same production lines, producing substantial economies of scale. This is hardly the case in China, which has allowed numerous mom and pop automobile manufacturers to stay in business over the years whether they were turning a profit or not. This was due to the fact that each small manufacturer had a local monopoly relative to its own regional highway system../../._span style_.css"mso-spacerun: yes">  They various automotive companies literally could not compete with each other because the products produced couldn’t be delivered to remote locations.  

In addition, the Chinese manufacturers were turning out vehicles that were designed for particular local conditions. Cars that operated smoothly in mountainous territory using low gear ratios were grossly uneconomical in flatter terrain. Many of the automobiles that were produced in the countryside had to double as delivery vans. Of the 100 auto manufacturers in China, most are hopelessly unprofitable and have been so literally from the day they opened for business. In spite of that, each province wanted the prestige of having at least one manufacturer, no matter how unprofitable under their aegis just for bragging rights, hardly a survival of the fittest strategy. For years, China’s economic central planners could do whatever they pleased no matter what the cost if it helped keep the people employed. However, the people that now make decisions in Beijing have now discovered that this type of provincial arrangement is dissipates valuable resources and from a purely economic point of view, atrociously extravagant.  

In the early nineteen hundreds there were probably as many as thirty automobile manufacturers in the United States turning out an odd assortment of vehicles that they thought would sell. No one had yet learned the right formula and these vehicles were produced one at a time in every conceivable shape and size. Since no one had as yet sorted out what the peoples ultimate tastes would be, small manufacturers tried to jam product down the throats of their consumers. Cars, to some degree evolved with technology and new fangled devices such as air conditioning, radios and rear view mirrors arrived with great fanfare along with leather adjustable seats, road following headlights, climate controlled interiors, global positioning systems and the rest.  

What made the United States somewhat unique at that time was the fact that it already had an existing middle class that could afford these new fangled contraptions and a highway system that although puerile could at least accommodate Sunday drivers out for joyride. Under the American system it was not critically important that too many competitors had entered the game because the existing  competitive system would soon narrow the participants when it was found that not everyone could turn a profit. When World War II ended there were only about five manufacturers of importance remaining. A few more entered temporarily after the war ended thinking that they could use the production techniques discovered in war production to successfully compete. Some of these entrants produced mechanically excellent cars but for whatever reason, they failed and soon either closed up shop or merged with the larger companies. As time passed, even the larger companies began consolidating and when the smoke had cleared there were only three totally indigenous American auto manufactures left standing. As time went by there was additional consolidation within these manufacturers as various models were discontinued../../._span style_.css"mso-spacerun: yes">   

The same events occurred overseas as many of the smaller companies were taken over by the larger ones. As cars became technically more and more complex, it became increasingly difficult to devise or afford spiffy new models every year. Dies had to be drastically changed at great expense and new models had to be carefully road tested for deficiencies. By this time, the American consumer had become litigious and woe upon an automobile manufacturer that used tires that would blow out, engines that would overheat or cars that would burn too much fuel. However, advances within these fields allowed the innovator substantial competitive advantages and the automobile companies learned how to make advertising pay big dividends. Agencies were soon writing scripts to be used in the media that went something like this, the fastest this, the most luxuriest that and the smoothest this. In the midst of all this primping came new problems facing manufactures, government recalls, warranty competition, (who could write the longest warranty) and lower and lower lead requirements in gasoline to make it less polluting. Environmental rules were made stricter literally with every model and this became a business of the super-big and one not at all for the faint of heart.  

China being new to the mass produced auto game, early on was not experienced with these nuances. Their industry was protected by tariffs and even if it hadn’t been, it wouldn’t have mattered because there weren’t enough people in China that had money to make the country interesting for the majors car manufacturers../../._span style_.css"mso-spacerun: yes">  As China changed, their economic order of importance became dramatically different and today China represents the most appealing market in the world, but it is also a country that protects its own. It could not find a way to protect much of the automobile industry though because the manufacturing throughout the country was universally archaic, luxuries were few and innovation was rare. The people of China as they became wealthier desired something more than a car that had only a motor and four wheels. Thus, China made the determination to revamp the entire industry to make it both universally appealing and globally competitive.  

China is well aware of the fact that by concentrating their production they have the ability to manufacture with economies of scale that can literally bury anyone else provided that they deliver a product that has panache. They further see that this industry which is currently held together by bailing wire could become a big producer of foreign exchange if it is pasted back together properly. Moreover, with China’s entry into WTO, they are no longer going to be able to protect local manufacturers who will soon be forced to become profitable or perish. Rather than wait for the inevitable to take place, the Chinese Government recently determined to "fix" the industry now from the top down. Small manufacturers were either ordered closed or forcibly merged with larger companies,  

The large companies and there were only three, First Automobile Industry Corporation, Shanghai Automotive Industry Corporation and Dongfeng Automotive Group when the smoke has cleared will probably be all that is left of the industry, those left standing will receive government credits to revamp production lines, fold in smaller manufacturers and to offer credit to car buyers in throughout the country. The decision making process which had been held in the hands of the central government will be transferred to the manufacturers who will now have the responsibility of taking the temperature of their consumers on a regular basis. What models do they want, what accoutrements should be included and how many cars should be made are all decisions that the manufacturers will soon have to deal with. Most importantly, once set adrift they will have to turn a profit or perish. The rewards for failure in China can often be harsh.  

An interesting facet of the industry downsizing now occurring in China is the fact that alliances were created early on between the major manufacturers abroad and the local Chinese car makers. Some of the multi-nationals misjudged the survivors and guessed fatally wrong when it came to picking a partner. The team at General Motors batted 100% while those at Ford totally struck out. This will make the coming end game more interesting to watch as Ford tries to re-enter the competition with literally no way to do it.  

So that is the way things seem to stack up as it relates to the Chinese automotive industry but many economists have spent considerable time trying to figure out exactly what World Trade Organization membership is really meant to China relative to its overall production capabilities. An industry that is illustrative of what could as this saga unfurls is that of the manufacture of textiles. This is hardly a new industry to China as large factories have been de rigueur in this country for decades. However, it is interesting to note that after a slow start, the quality of Chinese production has become first class in the last several years so that there seems to be no real issue relative to whether or not they are going to be able to compete on a global level. The next doubt that seems to require addressing is the issue as to whether the Chinese are conscious enough of changing fashions and are capable of fine tuning their production to meet this waxing and waning cycle of ever changing fickle demand. Surprisingly, the answer to this question is also yes; the Chinese textile manufacturers have stationed representatives all over the world and are both conscious of change and have recently developed the capabilities of turning around their production on a dime.  

Incidentally coming that far they are even beginning to start flexing their muscles in the direction of dictating and originating new styles and they have had modest success. Moreover, many of the Chinese textile manufacturers have gone public in Hong Kong and are now sitting on big bucks giving them the latitude of improving production techniques and overall quality control while being able to simultaneously prune their workforce. This allows them the ability to purchase the preeminent machinery in the world to make their factories run efficiently.  

Provincial Government

Throughout the earlier years, the central government was in charge of things like the military and international relations but as time went on, it was becoming more apparent that the country had literally become a diverse group of provincial governments all marginalized and pulling apart in their own way from Beijing. The provinces were different from the capital and under the formerly planned economy were order what to manufacture and plant. Having the freedom do plant and manufacture would soon result in distortions to the system that potentially would be fatal. Without bringing everyone back into line with central planning, the people would soon become once again economically deprived and the food shortages which had finally been successfully addressed would once again show their ugly features. 

Communism was in China in reality was now only history, but a strong central government was critical to economic advancement. Essentially though the state’s planners saw that the problem was that in moving to quickly in the direction of free trade, democracy and all of the other supposed good things in life could through entire procession permanently off track. It was a calculated risk taken in the Forbidden City to have the Central Government take a strong hand in matters, reassert their control over the provinces, eliminate duplicate sources of production and abolish high cost producers that needlessly only continued to drain state funds. Another reason for continuing a rule with an iron fist was the fact that all is not well in China and there are many groups that given only a tad more latitude would have their leaders for lunch. The farmers, the workers, the migrants, the women, and the older people have been overlooked as the society has either progressed or regressed depending on what color glasses you are looking through and who is doing the looking.  

Most extraordinarily of all, China as well as Russia looked toward the Government of General Augusto Pinochet in Chile when attempting to relate to a formula of government that would accentuate the perceived needs of their country and maximize its potential growth without activist groups getting into the act and causing trouble. It was determined that it was necessary for the central government to be run with a strong hand, to be totally dictatorial in nature while gradually freeing industry to become competitive, one link at a time. Chile’s rule of no unions and no elections was masterfully geared to induce multi-national investment in the country. It worked like a charm and probably if Pinochet had eliminated a few less of his competitors and had used firing squads instead of torture as his means of that eradication and had not gotten to old to manage the country’s affairs, Chile would still be steaming along in fine style. However, all of those things did go wrong but the formula was set in stone and China believed that they had the opportunity of looking backward at the mistakes that were done there in order to do it better../../._span style_.css"mso-spacerun: yes">   

However this process in itself caused the already ingrained bureaucratic corruption in China to grow like Topsy as even greater opportunities to milk the system appeared. The fact that local government no longer had the same rigid governmental quotas to fulfill that they had in the past allowed them the luxury of dismissing employees summarily, looting the company’s remaining assets and inventory; selling these off for a pretty penny and then summarily dumping the skeleton of what was left to an industrialist that was willing to pay a now substantially lowered price. The price at this point had become unimportant because the proceeds would go to the government.  

What had occurred is a transference of money from the state to the bureaucracy in one easy step. In addition, the price of privatization had been reduced by the fact that the private sector was no longer bidding on all of the things that had already been unloaded. This allowed for more bidders to get into the act and appeared to outsiders as a healthy contest between the buyers in a legitimate auction. Whereas the auction probably was legit, that’s about the only thing in the process that was. As a matter of fact, the state could even offer financing for the privatization with the money they received in the sale of the asset. In addition as opposed to having a drain on their books which would never pay taxes, they now had a productive asset which could pay them dividends over scores of years. Everyone seemed happy about the transaction, the central government had gotten rid of a none producing asset, the purchasers received a ready made building and a franchise and the seller, the state received what money remained after the lead bureaucrats carved up the gravy. Whoever, there are a lot of people that get thrown out of work in this process, but that is just a result of coming to gripes with 21st century and progress.  

And indeed, a middle class has arisen out of the chaos and there are now indigenous people that can afford some of the better things in life. However, that seems about as far as the Central Government is prepared to go at the moment. Business continues on as usual when the state has to deal with potential dissenters. However one of the immediate benefits of their new economy is that it is no longer necessary to jail singular radicals who are preaching religion, democracy or an end to the death penalty. With the exception of the Fallon Gung, in the ../../__147.css;new” China it is only necessary to remove the pulpit out from under where one is preaching, the incarceration of the preacher is no longer necessary. Fundamentally individual dissenters are isolated rather than jailed in this new regime. However, whenever there is an opportunity for unified action by any faction the government is programmed to take strong remedial action. Chile did not succeed with groups of agitators running around complaining about their lot in life. Unions, Political Parties, student unions and new fangled religions will set off time bombs in the government and are rapidly defused one way or the other.  

In China, the Central Government evaluated literally all of the plants that were in the business of turning out textiles and made a determination similar to their study of the automobile industry as to which of these could be profitable and which couldn’t. Those that couldn’t make the cut, and there were a lot, were ordered shut with ample compensation order to be paid to the provisional authorities when they turned over the melted down spindles (they weren’t taking any chances on paying for a plant to be closed and black-market goods continued to be produced) to the Central Government to insure compliance. This stipend tended to diminish the hysteria of closing factories, dealing with the newly unemployed and losing tax revenue, something that had never been accomplished in China since the Communists had taken over. Most of those producers that were left were soon privatized and the top workers from the closed factories were invited to work in the new company. This kept the most modern and well run facilities churning out product through the use of the crme of the manpower available in China for that job.  

Moreover, in spite of this plethora of labor, China is no long relying solely on this factor in their quest to turn out quality goods at a minimal cost. China is now utilizing sophisticated software programs in their textile production. These high-tech programs are able to eliminate a great number of employees. There are some interesting statistics available to graphically illustrate this fact: in the four years from 1995 to 1999, the number of people employed in that industry has plummeted from 6.7 million to 3.5 million according to recently released Chinese Government statistics and is the number of those employed is continuing to drop while production continues to rise.  

Production in the clothing field alone has risen 1700 percent since 1978 while the value of exports are now 50 times higher than they were then. China will be geared up to make mince meat out of the global textile competition in 2005 when export quotas to both the United States and Europe fall by the wayside due to the generosity of the World Trade Organization. The World Bank predicted that China’s production will increase almost by 400 percent more from the date of their entry into WTO../../._span style_.css"mso-spacerun: yes">  The only thing that seems to be lacking in the Chinese scheme of things is having name brands which cause repetitive buying. These are not all that hard to come by if you have the loot and at the right time, China will start acquiring them. In the meantime, all of China’s looms seem to spinning to the same tune, they are operating at full tilt and at the moment Chinese Factories do not need to take on the additional expense of paying for the advertising and public relations to keep their names in the public eye.  

When push comes to shove, it will not become a matter of China against the rest of the world as many would think. It will become a contest between one Chinese manufacturer and another for survival. The rest of the world will be sitting on the sidelines as Chinese textile companies go after one another with hammer and tong. As this struggle reaches its zenith, branding along with advertising  will become consistently more important as the death spiral continues literally out of control and China will eventually be sent into textile chaos after putting most of the rest of the world’s production out of business. The entire scenario should begin unfolding in the next year or two and it will be interesting to watch the twisting and turning that will occur../../._span style_.css"mso-spacerun: yes">  The effect upon American manufacturers will be negligible except on their books. Massive expenditures on plants in now uncompetitive countries will have to be written off.  

In earlier articles, we have discussed the fact that new wars will most probably be fought in non-physically and we have addressed as an example how during the conflict in Yugoslavia, the American CIA was able to make mincemeat out of the Serbian banking system, rendering it literally non-functional. Primarily, this sort of thing represents the future of war,  ../../__147.css;Internet Warfare” that has already become part of our daily lives and some nations are already on the firing line, China is a standout in this regard facing down three rather prodigious opponents simultaneously. We have previous mentioned their ongoing information wars with the Falun Gung as well as their high level confrontation with Taiwan which is fought in their mutual war rooms. However, these conflicts are not going to result in armed warfare anytime soon, the United States has dipped its own oar in the water and will be making very serious waves in this arena in the near future.  

All of us are familiar with the United States’ strategy of getting its economic and political message across to the people of other countries an intimate part of its overall strategy, reflected in the massive and successful reach of the Voice of America. The broadcasts were extremely important in creating the environment that led to the collapse of the Soviet Union, which in turn, has temporarily secured peace on an international level. Moreover, we have been beaming our propaganda into Mainland China through the facilities of both Voice of American and Radio Free Asia for decades. While we call it ../../__147.css;transmission of information”, the Chinese seem to think that we are pushing the envelope and subverting their government. While we certainly don’t feel that this is the case, it would not be a push to say that we are trying to re-indoctrinate their people toward a more democratic point of view. However, Chinese officials have determined that these continuing broadcasts were not at all helpful and started jamming them over a decade a go.  

Communication

Enter, stage left, Internet! This has certainly caused the price of poker to go up, at least as it relates to the intelligence community. Now the United States had a way to get its propaganda to the people of China in living color and in three dimensions../../._span style_.css"mso-spacerun: yes">  Internet use in China has been skyrocketing at a rate of over 400 percent a year (in a bad year) and is now nudging the 30-million mark. However, that number includes the usage of Internet-Cafs and the like. The CIA thought that Internet was a really neat way of spreading the gospel according to ../../__147.css;W”. However, the Chinese Government was violently against the idea in principal and in practice as well and erected substantial barriers to the process by controlling the server capabilities for the population. In other words, the house had rigged the Internet to broadcast only stuff approved by the bur crates. In order to get around this minor irritation, the CIA began setting up a series of servers that could be alternated regularly, thereby confusing the attempts of the government to censure our propaganda.  

Although you probably never knew it, the Central Intelligence Agency in addition to operating a high-tech spy network, stays on top of their game by investing in companies that they perceive to have new technologies that can be put to valid espionage uses they, the CIA that is, advertise the fact that they are in the venture capital business and make no bones of what their investment objectives are. This is one VC that is not interested in their return on capital../../._span style_.css"mso-spacerun: yes">    

In any event, the CIA Venture fund, what ever they call it, put some big bucks in a small technology based outfit in Emeryville, California by the name of safeweb that is in the business of installing Internet privacy servers. In plain English, a privacy server disguises the sites that a viewer is watching from so that no one can tell and he can watch without ../../__147.css;Big Brother” knowing about it. By providing the CIA with scores of these machines and moving their viewers’ perceived location from one place to another before anyone can get a fix on their location, the CIA creates an environment in which Chinese viewers can travel wherever they want on the web without any fear of getting caught. Moreover, the CIA does not believe that it is necessary to send out their regular dose of misinformation  and half-truths,  because it is convinced that it is only necessary to show the average person living in China what is going on in the outside world. They are probably right in assuming that this should be more than enough to convince them that some changes are in order../../._span style_.css"mso-spacerun: yes">   

In addition, the CIA and Voice of America have teamed up in another intriguing concept: they are pruning the e-mail addresses of influential Chinese net watchers and creating a very hefty address book. By utilizing these mailing lists they can communicate at will with these people as long as the Chinese technicians can’t shut the system down. If the theory works as planned, the CIA would be in pig heaven, able to proselytize everyone on the Internet in China simultaneously. In the meantime, nothing in life is ever as easy as it appears. The Chinese Government has arrested any number of people and made it clear that watching things on Internet such as the sites of the Washington Post Site or Amnesty International could result in them becoming unwilling donors to their organ transplant program, an unforgettable experience../../._span style_.css"mso-spacerun: yes">   

China is rather desperate, considering that their leaders are convinced that the next war is going to be fought with computers, rather than armies. They are so convinced that they are right that the government is considering adding another service to the army, navy and marines. This would be some form of computer disorganization group which would attempt to destabilize their opponents during hostilities, working to throw their economies into chaos through the use of highly sophisticated computer programs, to redirect the internal flow of utilities by interfering with the programs which determine where energy is supplied and locking up communication systems by interfering with circuits. If this weren’t enough, they probably have the capability of creating havoc with flight control systems, causing transportation backups, and in addition are fully capable of sending bogus information on the targets of their ordinance, causing interception to become difficult if not impossible.  

Furthermore, they have established a fiber optics networks which extend the length and breadth of the country. Fiber-optics make communications impervious to foreign attempts to disrupt the systems because for the most part they are impermeable. People in the National Security Agency of the United States are saying that this was what caused the EP-3E (Peter Rabbit as it is called by the Navy) incident. U.S. intelligence had to get closer and closer to the Chinese border at the source to read the encoded signals that intelligence was trying to interpret../../._span style_.css"mso-spacerun: yes">  Contrary to what appeared in the American press, this is what ultimately caused China to bring down the plane../../._span style_.css"mso-spacerun: yes"> 

Burma leads the pack in creating methodology to constrain purported Internet abuses. Simply put, the unauthorized possession of a computer with networking capability will bring the lawbreaker seven to fifteen years in the clink. In Burma, that usually means that we will not be bothered by that perpetrator again, at least in our lifetime. China and Vietnam have done Burma one better by nipping Internet offenses in the bud. They have required that all networks install filters so that any material observed by Chinese computers is sanitized at the source. In spite of all these precautionary steps, China has felt the need to enact a new series of laws regarding Internet usage, creating penalties for what would be normal usage in other societies. Paranoid leaders are convinced that the Web is being used to leak state secrets, to distribute pornography and to support separatist movements in Tibet and Xinjiang. Singapore has used a similar system to block out decadent materials such as the Playboy site.      

Moreover, we were reading them like a book and they weren’t going to have any more of it. Although, the Chinese were able to acquire some very advanced and sophisticated equipment, most of it is of no value to them because they don’t have the delivery systems to read anything we have. In order to do that, they would have to have an armada of aircraft patrolling either the Mexican or the Canadian border on a full-time basis. In addition, this assumes that they were able to figure out how to work our systems, which would have been literally impossible. However, there is no question that they did receive a valuable cache of high-tech equipment which you can believe they are studying intently.  

Be that as it may, the worst torture known to man is being suffered by most high-ranking Chinese intelligence officials. Almost all of the computers in China contain equipment and software purchased from either Microsoft and/or Intel, both American companies. The Chinese officials are being driven crazy by the fact that there could be Trojan Horses planted within either Windows or the Pentium devices. These horses of another color could take various hues and shapes. They could be viruses that are only waiting for an incident to occur that makes the United States unhappy and they release their deadly toxicity. They could take the form of a hidden switch which at the proper time can be simply turned off from any location in the world or they could even be programmed to start giving off disinformation at the proper time, causing mathematical computation to be off a digit or so. This could render missile guidance systems hopelessly worthless or even worse; conceivably they could be programmed to take a circular route landing back exactly where they started. All of the above could be hidden within some legitimate program and allowed to lay fallow until needed.  

One could certainly wonder if Microsoft’s cooperation on matters such as this with the National Security Agency didn’t help them avoid the wrath of the Justice Department who wanted to break them into little pieces../../._span style_.css"mso-spacerun: yes">  In addition, there is no question that between the Pentagon and the National Security Agency, Intel has two of the largest clients in the world. They could easily be compromised in the name of national defense or if that didn’t work they could be compromised relative to having their business taken away. This in itself could be a disaster of substantial proportions and could literally cause the company’s collapse. No matter what the bait, there is little question that American companies could soon be shown the light on these issues, and that cooperation could soon be worked out.  

In the meantime, the United States is far ahead in utilizing the technology of future electronic warfare and that is what is quickly driving China up the wall. The Chinese are also profoundly aware of that one American nuclear sub lying undetected off of the coast of Mainland China could unload more atomic weapons on the Mainland in shorter order than the entire country has in its arsenal. In French we call that the ultimate’ equalizer, but then again as Einstein said when asked what weapons the Third World War would be fought with he said, ../../__147.css;I don’t know but I can  tell you with what weapons the Fourth World War would be fought with, rock and spears.” As with all things, the problems revolving around the EP-3 over flight were resolved. It appears that there is an agreement that the United States and China were signatories to called the 1998 Agreement on Maritime Military Consultation. This agreement seems to cover matters concerning the high seas and international airspace. The fact that the doomed the doomed plane was flying over international waters when the collision occurred seemed to make a conference under the auspicious of that agreement more than logical. However, not on the agenda in Guam is compensation with the Chinese still demanding a cool million and the United States offering chewing gum money. Don’t hold you breath on a payment but, the worst is over relative to hard feelings.  

Computing China Style

 One of the most glaring problems facing the Chinese is  their use of sophisticated computers. The original Mandarin Language has 13,000 characters and even when this number is reduced into what they call the "simplified" alphabet, that reduction brings the grand total to down to a hardly manageable 5,000. Try to analyze where China can go in that field, which as we know is where it is going to be in the 21st century. Picture fitting 5,000 characters. Thus, nationalism aside, the Chinese need the English language to communicate with their computers,  either, they must be conversant with English or they must be able to make the English language phonetically translate into Mandarin a literally impossible task.   The few Chinese keyboards that have been created require up to six keystrokes to produce one character in Chinese. The only hopes for the future lie in speech or handwriting recognition but sadly, these are complicated by the sheer number of characters and sounds that have to be analyzed.  

The only hope on the immediate horizon is the Lexicus Recognizer, developed by Motorola, an gigantic achievement that is rated at 95 percent accuracy, using the entire 13,000 character alphabet. Motorola attributes the fact that they have been able to get as far as they have with the fact that the Chinese handwriting or printing is much more uniform than English and in spite of the large number over transliterations necessary, they are highly accurate.  The problem with this type of system is that you can create two-way errors, those coming in and those coming out. You fist have to convert the system to English and then after you have arrived at the data, it has to be again converted to Chinese. Thus, what may have seemed like a small error at the beginning of the process can be magnified geometrically.  

Others are working in the same field because whoever makes it work is going to hit a home run. Apple has a machine voice recognition machine that can convert 60 characters a minute. This, at the moment is far to slow for commercial applications and Multi-Corp Inc. of Calgary has dusted off a new type of keyboard that can create Chinese characters by a process of elimination. Although the Multi-Corp device represents stunning technology, it takes an average of 2.7 keystrokes to create a Chinese Character, still far to slow. Another company that is still in the picture is Xiaojun Computer, a Beijing technology company, that uses a phonetical conversion system to make Mandarin work with only 24 keys. All these models have a long way to go and until they get it straight, the only ones in China that will effectively be able to utilize computer technology are those that a proficient in English. 

SCIENCE 

China has always been known as a scientific innovator rather than a copycat. Science is considered to be a noble undertaking in a country that prizes internal technological progress. On the other hand, science and bureaucracy seem to be diametrically in opposition and while China has research and development centers galore; they also lead the world in progress numbing government interference. China’s almost nine hundred laboratories, institutes and academies employing 1.5 million scientists and technicians are using outmoded equipment, following government polices evolved during the dark ages and are being paid on a monthly basis what a starving New York cab driver takes home in an afternoon for a months work.  Fully half of China’s scientific community has been driven to pure research into esoteric regions offering little or no hope of success. China’s unique innovations over the last decade, beyond some minor agricultural advances are not enough to fill a small thimble.  Thus, the government has had enough and is rapidly transferring the scientific elite into real-world industries that are dealing with real-time problems.  

China has become more interested in getting a return on its research dollars but unfortunately has reacted a little late. Many of the brightest stars were sent to the United States and other western countries for advanced training, but when they had completed the prescribed curriculum, most remained to enjoy the good life while staying put. Thus, in the United States alone, 175,000 of China’s best scientific hopes have opted out of the system and remain here. Although the expatriates undoubtedly have some ingrown chauvinism, without super-colliders, Tokamaks and  Cray’s, many feel that there is no ability to even start competing in China which can not afford even the down payment on the newest and most sophisticated of scientific apparatus.  Since the west pays the highest wages in the most critical of industries, talented software programmers as an example, hardly ever find their way back to the mainland.  

One of the major problems in China’s science was the Cultural Revolution, which seemed to think that being smart was a crime against the state. The universities literally shut down in 1966 and it wasn’t until 1971 that they began taking students again. But then, a student was accepted on a hit or miss basis with only political connections being a guaranteed path to a higher education. No entry exams were given and for the most part, pure research became about as acceptable as mad cow disease. Scientists had to go through reorientation and they were held up to ridicule. Thus, even if the schools and the programs had survived the cultural revolution, it was not an exciting thing to be a scientist during those times and the country lost over a decade before sanity returned in 1976.  

Other problems abound, but the most critical is that Chinese scientists now have an open wire to those in the rest of the world. They are getting a taste of the scientific freedom that exists elsewhere as opposed to the closed society in which Beijing forces them to operate. They are asking for more academic freedom to publish and share information with their global peers and you can expect that to happen on the same day that China announces that they no longer have any interest in reuniting with Taiwan.

THE MILITARY

 Every once in awhile, especially when the Pentagon is negotiating with congress for more money, an article mysteriously appears in the newspapers about a new weapon that the Chinese have developed and that our military needs funds to counteract it. While there is not much question that China has made some strategic advances in the areas of long-range missiles (potentially at the expense of United States' security), for the most part, their delivery systems are still relatively archaic and uncertain. Their enormous army, the People's Liberation Army (PLA) which includes the all branches of the military is basically a low tech force incapable of fighting a war in which the enemy is not reachable by land.  

The best planes in their air force were supplied by the Russians who are not in the habit of giving away anything good that can potentially be used against them when the chips are down. The navy lacks even one aircraft carrier and their submarines are primarily of World War II vintage although, these are being replaced with adequate newer vintage models.  Literally all equipment that exists is second rate and communicates equipment for co-ordination between units is non-existent. They have insignificant night-fighting ability and little or no gear designed to protect their troops from chemical, nuclear or biological weapons. However, as an industrial power, China is moving smartly forward. Advances in every field are coming amazingly swiftly. While they are still not in a class with the United States, they are moving in that direction are are not to be taken lightly.   

While I wouldn't want to be Japan if the Chinese become really ticked off at them, I thing that the United States has a decade or so before China can be serious threat. By that time, we will have created a missile defense system, probably buying yet another decade.

Birth Control

China always seems to do what it takes to get by../../._span style_.css"mso-spacerun: yes">  Although some of their theories seem strange to us, the reasoning is basically simple. As an example of what seemed to be bizarre thinking when it originally was announced by the government the regulation that couples in China could only have one child. This horrified people in China and its implications were soon discussed all around the world. However,  when you consider the fact that in 1980 at the time the regulation was put into effect, the country could not feed the population that then existed let alone, fed its projected additional population of hundreds of millions more in the years to come, you can certainly understand the reasons for its existence. Moreover, there were substantial problems with this regulation as boys were more highly regarded than girls in China and as we have pointed out earlier, United Nations analysis pointed out that they believed that there were 50-million less girls unaccounted for in the Chinese census than should have existed and that most of these had probably been done in at birth by parents wanting a boy../../._span style_.css"mso-spacerun: yes">   

However, eventually the Chinese were able to address their agricultural problems and the government became more comfortable that no one was going to starve to death. Most of the people in China had been unhappy with the ../../__147.css;one couple, one child rule” and had lobbied long and hard for its softening. With China’s population still growing at gargantuan proportions, this view could hardly be tolerated../../._span style_.css"mso-spacerun: yes">  However, the bureaucrats determined to throw the people a meatless bone. They came up with a convoluted plan which in essence would allow any couple in which both parties were the second generation of one-child families, to have a second child. In plain English they are effectively giving away ice in the winter time. First, back as of 1980, Chinese families were large because big groups were needed to till the soil. Thus, the larger the family the easier it was to address all of the necessary chores. In addition, considering the fact that there was no social safety net, the boys usually were responsible for taking care of their parents in their old age. Thus, the more the better had become the Chinese rule and families always tended to be large../../._span style_.css"mso-spacerun: yes">  Thus, the percentage of people that were born into one-child families over 21-years ago had to be about as rare as the extinct Do- Do Bird.  

Furthermore, since the rule went into only 21-years ago, it covered only people who were married with one child at the tender age of 21 or younger../../._span style_.css"mso-spacerun: yes">   This  was a tough trick to pull off, because the Chinese were now marrying at a more advanced age couples who at 21-years of age already had a child were rare../../._span style_.css"mso-spacerun: yes">  Once again the chances of this were about the same as getting caught in a flood in a telephone booth. When you combine the chances of coming across a live Do-Do Bird with getting caught in a flood in a telephone booth, you can see that the Chinese Government officials have put literally nothing on the table at all. However, the bureaucrats probably feel better for it and they can point to a projected target population of 1.6 billion in 2040, an increase equal to the projected total population of the United States at that time. Everyone was overjoyed at the announcement, however no one had taken the time to analyze it. In China though, things are done a little step at a time.  

Another factor was a tremendous shift in production going on within the country. For the most part, people were leaving the farms and moving to the big cities where work was available in many new industries. Moreover, the people believed that they had a better chance of striking it rich in the larger metropolitan areas than they did down on the farm and they were probably right. This movement of people was unusual to China, a country heavily into family values and ancestor worship. Most people in the country had never traveled more than 50-miles from their place of birth for two reasons: cultural ties and government prohibitions would not permit it. The government’s theory was that it was much easier to keep track of folks if they stayed put. In addition, if they moved around too much, they could end up on the dole when they finally settled in a new area.  

Thus the Chinese Government enforced what was known as the hookup system which literally had been in place since the Han dynasty around the time of the birth of Christ. Hukou is a residence permit without which you cannot move around China freely. In a highly populated country, it was about the only way to maintain control over crime, and to be sure that there were going to be enough people to staff any new industrial plants without economic incentives. In other words, historically, if someone new suddenly showed up in the neighborhood, you knew that something was amiss. It was always the case that people clamored for Hukou's in the larger cities where opportunities were greatly expanded,  and there was always a flourishing black market in these permits. For example, the price of a Beijing Hukou currently runs about $12,000. Because bureaucrats are free to issue these permits to a certain number of qualified people each year, they have become a prime source of graft.  

People with a good Hukou are able to marry better as well, because the Hukou is similar to a dowry. Should a man from the country marry a woman from the city, he will probably receive a Hukou from that area as a right. Parents will tend to save for many years to buy these Hukou’s for their children believing that this is their only chance to get ahead in life. This created an environment that changed the historic marriage ritual. Usually, these were planned affairs arranged for by the parents on both sides. This was no longer easy to do when the ratio of males to females changed. While females were not valued highly at birth, when they reached marriageable age, their value increased. The movement to the cities created another problem, people didn’t know each other and the Chinese being a proper people, it took them some time before they did. This also put off the raising of children from some time. 

All of these changes in China brought with them substantial dislocations../../._span style_.css"mso-spacerun: yes">  Modern plants were usually erected in the big cities. The older, uneconomic plants located in rural communities were summarily shuttered. This created a demand for workers in the urban areas and left many of the rural communities without any industry with the exception of farming. Because of the Hukou system, the attraction of higher wages and bright lights could not do the job by themselves, and China had to look for another way to solve its employment problem. Eventually, the bureaucrats put a toe in the water and announced that they were going to allow a small change in the way things had been done for 2,000 years. Residents of rural communities would be allowed to apply for Hukou's if they wanted to move into the small cities around their community. However, they would have to show that they had a legal home and a source of income in that community. There are already 150-million excess workers, so this requirement was more than just palliative. Note that the number is 150-million excess workers, not people. That is certainly a large number and China is going to let many of them move but they must show the ability getting a job.  

This is going to be rather difficult when you consider that these towns where they are going to be able to go are not the places where either industry or demand exist../../._span style_.css"mso-spacerun: yes">  Bureaucrats are saying that it is their intention to build more new plants in these smaller cities but it appears as though the plan will only tend to line the pockets of local officials who will be able to up their income by issuing the permits. While the program shows a small attempt at progress, China is about to explode with all of these people out of work and a plan being put forth that may start to have impact at least several decades. The country has literally no social programs and when people are hungry they tend to get a tad ornery. China has figured out how to deal with the outside world but as yet does not have a clue in dealing with their own country and they had better get it figured out before too much longer.  

Whatever else, China has accomplished much in the last several years. In spite of the fact that at times, the country seems to be moving ahead in spite of itself, has the most vibrant large economy in the world. In the future it will be hard to sustain the rate of recent progress because China will be expanding from an ever enlarging base and many have said that the easy progress is behind them. As social reforms continue and more rights are granted to the people, cheap labor will no long be so readily available, social systems will have to be put into place that will drain money that normally would have gone into infrastructure development and other countries will have learned how to compete.  

On the positive side though, China’s entry into the World Trade Organization is causing a quick economic pop. However, none of this progress came by chance. All of the recent advances can be attributed primarily to one man, Zhu Rongji who is at present the Premier of China. His term is going to end shortly and a leader of his quality, tenacity and self assurance is not likely to emerge any time soon from the pack of conservative old men that make up the remainder of the ruling hierarchy. Zhu was willing to make the hard decisions that could  have blown him away, and he stood behind them. He derided his compatriots who did little or nothing to advance China or who questioned his direction.  

Recent History - ZHU

Let’s take a look at what the man has accomplished in a short period of time. The 72-year old Zhu, who left office in 2003, started to gain prominence as the mayor of Shanghai at the age of 62. He was invited into the cabinet at that time with the not too shabby title of Vice Premier, and as such he oversaw financial reforms while running the central bank. It was Zhu who was eventually able to rein in the omnipresent inflation that had plagued China had since the Communists took over, and controlled the expanding money supply which indirectly had been its cause.  

Before Zhu got involved, China had a number of differing types of money within their system which allowed them to keep careful track of who had what, but this system had a murderous downside. Primarily, it was just plain confusing and required bureaucratic permissions to exchange money going in one direction or the other. In other words, each type of money in China was used for different purposes and you had to use this money for this and that money for that with no right of automatic exchange. As a result, Chinese companies were unable to deal in the international market and drastically restricted foreign trade. China’s exports were severely  hampered by this system. It was Zhu who did away with it, opening China’s markets to the rest of the world and vice versa. Indirectly, this was the biggest single step towards WHO admission and without it, WHO would still be a dream. 

His next job was to take on the federal bureaucracy, and he did a brilliant job, cutting the number of jobs substantially, at least by 30%, something considered unachievable in the United States, 10 percent would be a startling number here and he did it in literally a few short years, made the decision process more streamlined and eliminated the opportunities for graft in almost every area he touched../../._span style_.css"mso-spacerun: yes">  He closed or privatized unprofitable state businesses, and in doing so brought in much needed money into the federal system and he bailed out the financial system which was overloaded with loans that were in default. He changed banking laws along with those of the nascent stock market and created a more level playing field for doing business.  

Under Zhu, abject poverty has almost vanished and China is rapidly developing a moneyed middle class. Overall, we would rank Zhu up there with Jack Welch of General Electric in his management instincts and abilities to lead and control. However, Welch had a score of years to turn GE into the behemoth that it has become while Zhu did the job in China in less than a decade and was facing entrenched bureaucrats wherever he turned../../._span style_.css"mso-spacerun: yes">  He overwhelmed them by the assurance that he was right and his willingness to forge ahead in spite of substantial odds and a number of co-leaders who were anxious for him to stumble. Zhu is China and they will lose a very important cog in their wheel when he steps down in the next several years. 

While Zhu has indeed done a great job, everything is still far from perfect and the further away from the glare of Beijing you get the looser the controls seem to be. It is always the bureaucrats that are getting into trouble in China. It seems that there is this small city near Hong Kong that during the years before the former British Colony became absorbed by the Mainland, the city was held up as an example of entrepreneurship under Chinese rule. Someone seems to have spoken substantially too soon on the matter, and today Shantou City is considered the ../../__147.css;Wild West.” Eventually, Shantou became known in nearby Hong Kong the home of pirates, a place where contraband of any type could be purchased for a discount price and if necessary moved out of China into a friendly nation of the buyer’s choice.  

At least, that was Shantou’s claim to fame until people in the neighborhood noticed the really bizarre things going on at the Shantou City Commercial Bank, an affable little spot owned by local politicians and used to subsidize the modernization of the region through economic development of a unique brand. The bank was formed in a merger of 13 credit co-operatives in the region, whence it derived an instant and substantial customer base. Furthermore, the bank was located in one of the ../../__147.css;special economic zones” personally established by Deng Xiaopping as ../../__147.css;capitalist showcases.”  The central government in Beijing was anxious that they perform admirably because they were being watched by the world.  

Banking or the Lack Thereof

Beijing was constantly in touch with the local politicians, cajoling them to show the world how well China could run its banking businesses../../._span style_.css"mso-spacerun: yes">  The authorities, anxious to please their leaders, went all out to achieve that goal. The bank became a ../../__147.css;bank for all people,” including the local pirates and drug dealers, prostitutes, petty criminals and even murderers; everyone was welcome within their four walls.  

Although they considered its policies overly aggressive, honest local people would still deposit their paychecks into the institution. However, they did not necessarily do it because they liked the bank. The government had a rule: if you work for the city or state government you will be a depositor at Shantou City Commercial Bank, or you will be looking for work elsewhere. The people found that this was a strong incentive to make regular deposits at the bank but as we have said this was not your normal bank. It didn’t pay one penny’s interest on deposits of any kind. Furthermore, it was very dangerous to complain about that fact, as several people who were last seen in the bank lobby arguing with tellers had disappeared. Eventually people forgot about the fact that the institution was of the non-dividend kind variety, and chalked up the anomaly to the price of having a nice job.  

However, while the bank would not pay interest on their depositors’ money, it was extremely generous in making loans. Literally anyone that wanted to borrow money at the bank was able to do it, and bank management prided itself in the short time that they could arrange a lending package. One of the unusual services that Shantou City Commercial Bank provided for borrowers was fake collateral if you did not have enough assets or earning power to get the loan on its own merits. While this was indeed a most generous add-on service, and one used by many in the community, the collateral came at a price. Customers really took out two loans, the first for the money and the second for the backup collateral.  

The money was lent under fairly standard terms, but the collateral came at a rather high price, and had to be repaid on a weekly basis in cash. The rate was rather high and most people when they started analyzing the interest that they were paying became concerned. The rate for having the bank provide collateral was called 6 for 5. In other words, for every 5-dollars that were borrowed, 1 dollar in interest was charged every week the loan was outstanding and this didn’t include the more normal rate of interest on the loan itself. Furthermore, it was a good policy to stay current on the interest on these loans as the bank had a habit of sending a team of collectors to visit defaulters. These were rather large people that carry sticks and somehow by the time that they got through with you, you paid or were not seen again. Many in the city found the bank’s tactics crude, but there was no where else to borrow money.  

With stories like these circulating around the city one would think that the bank would have had a tough time getting new depositors. However, they had an excellent public relations department which would regularly match the list of the businesses in town with depositors in the bank. Should you not be lucky enough to be a regular depositor of the bank, these pleasant public relations people would send you a lovely letter extolling the bank’s virtues and suggesting that you would find Shantou a lovely place to do your business. However, the letter also gave you only a short time to make a positive decision, and if you did not respond quickly enough, they would send a team of their employees to make a house call. You see, Shantou believed in hands on management and more importantly, regular visits with members of the community to convince people of their eagerness to please. The problem was, that if upon the visit you still weren’t convinced that this was the place for your money, you were usually taken out in back and beaten until you changed your mind. Most people were  eventually convinced by the bank’s public relations department to give the bank a try.  

When the bank determined that they needed money for more important purposes they sent out a notice to clients that they had capped their withdrawal rate. This could cause some degree of pain to depositors because when this sort of thing happened, and it seemed to happen regularly, customers were not allowed to withdraw more than a few-hundred dollars at a time. This caused some severe hardships in the community, but the bank had a solution. Although you could not withdraw your own funds, the bank would let you borrow whatever money may be necessary to tide you over. Naturally, this type of lending was handled by the phony collateral department and the large men with sticks. In spite of the fact that this service was seemingly a great boon to the community, very few people used the privilege and seemed to be able to find other sources for getting their money like selling their most prized possession in neighboring Hong Kong for a pittance.  

But whatever its reputation, the bank was indeed profitable. In spite of the fact that it was a quasi municipal enterprise, it was owned independently by local political officials and as such was a private tax paying institution. In spite of rolling up gigantic profits with the bank’s aggressive banking procedures, they somehow never were able to show a profit, and therefore did not pay any taxes. Beijing became concerned by the fact that if the bank remained in good standing from a regulatory point of view, which they were and their assets had grown mightily, how then could they not be making money. Beijing sent in their auditors and found that they were indeed right, the bank was making more money than they could handle, and were siphoning it off into overseas accounts belonging to the principals. When the investigation was finished it showed that the scale of tax evasion set an all time record in China../../._span style_.css"mso-spacerun: yes">  The money was sent off shore by a complicated system of export rebates which allowed profits to be made in other countries, an excellent reason to do business with Shantou and one of the factors that caused the surrounding region to grow so quickly.  

And what about the retail clients of the bank? All of the money had been siphoned overseas and there was nothing left in the coffers. The Chinese Government didn’t have the money to pay them back so they set up a tax to allow the people to pay themselves back. Today the city is the highest taxed in China and will remain so until the bank is once again on solid footing, but the people will have deposited their money twice,  once from their wages and the second time from taxes. This indeed was a very unusual bank and one that certainly got the attention of lenders all over of the globe for their unique banking practices. This was not the success story that China had planned.

CHINA AND THE WORLD BANK  

Many have called the World Bank misguided and those maybe the kindest words of all. This organization seems incapable of determining when a country no longer needs its help in backing projects and can rely on internal funding or private sources for funding. An example of this particular type of confusion has occurred over and over again in China where private lenders stood by, ready willing and able to provide infrastructure financing, only to be rejected because the World Bank was offering lower rates. This is world class strange.

The World Bank’s mandate is clear, it is only a “Bank” of last resort  and was not created to become a competitor with private financing sources. Furthermore, the World Bank’s terms are far more lenient and often more forgiving than private sources who make sure that the I’s are dotted and the T’s crossed before loans are completed. China is one of the world’s wealthiest nations in terms of hard currency reserves and its current account surplus is particularly awesome.  It is more than a stretch to figure out what these World Bank people are doing in the country at all. However, China's repayment history has been excellent and the World Bank's collection history has been dismal, this may be the reason for the madness.

On occasion, China has been placing  its excess money into U.S. Government Debt instruments when it has borrowed from sources such as the World Bank, in effect earning money on its borrowing. ([1]) We think that General Marshall would be turning over in his grave if he saw what was going on. Not only is the World Bank loaning money to  countries that do not need their help but by their own admission they have had disastrous results in one of their highest priorities, the building of dams to create agricultural independence, electrification and navigability. The only problem was that people that did not need to be resettled were, people that needed to be moved weren’t and even when things were worked out correctly, compensation was often not adequate.   Even worse, the dams are created without even the slightest thought as to a grid that can transport it output or the people that can use it. Consider the wonderful generating plants built in Zaire where the people have neither grids or electricity. An amazing boondoggle that only the hapless World Bank could have foisted on them. Then they want to be repaid!! Good Grief. 

The World Bank stated, “The bank intends to reinforce the vigor with which it addresses resettlement issues and to ensure compliance with its policies that set environment, social and international law safeguards. While several steps have been taken over the past few years to improve the quality of resettlement, there is a long way to go, especially with respect to improving resettlement performance during the implementation phase of the project cycle.” As is this wasn’t bad enough, in India, Human Rights Watch stated that “villagers were beaten and arbitrarily detained for peaceful protests.”([2]) (over relocation relative to a World Bank financed dam in Central India)  

And complaints have circulated from all quarters that World Bank Funding has provided an opportunity for corrupt dictators to stuff their pockets full of cash. Many have said that the Bank was just plain not doing its homework relative to transnational corruption. Others have seen to it that corruption begins at home. James Wolfensohn, the World Bank President has recently found the same kind of infrastructure problems as home as he and his organization were fostering elsewhere. It seems that a few of the Bank’s loyal employees were feathering their own nests while out stamping for good old World Bank U. Wolfensohn didn’t hit the panic button to hard, he only called in Price WaterhouseCoopers, set up an internal fraud investigating team, hired outside specialist and issued an internal memorandum requesting employees to call an emergency hot line to allow them to rat on their fellow employees anonymously and with recourse.  

This is an organization that has been warning every country on earth that if the World Bank “secret police” finds signs of corruption in a country, they will either not be eligible for the Bank’s largesse or at least they would only get a fraction of what normally would have been advanced. Some wags are wondering whether the same thing will happen to Wolfensohn’s vaunted salary and benefits now that corruption has been uncovered in his own home.  

So, unbearably archaic at birth, ill-equipped to adjust to a changing world and structured so that the stronger members would dominate the weaker, the United Nations has spent enormous sums of their members’ money accomplishing little, other than providing a home for senior diplomats that have seen better years. Pontificating and posturing have become the essence of its existence, and its brethren at the World Bank and the IMF have not fared much better. For the most part, humanity has given up any hope of its dreams being fulfilled at that cathedral of bureaucrats. Amazingly, we no longer even visit the edifice. ([3]) However, China has been able to work these folks to their advantage in ways only unworldly folks can imagine and in spite of having more hard currency than anyone else in the world, they are constantly on the World Bank's dole.

 


 

[1] The Wall Street Journal, Wednesday, June 10, 1998

[2] Reuters, 6/23/98

[3] Tourist visits to the United Nations have dropped by 75% in the last decade.

CHINA AND THE UNITED NATIONS 

Many have stated that the United Nations was created in another era and no longer addresses the exigencies of the modern world.  They have said that reform was essential, not mandatory; yet political convenience, not experience, education or intelligence, continues to dictate the selection of the UN’s management. John D. Rockefeller would not have kind words for his son who donated land, today worth hundreds of millions of dollars, to an organization that has drained the treasuries of the poor and contributed only a series broken dreams.   

Power remains unbalanced with political exigencies of greater importance than logic. All  the nations should have a forum in which to resolve their differences; yet Iraq, which attacks its neighbors, pollutes the atmosphere with burning oil wells and plays with chemicals and missiles that threaten the destruction of the globe, remains a member in good standing do such friendly countries as Belarus, North Korea, Syria and Iran. Taiwan, an economic miracle, has no voice at all because a relative across the straits threatens world chaos if Taiwan is allowed to speak. Two of the most powerful nations on earth are not members of the Security Council because they lost a war, Japan and Germany. If every country that lost a war were eliminated from the Security Council, it would have no members. 

The Financial Times on July 14, 1997 put the financial plight of the United Nations into perspective in a series of vignettes.  

“Meanwhile, the UN is still having to borrow from peacekeeping accounts - cash contributed by members in good standing - in order to replenish its sinking regular budget and meet day-to-day expenses.”  

“China, with a population of  $1.2 billion is assessed at less than Belgium, but it will probably see its rate rise sharply, because of the acquisition of Hong Kong. National income is a factor in agreeing to assessments.” 

“’It’s like the playground bully when we were in school’, a European diplomat observed. ‘You feared him, but you couldn’t fight him.’”

China plays the United Nations like a well strung violin. They use it as a bully pulpit and through its good offices they are able to propagandize the world. However, they are also getting free lunch. They pay literally nothing for their membership and are balking at any purported increase. We can only admire their chutzpa and would like to have these folks negotiate my next raise.   

CHINA – DRUGS

Interestingly enough, in spite of the fact that more often than not, there are not enough drugs available in China to provide anesthetics during operations, antibiotics or shots to ward off diseases or even topical ointments for infections and burns, there is now a profusion of the illegal stuff around for domestic use or export into other countries in the region. This indeed is a massive turnabout from the time during the 1800s when the British hooked the Chinese on Opium both for fun, profit and population control purposes. Chinese gangs are in the game today, but do it only for the bucks they receive and it almost seems that they are now trying to hook the entire region on a synthetically manufactured product that has a made in China stamp on it.

The newest craze is something called ../../__147.css;ice”. It is a stimulant, it is cheap and it is addictive as hell. Interestingly enough, the same economics that allow China to mass produce quality products for global markets allows them to undercut other producers in the illicit drug trafficking. However, this really is not as important as it would seem. The Chinese gangs are viscous and if they don’t take over an area based on price or quality they will take it over by force. It was as that great philosopher Al Capone once said, ../../__147.css;While you can make a lot of friends with a smile and a kind word, you can do even better with a smile, a kind word and a gun.” The Chinese seem to have learned his credo well.

Formerly Myanmar was the country with the highest illicit drug production in the region, but China, not to be outdone by their neighbors is going for total dominance in everything that it touches and drugs have become no exception to the rule. Myanmar has already slipped to a very poor second to China and totally lacks the delivery system and heavy handed backup to impress its cliental in the proper fashion. However, this is not to say that this illicit production is sanctioned by government officials. Many say that Chinese police are probably doing everything within their power to put a stop to at least a portion of this traffic but so far they have had little success. Moreover, they probably wouldn’t care so much if the indigenous population wasn’t becoming themselves the best client of the drug dealers. Whole villages have succumbed to ../../__147.css;ice” and more often than not everyone in the local village can be walking around in a daze while mumbling mysterious inanities at the same time.  Previously highly productive areas in China have seen the both the quality and quantity of their production dip drastically as a result of drugs.

Some of the recent arrests have produced scary results for the Chinese, the Wall Street Journal report in an article entitle ../../__147.css;Chinese Criminals Gain Ground in Asian Drug Trade” on February 4, 2002: ../../__147.css;…In October 2000, Chinese authorities arrestee former employees of a pharmaceuticals factory, for acting as ../../__147.css;technology advisers” to ice production in three different provinces according to the government’s 2000 annual report on drug control in China. Some companies licensed to trade chemicals are illegally selling them to meth labs. Authorities seized 20 tons of methamphetamine in 2000, up from just 1.6 tons two years before. ../../__147.css;

According to the same report, China now supplies the Philippines with 95% of their methamphetamine supply and rakes in a total of over $6 billion a year. Moreover, it was reported how effortless it was for the Chinese dealers to get into the Philippines and from their, initiate their nefarious career as drug dealers. The Philippines is an extremely lenient place to set down roots as it allows new residents special visas available if you have the necessary $70,000 required to invest in the country.  Criminals from the Mainland customarily deposit the requisite amount in a local Philippine Bank and then for a while enter into a high-profile legit business such as becoming a food vendor on street corners. After a socially correct period of time, the remaining money in the bank is used to import ../../__147.css;street drugs” disguised as just about anything. Many street vendors were able to disguise drugs as food toppings and were thus able to bring massive drug quantities in with great success. Obviously customs agents in Manila are not too swift at best and very little of the processed material is ever caught.  High level payoffs are also helpful to the bad guys.

The street vending business also offers and excellent platform for moving product however, the Chinese gangs have recently become more interested in the wholesale end of the business than hawking their wares on local street corners. As they become more wealthy and powerful, for the most part they had taken to using employee ../../__147.css;locals” to assume the risks in moving the illicit materials down the food chain. Many of the major Philippine cities have literally become overwhelmed with overzealous drug traffickers and they are polluting an already injured economy that is suffering from series governmental mistakes and political disruptions. In the meantime, the indigenous population now borders on something between euphoria and hypertension as drug fever approaches the boiling point.

Chinese labor and production sophistication is capable of triggering a result that a good part of the entire country could well become drug dependent. Tensions have become high between Chinese officials who are acquiesced of not doing enough to stem the flow and Philippine officials who are worried that they will soon be governing a nation of addicts if drug use continues to grow much longer at the same pace.

Speaking of Drugs

Globally, everyone that was anyone was getting really annoyed at China for their policy of putting people to death with a bullet deftly administered to the head. I for one happen to think that it is easily as humane as the electric chair so I am not sure what all of the fuse is about. I mean, it isn’t like these people aren’t going to be put to death one way or the other and a bullet to the head administered by a pro is just about as quick and clean as it can get. However, it was thought of as inhuman and more than that, it was sloppy many people were muttering. They said that one of the problems with these types of executions was the fact that it was difficult for the bereaved family to identify the corpse and when the execution required more than one shot, it became virtually impossible. Facial features literally became obliterated.

More often than not, most of the body’s insides had been removed for ../../__147.css;charitable and humanitarian” purposes; which included the transfer of the now unneeded organs to those with big money who were fighting for life and could pay the price of a transplant. Between trying to identify a body that often had been skinned to provide cover for burn victims the bereaved family members could not even be sure at what they were looking at. Headless and without any skin or organs, the family had little left with to identify their kin. This process often made them hysterical and between the family’s complaints and world criticism, China eventually had to make a concession. Human beings had become what Steinberg had once said of the giant meatpackers in Chicago, ../../__147.css;When they were done with a pig they had removed everything but the oink.” However, the Chinese people that received capital punishment for the crimes hardly cared and for the most part, their relatives never even knew what happened to them and why.

The uproar continued unabated and eventually China was able to create drug that would preserve organs even if a lethal injection was used on the victim. This great move forward was trumpeted in the press as the humanitarian thing to do and China was highly lauded for their great leap forward. However, as we have pointed out in the past, China, an unwieldy giant is like a giant ocean liner that once headed in a direction has some trouble turning but is almost impossible to stop. Its mass does not allow it to slow down quickly and in spite of an article in the China Daily which talks about this accommodation to human dignity (lethal injection), ../../__147.css;This change proves the country’s respect for the dignity of human beings, even those who committed serious offenses.”

However the press does not point out the fact that less than 100 lethal injections have been used out of the now possibly 10,000 executions of criminals that occur each year in this country. Moreover, most Chinese newspapers talk about the fact that injection is cheaper than wasting money on bullets to dispense with criminals. They know full well that this is not the fact, the families of the dead victims are forced to pay for the bullets, and they are obliged to pay a retail price, not wholesale. So when push really comes to shove, the provincial government and the army are actually making money on the transactions. In spite of this seeming cost saving if you are serious about your cost accounting it would be necessary to include the cost of the executioner who is normally paid $85 to carry out the act. Moreover, added to this number must also be the cost of the cleanup after the execution. In addition, there is not much question that the cost soars and especially during periods when the government is conducting an anti-crime campaign, more often than not, there are not enough trained executioners to go around. The various districts often get into a price war during these periods offering premium dollars to executioners that do not leave a substantial mess and can get the job done with the requisite one bulled. Those districts that can’t afford the price increases brought about by the numerical increase in executions and the necessary overtime payments are forced to bring in trainees who usually mess up the place and leave the officials responsible for the execution highly embarrassed.

There are other advantages to the new-found execution methodology brought about by extensive technology research in China’s laboratories. Because the new formula is so effective, prisoners can now be given the narcotic-poison mix that does not damage the organs in situ which allows the body parts removal operation to be conducted in hospital rooms. After all, it is highly distracting for sick people in hospital rooms to a gun shot followed by screams of anguish so that historically the executions have been concluded out of doors and the organs stripped in ambulances. Hardly the best of conditions and every once in awhile the already mourning family can be in the neighborhood and that makes for unnecessary trauma to everybody involved.  Entire wings of Chinese hospitals are being outfitted for this new methodology which allows more sterile conditions and a higher degree of professionalism.

Moreover, even the executioners are not happy about anything more than the money that they receive. Many of these criminals have all sorts of diseases or are on drugs. Shooting someone in the head at close range causes body parts to fly on every direction including right at the executioner who usually has to bath for hours after finishing a day’s work. Even the most perfectly aimed shots cause organs to be splattered all over the site. More than one executioner has died from the effects of the bullet-in-the-head death penalty when executed in this manner and now, because of a bad history, the person carrying out the execution is forced to wear surgical masks and gloves.

In the United States, it is the doomed person that is palliated before the execution with drugs to calm him down. Conversely, in China the execution is so grisly that traditionally in some areas; the sentencing judge takes the executioner out drinking the night before the event to calm his nerves.  We are not sure what the overall effect on this new mode of execution will be on the convicted, but we are certain that the man pulling the trigger is going to sleep a lot better at night not thinking about the grisly act that is brought on by the execution, however, in China, a living is a living and $85 per is a lot of money.

Mental Illness and Foot in Mouth Disease

All governments have their share of people that are citizens that don’t like what is going on and while most of the time, these folks are quiet in the complaints, once in awhile you get someone much more vociferous in their views than others. When a loudmouth nut-case just won’t fold his tent in spite of numerous strong indications that they are going nowhere with their particular line of rationale, it has become somewhat of a tradition in China to lock the troublemaker up in a psychiatric hospital until the urge to complain is channeled into more acceptable pursuits. After several visits to the nut-house, even the toughest advocates of change seemingly become capable of seeing the light as it shown to them by political bureaucrats. While the situation in China has been historically effective, it still remains far more benevolent than the Russian garden variety of Siberian Gulag psychiatric wards which were really prison camps in disguises. While most Russian’s that had ../../__147.css;mental problems” that were brought on by government abuses were never seen again, the Chinese psychiatric wards are more or less holding pens for angry citizens to be used until they permanently  re-adjust their thinking.

One form of dissent that is looked upon here as having roots in mental problems would be becoming religiously and vocally attracted to a religion such as the Falun Gong, which is hardly in high favor in China. The followers of this religion tend to congregate in public places, bringing world attention to the lack of religious freedoms in China. While various religious practices are tolerated here, there is a point that when the fanatics, as these people are known as here, get a little too boisterous, the government believes that it has to step in. The really hard core dissidents which are not deemed to be re-trainable are either executed or thrown into prison but the government believes that many of the loudmouthed followers of the religion are nuts and should be put into the country’s psychiatric hospitals until their mental bout with organized religion has ended. At last count there were over one-thousand Falun Gong sympathizers locked up in crazy-houses throughout the country[1].

Almost as bad as religion is to Chinese bureaucrats are what are called the ../../__147.css;infernal petitions”. The Chinese are an organized lot and while they are not often given to rioting, they do meander in an out of crowds looking for someone to sign what are called by government officials the nomenclature of ../../__147.css;infernal petitions.” A petition can be written for just about any purpose, but when it hits the government where it hurts, the writer as well as possibly the petition’s signers had better run for the hills.

Particularly offensive to Chinese officials are those that ask for the officials removal from office for incompetence or bribery. These are the kinds of nonphysical offenses that tend to get the Chinese officials unnecessary riled up. Should the person be jailed or executed for their feelings it would probably lend credibility to their position, so that officials here have taken the high road. The party line in this payoff oriented country has become that any one that thinks that the bribe taking Chinese officials are being paid off could set a bad example for the rest of the people and therefore the offenders are deemed ../../__147.css;nuts” and carted off to the loony bin in a straight jacket.

Once out of sight, adjustments can readily be made to the offender’s personality by a series of electric shock treatments and or  padded cells with little or no light. In addition, medications and injections are extensively utilized to palliate even the most vociferous of these rabble rousers. International civil liberties groups have made a big-deal about these abuses and have asked the Chinese Government for answers. Whenever officials are backed into a corner regarding this subject, bureaucrats historically have trotted out a real mental case just to show the world that everyone locked in an asylum in this country is not just a political prisoner. Some of these folks that have been trotted out in front of the international news media are so off the wall that they would have to adjudged insane even if they lived in ../../__147.css;Wonderland” with Alice and her strange assortment of bedfellows and that by any standards is about as far off the beaten-path as you can go.

However, every country has their share of weirdoes and China is no different. Obviously there are people here that are over-the-wall mentally and just as logically there are people that have been placed in these institutions to keep them permanently out of the public eye. Where China seems to be totally out-of-step with reality, it is their policy of allowing many of these nut-jobs to be retested in legitimate mental hospitals in the bigger cities where more often than not they really get a fair shake. Upon re-testing many of these folks that were originally determined on a local level to be hopelessly insane are determined to be every bit as normal as you or I. In addition they are given a certificate of normalcy by some of China’s world-class psychiatrists.

However, this is primarily where the system seems to break down. China seems to have its own agenda; the guy takes his certificate back to his hometown expecting all to be well but once again he begins his infernal petition making, churning them out like beers in good housekeeping certificate does him no good whatsoever.

It is apparent that stubbornness, unapproved speech making and ratting out corrupt civic officials are determined to be severe forms of insanity in this country. Those people that make too much trouble for officials here can be promptly carted off without any respect to their human rights and labeled as whacko's. Once back in the padded cell, no one else is going to become too excited about getting a petition together to get the offender out based on the simple fact that, should they do it, there is little question that they will soon be sharing the cell. This system works extremely well and is not subject to judges, juries or even for the most part, publicity. No one likes a nutcase, not even in China and they seem to have the system down pat.  

AIDS

The United Nations recently sent a private warning to the Chinese Government informing them that they were soon going to faced with an AIDS epidemic of inconceivable proportions if they did not do something about it now. The United Nations talked about China facing the unpleasant task of soon having to deal with the largest collection of AIDS sufferers in the world. ../../__147.css;China is on the verge of a catastrophe that could result in unimaginable human suffering, economic loss and social devastation.” While China currently only officially has 600,000 cases, most experts on the subject scoff at that number and most confirm that the true cases of the disease are at least a number of orders of magnitude higher. Interestingly enough, in spite of facing a literally uncontrollable outbreak and substantially low-balling its dangers, most people living in China have still never heard of the disease.

The China State Family Planning Commission found that only 20% of the people in the country ever heard of the disease and of those, only half realized that it was sexually transmitted. And yet, the practice of selling blood without thoroughly  checking it goes on unabated with recipients often getting much more than they bargained for. Prostitution which flourishes all over the country to a degree that it almost seems legal, also adds dramatically to the spread of this disease. Many of the girls engaged in this profession are also drug users who share needles with others. They are then capable of infected countless numbers of their clients without even knowing that they are carriers because of a lack education by the health ministry on the subject.

Another method by which the disease is spread is rather interesting. There is the traditional taboo against homosexuality in this country but it only keeps people in the closet. Due to the fact that homosexuality is not practiced openly here, there are few support groups and the disease is transmitted from one person to another with unrelenting rapidity. . It has been estimated that fully one-third of the total cases of AIDS in this country are resident within the homosexual community. Moreover, in this country most homosexuals strangely live two lives. One with a wife and children because of the weight of family tradition which believes that homosexuality is unthinkable and the other is their underground participation in the secretive gay community where the worst of the AIDS spread takes place. Wives, who are not even aware of their husbands extra-curricular clandestine sexual proclivities are routinely infected by them and often carry the disease to their unborn children. Medical officials are usually unable to find the ultimate carriers because of the horrific shame that would come to the man who admitted homosexual relations. In China they believe that the man’s ancestors would stir in their graves it something like this ever was to come out.  However, many of the ancestors were in the closet as well so one never knows really how much stirring would really occur.

While there are methods of controlling the spread of AIDS such as condoms, knowledge about the disease is hard to come by in a country where the government would not even admit that it existed until very recently. If the truth were known, the Government has itself been in the closet on this subject and only now are they playing catch-up. However, the hour is late and the disease is already deeply embedded within an unrepentant and still ignorant society. For a country where blood selling is a way of life, prostitution is rampant (../../__147.css;Today, paid sex is common activity associated with business trips, official junkets and sometimes tour packages. Even small towns have businesses that function as brothels – normally in beauty salons, dance halls, saunas, massage parlors or karaoke bars”)[2] and homosexuality for traditional reasons has been pushed far underground, it will be impossible without major structural changes in the entire society to marshal the forces necessary to make China something other than a gigantic hospital for highly diseased people. Moreover, China is not accustomed to dealing with the fact that for the first time; literally in its history, there is substantial mobility in this country. At one time, no one ever ventured far from home for two reasons.

The first was that identity cards restricted them to the local area of their birth and the second was simply the fact that there was no way to get from here to there and more importantly, no money or reason to go there. Today, traveling salesman, bureaucrats, travelers are able to take planes, busses and trains the length and breadth of the a country that still has no uniform medical protocols. The women who a generation ago, would have been assigned work in factories or on the farms are no longer in demand and must “hustle” to find work. Without an adequate education and often living in a rural area, this is not always the easiest things to do. Prostitution is, for most of these women the only way out because the State has still not come to grips with the massive sociological shift that they have created. Under the strong arm of Mao, AIDS would have at least been restricted to a small area and the people living their would have already been quarantined so that the disease could not have spread. Prostitution did not exist simply because women had a better way of making a living and even as a last resort, the state would support them. 

Worst yet, and you may want to chalk it up to social tradition, but China does not like to show the world its weaknesses and as a result it has a hard time admitting that it is subject to the same vulnerabilities that humans throughout the world suffer.  Eventually this attitude can be their undoing as continually more resources are going to have to be channeled in direction of combating HIV as time goes on. A massive public relations campaign would still help but that would make this monolith appear fragile and that is not the message that China wants to convey at this point in time. Although China has made it mandatory this year that AIDS education be taught in clinics throughout the country, the clinics are under-funded and for the most part cannot even provide the services for which they were created, usually family planning let alone educate the population on a disease that even the medical people here know little about. And the beat goes on with Chinese authorities are erroneously trying to stamp out the disease with giving endless lectures on morality to starving prostitutes who couldn’t care less unless someone was going to support them. Moreover, condoms are seen as an advertisement for immorality and for the most part people in this country can not even advertise safe sex let alone birth control.  

War, a far Better Use of Money

Whatever their area of interest may be, China like the monolith that it is seldom changes course. Such is the case of Taiwan. There was little question in the minds of the British when the Chinese Government informed them that in 1997 they would be returning Hong Kong to its rightful owners that his was going to happen one way or the other. Rather than sacrifice the Empire they capitulated. There was even less question in the Portuguese mindset when they got the same kind of tap of the shoulder from the Chinese who told them that Macao would once again become part of China. Since China has started to flex their international muscles, there are few demands that they have made that go unanswered. Membership in the WTO was thought to be unthinkable when China made their pitch for membership. When you consider the fact that literally everything that the World Trade Organization stands for is literally the antithesis of the Chinese philosophy; however, when the chips were down, China made some mild compromises and the West caved in. Or what about the Olympics?  No one ever believed that China could ever host an event which is an exclamation of human rights and dignity, but tyrannical China with more criminal executions than the rest of the world combined not only got what they wanted but the committee gave it to them in spite of that fact that two far more qualified countries were putting a better deal on the table. Thus, when the Chinese indicate that they are desirous of becoming reunited with Taiwan, one way or the other, who are we to scoff.

The Chinese if anything know how to be extremely patient. However, they also know how to get what they want and are most careful in carefully picking their spots. Recently in certain circles their level of interest in this unification has picked up quietly but however, dramatically. In 1949 there were two forces in China, one representing the Communists headed by Mao and the other representing American interests led by Chiang Kai Sheik. In spite of being in charge of a rag-tag army, Mao easily dispensed with Chiang and sent him packing to Taiwan, then a Chinese possession. Chiang set up shop in Taiwan and in spite of some serious early overtures by Mao and his troops to seize control, they just didn’t have the necessary material in either trained men or equipment to cross the straits and grab the island.  Since those early years, the Chinese have never changed their tune, sometimes, it rises in crescendo and sometimes they talk of negotiation. However, their resignation drones on like an endless play.  

Recently, however, the price of this international game of chicken has quickened with the Chinese stockpiling armaments from all over the world totally geared to crossing the straits by and taking the island by force. During this recent period they have become the world’s largest arms purchaser in spite of having indigenous weapons production facilities capable of turning out prodigious quantities of military machinery. No less of an authority than the Stockholm International Peace Research Institute claims that China took delivery last year of over $3 billion of ships and combat aircraft primarily from Russia. The Chinese arms imports r../../epresented twice the total of any other country on earth. _/span__/p__p class_.css"MsoNormal" style="text-align:justify">Interestingly enough, almost every country on earth has joined China’s supply chain with, of course Russia and Israel leading the parade in spite of the fact that in 1989, Western Nations horrified by the Tiananmen massacre embargoed all weapons trade with that country. However, since that time, supplying China’s ravenous military appetitive has become a morsel too delicious to resist. Even the United States, the self anointed global moralist has supplied China with high-tech, sensitive computer parts during the decade since Tiananmen to the tune of unbelievable $15 billion.[3]  The Wall Street Journal gives a chronology of high-tech international weapons procurement being provided to China[4]:

‘…British engine maker Rolls-Royce PLC confirms that it recently supplied as many as 90 Spey jet engines and spares to China that defense analysts believe the People’s Liberation Army (PLA) intends to fit onto its JH-7 fighter-bombers – also being modified with modern and long-range missiles…Earlier British sales have also boosted PLA capabilities. In 1996, Racal Corp., now part of the French Thales Group, sold as many as eight Skymaster longer-range airborne radars to be fitted on PLA Navy Y-8 aircraft. Britain said the sales would help Beijing fight smuggling, but defense analysts say the aircraft are also helping Chinese missile warships locate targets. Should China go war to regain Taiwan in the near future, its air force will rely on Russian-designed strike aircraft alongside locally built fighters based on an Israeli design partially funded by the U.S. Other Chinese-made aircraft will carry Russian and Israeli missiles that will find their targets with British and Israeli radar and electronics. China’s navy will deploy powerful new Russian warships and submarines alongside locally built vessels fitter with U.S. and Ukrainian engines and Italian torpedoes. French companies have supplied air-warfare missiles, tactical command-and control systems and helicopters.

"On land, the PLA will field modern Russian tanks and artillery. Many armored vehicles will be protected with advanced Israeli-designed armor cladding. Older Chinese tanks have Israeli gun and gunsight systems. Overhead, satellites built with British and German help will keep watch on the battlefield, fix positions for ground forces and feed data to ships and aircraft. Meanwhile, China’s nuclear deterrent will be mounted on launchers improved with assistance supplied by the U.S."  

Does the purchase of all of this military equipment indicate that invasion of Taiwan is becoming imminent? Well, it may not be but it is sure enough to scare the daylights out of anyone living in Formosa and probably the rest of the world as well. There is some point at which the force that China can bring to bear may make the thought of outside intervention mute and force a non-military settlement on the Island country. China will not go away in this matter and at some time and some place, it will be dealt with, maybe sooner than later.

The Latest from Hong Kong

While China goes about its business with lumbering consistency never looking back after making a decision, some things here do change.  I remember being in Hong Kong in the middle 80s and was totally awestruck with the magnificent buildings along with the culture and the wealth. From downtown Hong Kong it was only a stone’s throw to the Chinese border and the city of Shenzhen.

Although crossing the border at that time was hardly an option, you could gaze from Hong Kong unto what appeared to be one of the most desolate spots on earth. One that reeked of both poverty and helpless despair and at the time, viewed this entire panorama as one gigantic open air jail. I thought at the time of how these miserable Chinese must have felt as they gazed back across their border and watched as their ethnic Chinese brothers drove around in Mercedes Limos, wore the latest of fashions and built monuments to modern society. The Mainland Chinese for their part were dressed in drab quasi-military green or grey uniforms with their peaked hats and military-like work ethic. They were marched everywhere, always seemingly headed for the next job.

My, times have certainly changed. While Hong Kong is suffering their second recession in four years sending many into unemployment lines and unemployment soaring to over an unheard of 6%, neighboring districts in China are making the country’s annualized 7% growth rate look pale.  Shenzhen in particular is doing spectacularly and are now holding job-fairs in Hong Kong in an attempt to attract their residents with remarkable job offers. Salaries begin at $3,000 per month and some as high as $10,000 are not unusual. 

This turnaround has literally been amazing but it cause is simple enough. Hong Kong high wages forced them to look elsewhere for production of the goods that they historically supplied the West along with the Pacific Rim. Where better to create these factories than in Shenzhen. Wages were low, the people well-educated and moving the finished goods through Hong Kong ports would be a simple matter. In addition, management of Hong Kong Companies using production from Shenzhen could visit the factory whenever they desired because of the proximity and add their know how to the mix.

However, there is a danger from this Shenzhen production to Hong Kong’s economic recovery because it is only a matter of time until their Chinese brethren will also learn where the buyers for these products are located and no longer need Hong Kong middlemen. Hong Kong has literally become a service industry for both production and banking acting for others. While at one time when Mainland China was not part of the global business network this was necessary, but since their entry into the World Trade Organization, paying for this service is redundant and redundant while being costly to the end users as well. Unless Hong Kong finds another use for their cadre of five-percenters, they are going to have a recession that is going to last for some time.

The Bank of China

However, in spite of the apparent prosperity of Mainland China, Hong Kong can still teach them a thing or two when it comes to banking. The Chinese Banking System is riddled with systemic fraud and they folks in charge don’t seem to be able to get their arms around it. Moreover, the system is Mammoth  and it contains almost $900 billion in deposits[5]. Most of China’s banking tribulations stem from the fact that their antiquated system of checks and balances leaves a great deal to be desired. There is no system of checks and balances leaving one person is usually totally in charge of a division without mandatory reporting requirements. Moreover, that is the very same system that allowed Nicky Leeson to bring down a 200-year old English Bank (Bearings) because no one was watching his store. The same thing is happening with The Bank of China over and over and over again. And guess what; these folks that run Chinese banks are not even necessarily bankers; for the most part they are people that have some economics background but are party loyalists and political hacks. The Organization Department of the Communist Party is in charge of appointing the bank presidents and this creates an immediate conflict of interest because party officials become the first to stand in line for loans for their pet infrastructure projects.

More important even than that is the fact that Chinese laws on embezzlement leave a lot to be desired and seem to be widely interpreted so that if take goods not belonging to you but return them within a three-month window, no crime has occurred. Added fuel to that fire is the fact that senior banking executives in China are paid literally coolie wages and in order to present a typical banking demeanor they are forced to live substantially above their means. An article in the Huaxia Times, a Beijing newspaper was on the mark when it stated that ../../__147.css;Chinese bank chiefs actually seek opportunities to be corrupted. They treat their power to grant loans as a tradable commodity to be used to benefit themselves.”

Moreover, oversight is strangely a perennial problem in the banking industry that has only four major players, Construction Bank of china, The Bank of China, Commercial Bank of China and the Agricultural Bank of China. Part of the problem is based on the fact that communications among bank employees, officers and customers are archaic to say the least that branches once created are almost never closed,[6] and employees, once hired seem to die at their posts or worse. The four banks previously mentioned employ almost 2-million people a statistic that graphically demonstrates how inefficient the industry is. Almost everything is done by hand and ATM machines only exist in the large cities and then only in restricted locations.

Loans are made because of political and social alliances and most often have little to do with sound banking practices. Letters of credit are written without even an inquiry into the underlying transactions and collateral is rarely if ever checked. Things became a disaster in the Bank of China branch located in the United States. It runs out that the U.S. Branch of the bank was literally doing business by feel rather than by any banking regulations. If they like the borrowers and could get something back in exchange, they would make the loan. If not, it did not matter how sound the transaction might be, they just weren’t going to consider it. This brought on an investigation by U.S. banking authorities which recently resulted in a $20 million fine.

The result of the indication revealed that the bank was literally operating out of control by facilitating fraudulent letters of credit, allowing borrowers to sell assets that were pledged as collateral for loans and by extending loans to people friendly with management without regard to their viability. When the loans were not repaid, the borrowers defended their actions by stating that the bank had put them up to the whole thing. The U.S. Office of the Comptroller of the Currency stated that the bank was totally out of control and was engaged in numerous nefarious dealings and they named them, chapter and verse.

../../__147.css;Two clients, John Chou and Sherry Liu, a Chinese-born New Jersey couple assert that the bank asked them to take out loans and put the proceeds into shell companies that the branch could count as new customers to impress bosses in Beijing. They also say they and others were solicited by the bank to help support the slipping value of the Hong Kong dollar in a scheme where they were loaned money specifically to buy Hong Kong dollar certificates of deposit in 1998 and 1999, said Steven L. Kessler, a lawyer representing the paid. Mr. Zhou invested over $50 million in the plan. The bank charged him 1 percent interest on the loans and he was guaranteed a 10 per cent return on the year.”[7] The Hong Kong and Macao branches of the bank became a money launderer's paradise, their Canadian branch was the receptacle for the Hong Kong underworld and the main office in Downtown Beijing was found to be loaning money to non-existent Corporations.

However, the worst news yet is the fact that the Bank of China is probably the best run of all of the banks in the country and yet their former president and CEO is awaiting a really healthy jail sentence for embezzling millions.  This is particularly strange when you discover that this was a man that never made much more than a $1000 a month and yet between him and his wife, they owned businesses throughout the Mainland, lived in luxurious style and had a cadre of servants along with a limousine and driver. The threat of a massive stench relative to the results of the Chinese Government’s investigation into the affairs of their former president, Wang Xuebing is so serious that a lid has been placed on the entire incident. Banking officials in China are concerned that when the people really find out what was going on in the Bank, there could be a run. For China this would be a most unusual event and without shoring up the banks could result in serious economic dislocations.

If you deducted the apparent losses from Chinese Banks that are caused by blatant fraud and subtracted that sum from the industry’s total net worth, the growth rate of China in terms of net assets would be a fraction of what is currently being reported. Bank theft in China is not done with a mask and a gun; it is simply accomplished from the inside with a pen and paper. While not unheard of elsewhere, the massive number of unrelated participants in this occupation is frightening to say the least. It almost seems that there is a unknown disease rampantly slithering through the Chinese Banking system that infects accountants, housewives and anyone else hired to do their bidding.

The basic problem arises from the fact that the heads of the main Chinese Banks are politically appointed by bureaucrats that often ask to be repaid for the job with hastily manufactured loans with little collateral or substance to back them up. Government officials sheepishly admit that fully 40 per cent of all loans made in this country are in default or have already been written off. One of the most prevalent problems though is that few of the loans are dealt with in any realistic manner. Rather than take the charge on their balance sheet by putting loans into a none-performing column, many borrowers are lent ever increasing amounts of money and the additional funds are partly used to pay back what has already been borrowed, a tactic that is against nearly every country’s bank policy. This naturally inflates the bubble dramatically and increases the long term problem while not fully reflecting the true health of the banking system here. We believe that the real situation in the Chinese banking industry is more realistically the fact that no less than 60 percent of bank loans in this country are in default, written off or have new loans that are paying them off.  

The New York Times wrote a story that puts the Chinese problem in perspective: ../../__147.css;Before the mid-1990’s, the state banks merely extended credit to state enterprises on government order, and they had little experience with standard financial practices like risk assessment, due diligence and securing collateral. Today, Chinese economic officials, many with Western educations, feel a ../../__147.css;sense of crisis” about the banking system, but are unsure how to solve the problem, financial experts here say.”[8] Any solution without changing the political nature of the system is literally impossible. Appoints to the major banks without any sense of the appointees ability or morality is not the way to run a Laundromat much less a major bank. But the problem extends far deeper; the cadre of people overseeing and auditing the banking system is few and far between. Reporting procedures are nebulous and loans are not double-checked. Quill pens predominate in an era that the systems should even be operating without computer generated controls. Unless China can get a better handle on the situation, for whatever their growth may be in the future, it is firmly placed on a three legged chair that can tip over the entire sector with little trouble and send the economy into a catatonic state of free fall. 

The Junk Yard Dog and His Masters

Some occupations in China are extremely dangerous to the country's health, others are dangerous to the people, but both can excess synergistically in this strange land. In spite of the fact that from an economic point of view China has made almost inconceivable strides over the last several decades, this hardly means that it is a nation of full employment. As a matter of fact, only about one-quarter of China’s population lives in economically vibrant zones, and the advent of capitalism has created a desperate situation for many rural peasants.

../../__147.css;New” occupations are few and far between, and can be risky. Take, for example, the job of collecting re-usable metal from electronic waste.  This job has kept residents of Chaoyang County in Guangdong Province, one of the wealthiest areas of China, busy for decades. 

The pay stinks, despite the fact that the workers play Russian roulette with their lives.  Ships carrying discarded and otherwise worthless electronic parts regularly dock at Nanhai in Guangdong. From Nanhai this cargo, containing mercury, cadmium, lead and chromium is trucked to picking centers in Chaoyang country.  There, the locals descend upon it as though it were a Thanksgiving dinner, tearing components apart in search of the copper that can put a family on easy street, provided they survive the toxic exposure.   Salvaging toner cartridges is particularly dangerous, but they continue to do it anyway.

In 1994, the Basel Convention determined that manual recycling of electronic components was hazardous to human health, and banned exports of electronic waste.  The United States in particular was never a strong supporter of the Basel Convention, and has looked the other way as these shiploads of death regularly have left West Coast harbors for China. Environmentalists from all over the globe have condemned the United States for continuing to ship this toxic cargo but there is no American alternative to Chaoyang County, and as long as the Chinese continue to allow the stuff in, the American multinationals will send it.  The magnitude of the problem is growing as more American computers become outmoded or are just no longer are worth repairing. This year alone, almost 13 million computers will be discarded, each of which contains toxic elements that would endanger U.S. residents if not properly disposed of.  In the United States, trash dealers would probably charge a premium to dispose of these toxic elements; by using China as a dumping ground, U.S. waste haulers actually turn a tidy profit.  The Chinese do not put a priority on enforcing the local laws that should protect their people from this type of occupational danger.

In the meantime, many Chaoyang County residents have suffered damage to their kidneys and nervous and reproductive systems.  The incidence of cancer is substantially higher in this region than in almost any other place in the world because the scrap contains enormous quantities of carcinogens.  Worse yet, this occupation consumes entire families and the young people are exposed to the same degree as their parents. What effect this ghastly industry will have on future generations is yet unknown, but the outlook is not particularly good. Many environmental groups[1] are saying that the future health problems will be mind-boggling.

Worse yet, when all of the usable parts have been salvaged, the remaining mound of electronics is burned and then buried.  Burning sends dangerous toxic fumes into the air, which are blown in every direction. Moreover, burial is carried out using unlined open pits, and leachate will contaminate the land, food and water in the district for generations to come. The water systems have been totally polluted in most of the county and those people that can afford it are forced to buy their water elsewhere. However, there are few here that can afford it, and no one anywhere else seems to give a hoot.

A Place Apart

Shanghai had always been a capitalist oasis within China. The island of individualists danced to a different drummer, and Chinese Communist officials never seemed to want to end the country’s romance with it.  When times began to change for the better, Shanghai led the way, and there are more billionaires there than anywhere else on earth. However Shanghai is a magnet for promoters and con-men. 

Enter, the Hansen Brothers, Stuart and Barry, two bright Canadian lads looking to make their mark on the world. Knowing that the people here had more money than they knew what to do with and were being sickened by the smog, the Hansen’s came up with a brilliant ploy. They would reclaim some land offshore of Shanghai, but not too far away, and create a country club – residence for the very rich that would be close to the city but toxin-free. This was indeed a capital idea.

The wealthy denizens of Shanghai loved the idea, and soon the brothers Hansen had signed up a goodly number of foolish locals. Those who were dumb enough to purchase home sites in this Nirvana were told by the Hansen Brothers that the mostly man-made peninsula of 350 acres had been purchased from its former owners for cash, that a golf course would be completed shortly, and that 500 magnificent homes would be built in this enclave, one of the most elegant in all of China, and probably in the world. Most of the purchasers had never seen the world, and therefore wouldn’t have known one way or the other.

Those who put their money down on the non-existent homes soon found that the golf course did not exist, and that land that is supposed to contain it now looks like a parched goat pasture. Only a few of the homes that had been paid for were ever built and of those, very few were ever occupied because the community had never been completed. The roads that existed were hardly traversable, utilities if they existed at all provided service on alternate Wednesdays, and there were no grocery stores or other amenities. The sewer system was in a constant state of ill repair, causing a strange odor to wash over the landscape.

Worse yet, contractors who had not been paid began putting liens on the properties, land owners stiffed by the Hansen’s began lawsuits, and the banks that had financed the project began insinuating that they had been taken to the cleaners by the conniving Canadians. To make matters even more complicated, a judge in London found that the Hansen’s had lied and forged documents to induce Banker’s Trust, Siemens AG HSBC Private Equity, H & Q Asia Pacific and Wardley China Investment Trust to lend them massive sums of money.

Lenders, builders, buyers and contractors sued the Hansen’s to recover a modicum of what the brothers’ fraud and deceit had cost them. The mess became global as everyone tried to grab a few remaining dollars simultaneously. Lawsuits have been instigated in London, Turks and Caicos, China and Germany. For their part, various judgments have been entered against the Hansen’s but little or no money has been collected or even located for that matter. The brothers have no regard for court orders and are ../../__147.css;totally unreliable witnesses.”  

Although Shanghai is a brass knuckle capitalistic fortress, customs here require arguments to be quietly settled locally. The Hansen scandal has caused substantial embarrassment to the Shanghai government, which cannot decide what to do next, in spite of the fact that the brothers have lost many court battles and have been shown to be liars and cheats, to have reneged upon every promise they made, and to have stolen assets from local landowners, money from banks and goods and services from purveyors. For the time being the Hansen’s continue to oversee their domain, but they have overplayed their very ugly hand. I would be taking advantage of this lull in the action to be getting out of town anyway I could.

 


 


[1] Such as the Basel Action Network and the Silicon Valley Toxics Coalition.

 

Burma or is it Myanmar

The Country of Myanmar shares a border with China and its government has been considered an international outcast by most Western countries because of a lack of free elections and Wild West traditions. However, that isn’t quite the case, in reality, Myanmar has had free elections but the National League for Democracy, the political party that duly won office was never allowed to serve by the then government in power. They were totally repressed by a fascistic regime that has governed the country with an iron-fist for decades.

Not only did Ms. Aung San Suu Kyi, the National League for Democracy candidate for the top office never get a chance to assume command but just to insure that she wouldn’t cause any harm she was put under house arrest. She became a champion for dissent within the country and due to her continuous efforts to unseat the military rulers; she was awarded the Nobel Peace Prize in 1991. However, all of the good sentiments aside, global tongue wagging has done nothing to alleviate the situation. It would almost seem that the world has learned to live with totalitarian regimes if they have been in office long enough. The hew and cry from the do-gooders seems to vanish in a wasteland of business opportunities and most of the world’s countries have long since lost sight of why they didn’t like Myanmar in the first place and now find that their money is as good as anyone else's.

The Russian’s have never stopped dealing with this country and it is their major source of sophisticated armaments, much of which is paid for by a thriving business of growing and dealing in heroine and cocaine. In this strange world of economic shadows, the two countries, China and Myanmar compete for illicit drug customers throughout the region and no one seems to give a hoot anymore about what business they are in. Moreover, in spite of this lusty competition in probably the most important area of Myanmar’s commerce, China moved into Mandalay, their largest city with a vengeance and in typical style their business men started buying up every piece of choice real estate in the country that wasn’t tacked down. Today this Neanderthal-like throwback country to a time long gone is now sporting 21st century commercial buildings that would even make the Hong Kong skyline blush.

And the Chinese here are both hated and feared. They live in the best parts of town, own the best homes and have the most money. However, what were these people of Myanmar to do; at least that is how they put it. In the late 1980s and the early 1990s, no one would give them the time of day with the exception of the Russians and to some degree the Chinese. However, it is the Chinese that have brought them into modern times even though they probably came kicking and screaming. And more is yet to come, as President Jiang Zemin of China recently visited this country and signed an encompassing economic package. If the Chinese have their way, Myanmar will soon become a major oil producer giving it an alternative to its drug dependent economic system, leaving that field to Chinese domination.

China has also made a pitch to become their arms supplier of choice. However, they have found that for the most part, weapons are not that country’s highest quality export. Moreover, grudges sometimes die hard as it was the Chinese that had supported a decades-long revolution against the then existing government in an attempt to overthrow it. Most high-ranking officials in this country agree that any Chinese overtures have to be taken with a large grain of salt because they may well be delivering a Trojan horse right into their camp. However, activists continue to stir the pot and most western companies do not want the stigma of doing business here. Thus, what are they supposed to do?

Russia does not want the Chinese to have too much power here and are continuingly sweetening the pie in order to ../../__147.css;curry” favor. It is the Russians that are supplying a much needed atomic energy plant in Myanmar that will service a substantial part of the country’s planed economic growth. Russia has also recently delivered a handful of state of the art MUG fighter jets.  However, China envies Russia’s strategic geography and a very friendly Burma would do a lot to solve many of China’s logistical problems from both and economic and military point of view. The price of this poker game is continually escalating and for a change, the rulers of this country are enjoying the bidding war by the suitors for their hand.  In the meantime, the country’s Universities are for the most part closed, those who vocally find the regime repressive have been known to vanish so quality dissent has for the most part disappeared.

Once a country of tradition marked by monks and fortresses of another time and place, Myanmar is now one of the most thoroughly oppressed places on earth. The only difference is that because of the economic competition between monoliths, they are a 20th century oppressed people as opposed to a 12th century one. At they rate they are being paid off, sometime this century they may even catch up. 

Arthur Andersen Strikes Again

As if Arthur Andersen hadn’t done enough harm with their screwing up of both Enron and Global Crossing, it would appear that new regulations in China to give the public a tad more comfort  with their securities market because of the never ending wave of fraudulent security  transactions foisted on the public by unethical indigenous accounting firms may blow up in their faces. Strangely China’s Securities Regulatory Commission (CSRC) has pushed through a regulation the is going to require not only an outside auditor to sign off on public company’s books but has insisted that the accountant be located offshore. Enter stage left,  The Big Five.

It may have been that the Chinese authorities had not received advanced warnings of the reeling stench that would result from both Enron and Global Crossing at the time that they passed the new regulations but they only had to go back in time to find the endless accounting compromises committed by Big Five American auditing firms relative to their lackluster performance in protecting the American investing public.

These accounting folks have hardly created a warm and fuzzy feeling in the eyes of the American investing public and as we all know, both Congress and the Securities and Exchange Commission are about ready to tee off on the whole industry scandal ridden industry. Every American citizen has been contributing to the Big Five’s ability to continue in business in spite of massive settlements in securities fraud cases. Each time the Directors  & Officers policies got hit with a large payment for their accounting clients, they up the rate paid by the insurance buying public to cover any shortfall in their own bottom line earnings. In the Savings and Loan debacle in a decade ago, the insurance companies were forced to cough up over a billion dollars just to pay of regulators and investors because inept accounting practices by people who knew a lot better but didn’t really give a hoot.

However, many of the Chinese accounting firms in spite of their checkered background have indicated that they are indeed Mr. Clean when compared to the thundering herd of evil doers from the USA. They consider the regulation only a gift or nefarious deal made in the bowels of the Forbidden City for unknown political reasons.  These folks in China are painfully aware of the mixed regulatory results that American accountants have delivered over the years. They are well aware that foreign unaffiliated accountants could literally mean anyone, but basically at the high end, this is entirely an American dominated business, comprised of five auditing firms who more often than not make multiples of their accounting fees in consulting extras. While they may perform useful services that conflicts of interest which are inherent in this type of dealing is a very questionable practice.

However, it is not too late to turn back as the rule does not go into effect until April of 2002, it is as likely as not for the Chinese Government will take a second look at the horrors inflicted upon American Investors by Arthur Andersen’s roving band of ../../__147.css;play for pay” give ‘em what they want accounting ambassadors of corporate good will.  And the Chinese public companies will not have to go very far to find these balance sheet magicians because literally the entire Big Five is now ensconced in downtown Beijing in a big way and ever since their arrival they have been growing like weeds in a jungle patch. It was like a gift from the gods and much more that such a controversial ruling would come down from the China Securities Regulatory Commission especially when it did.  However, if America is lenient in not throwing the bad accounting apples into the local jail, China has become the ../../__147.css;wild west” of accountancy. In 2001, Guangxia Industry, a major Chinese publicly listed company was found guilty of ../../__147.css;falsifying its production output, exports, foreign exchange settlement figures and literally all of their other financial data” by the Government.

In an article by Richard McGregor of the Financial Times dated January 28, 2002, and discussing the situation in China they said, ../../__147.css;The Institute of Certified Public Accountants said it had found more than 220 irregularities in listed companies’ audits in 2001, involving more than 100 accounting firms. Zhu Rongji, the prime minister and chief economic policymaker, was enraged, calling bad accounting a ../../__147.css;malignant tumor” in the capital markets. Soon after, the CSRC introduced the new rule for supplementary audits, creating overnight a new stream of business for the foreign firms.” However, after Enron, all bets are off and if it were not for overall shoddy accounting record by American firms, Arthur Andersen would probably have been hung out on the nearest tree, but everyone in this virtually unregulated industry deserves some credit for this disaster. We would hope that America can learn to lead by example and get its auditing house in order.

American Relations With China

Every country on earth has an intelligence service most of whom are busy spying on their neighbors, friends, enemies, citizens and aliens among others. Intelligence is literally what they wrote. Those in office want to stay there and in order to insure it they must know what everyone else is thinking, plotting or doing. So it is with countries and the bigger they are, at least from an economic viewpoint, the more they spy on everyone else. The American Government has the most money so it does the most spying. However, China is the largest in terms of population so it does more than its share and Russia is the largest relative to land mass so it also joins the party.

No one is ever surprised in this day and age when a spy gets caught because of the fact that there are so many of them running around looking over everybody’s shoulder. Usually if they are not citizens of the country in which they are caught doing the spying, they are thrown into a holding cell awaiting a spy of theirs caught by their opposite number and the two are then quietly exchanged with little notoriety. Once in a while one country or other is forced to take great offense at the spying because of publicity or the fact that the country is extremely embarrassed by the brazen nature of the event. Such an event occurred when American CIA Agent Francis Gary Powers was blown out of the skies while indulging in exhuming Russian secrets deep inside their territory while in a plane that was illicitly taking aerial photographs of strategic installations. The plane was  considered impervious to arms and the Central Intelligence Agency had its face filled with egg when their agent was captured. Powers was put on display and tried, but he too was eventually exchanged for a fish considered to be equally as large.

The United States seems to have a high regard for their ability to over-fly countries when it is interested in knowing what is going on in spite of the very negative implications of this particular occurrence. However, the Americans were once again caught in the act while they were doing their aerial observation act over China and were once again brought back to earth the hard way. Because this incident received substantial notoriety and due to the fact that it occurred over Chinese territory, their leaders were required to threaten the United States with oblivion and worse which is standard operating fare for these kinds of incidents. No one that was anyone paid any attention to this muscle flexing and knew that the brouhaha would soon die down. Time passed and the two countries once again agreed to co-subsist in a state of friendly competition loaded unto a keg of dynamite that has a very short fuse. This indeed is the way in world of espionage and so it will be till mankind is replaced by a more sophisticated species that does not need the meat of intrigue to subsist on. Only acts which impinge on the testosterone level of their leaders are significant events in this espionage business and those events and the rules of engagement call for the fact that those events which don’t embarrass can be overlooked provided there is no publicity. 

One of the more amazing incidents in espionage history took place shortly after the downing of the American spy plane. It seems that China felt in necessary to come to the United States for the manufacture and equipping of proper planes for carrying their leadership. It seems that they preferred a jazzy version of Boeing’s 767 for their rulers and the one picked out by President Jiang Zemin was especially glitzy. The United States knew that they were only game in town for China’s leaders and the Central Intelligence Agency worked overtime in order to create spy devices that could be secretly planted aboard the Chinese President’s plane without fear of detection. Amazingly they came up with a raft of these devices and in an eating frenzy of spying they loaded the plane with just about every goodie that they could come with. Naturally, with more equipment aboard the craft dedicated to spying than to aerial dynamics, the CIA attachments were soon discovered.

Now, one could well have thought that this would have been the start World War III, but the Chinese were strangely silent on the matter, letting the Americans off the hook by merely indicating that they had found the devices scattered about the plane with little trouble. They further indicated that this was not the way that things should be and asked that the Americans refrain from testing their spy-equipment on their president’s plane in the future. From the American point of view, Brenda Goldberg speaking for the embarrassed State Department demurred that ../../__147.css;We don’t comment on intelligence matters.” Not that this did exist, it was just something they wouldn’t talk about.

You would have though that China would have gone into a snit over the matter and a least broken relations with the United States. However, the relationships between great nations is more than a little complex. When they have more serious matters to consider, acts of minor espionage are relegated to the back burner. The credo seems to be, you can spy on me and I will do my best to spy on you. The pawns that we use to commit these acts will be exchanged at the proper time if public relations will allow it. However, don’t send your planes over our sovereign territory or we are going to be very annoyed and who knows what this will lead to.

Keeping the rules in mind, one the spy plane was returned to the United States sans technical devices fitted for the job and a whole lot less, along with the crew, the matter was at an end and soon upon its heels came September 11, 2001 and a greater problem to China, the United States and most other non-Muslim countries on earth. While the United States and China regularly bared their fangs at one another, both sides always knew the rules which embedded in their leaders minds and was aware of the other side’s limits to be pushed. You see, there were rules of engagement among these great nations that played by a preordained set of quirky but well defined Marquis of Queensberry Rules. The it Muslim’s did not operate by the niceties of war as negotiated by the great nations and were also given to destroying themselves in a kamikaze fashion in favor of their cause at the drop of a hat.  It was agreed that they could become difficult adversaries, not fearing death and totally cause driven, something unknown in many places.

Something In Common

It was here that the United States and China had found a common enemy to hate, not an everyday occurrence. Both countries had heretofore prescribed to the Arabic saying that if you are my enemy’s friend, you are my enemy as well. China and the United States didn’t share a whole lot of friends so that this was indeed an unusual event. It turned out that the very same Osama bin Laden that plotted the American catastrophe was training Muslim separatists in western China’s Province of Xinjiang in all the niceties of warfare with the goal of having them takeover the province one way or the other. China was as ready to give up Xinjiang about as willingly as the United States was ready to give up parts of the Pentagon along with the World Trade Center. It would seem that Mr. bin Laden was overreaching both too far to fast. As an aside he was also teaching the Chechnya’s how to beat their Russian opponents as well.

Not surprisingly as the United States began their roundup of militants in Afghanistan they found a weird assortment of Uighurs among their group. These were the folks from Xinjiang that were going to create the country of ../../__147.css;East Turkistan” right in the middle of China and devote it to fanatical Muslim practices. Simultaneously, China came up with another 100 terrorists that had just returned from Afghanistan already operating within their borders. China succinctly pointed out the fact that Xinjiang had been a part of China since 60 BC and was not about to allow a bunch of Muslim thugs to abdicate its place within the country. Many activists indicated that a war with Muslim extremists had been going on for some time in China and that China would use this particular event to punish those that would revolt accordingly. However, you really couldn’t blame them if they did, the extremists seem to have already been responsible for over 200 terrorist incidents which among other things resulted in the deaths of 162 people. We can certainly see their point and indeed wish them well in their future endeavors in that direction.    


 


 


[1] Number comes from Falun Gong sources.

[2] With Ignorance as the Fuel, AIDS speeds Across China, Elisabeth Rosenthal, The New York Times, December 30, 2001.

[3] U.S. Wisconsin Project on Nuclear Arms Control.

[4]  China’s Ambitions to Regain Taiwan Create Mother Lode for Arms Firms, Wall Street Journal, David Lague, January 22, 2002.

[5] One of the reasons for the fact that the Chinese ratio of bank deposits to gross domestic product is probably the highest in the world is the fact that in China there are literally no alternative investment opportunities that are not riddled with problems such as the one that exists in its stock market.

[6] The Agriculture Bank has more than 50,000 branches some in cities that have no other form of commerce.

[7] Bank of China’s Mounting Problems, Elisabeth Rosenthal, The New York Times, February 1, 2002.

[8] Bank of China’s Mounting Problems, Elisabeth Rosenthal, The New York Times, February 1, 2002.

 

Jiang Zemin 

Tradition is something that is important in China in spite of the hectic pace of development. Since the Communist State evolved, the country’s leaders attempted to create a cache among the people about themselves. Their pictures would appear everywhere, their sayings or sayings attributed to them are taught at every school and inspirational accomplishments are mandatorily lauded in the country’s press. It is almost as though the country is involved in a massive transference of its national psyche from the leadership into that of the people.  

It is the national interest of any country to create a positive perception of its leaders. This is especially true in a dictatorship in which the peoples’ lives are totally controlled by the Central Government. When the citizens respect the governmental officials, they are much more likely to be law-abiding../../._span style_.css"mso-spacerun:yes">  Admiration diminishes the possibility of revolution, and increases adaptability to changes in national policy. In addition, a country that is fundamentally godless demands father figures. Even though a nation may advocate atheism, strangely, its leadership is credited with godlike perception and wisdom. In other words, the basic religion of China is ../../__147.css;leader worship.” In spite of the fact that Mao’s successor, Deng Xiaoping played down Mao’s so called ../../__147.css;personality cult” of leadership, he too enjoyed being quoted, revered and honored in all facets of the media. Both of Jiang’s predecessors enjoyed seeing their likeness plastered on walls all over the country. Jiang Zemin is now following in their footsteps, albeit belatedly../../._span style_.css"mso-spacerun:yes"> 

Honorable Leader

China ’s officials have practiced leader worship since Mao started quoting from his book of infinite wisdom. Leaders are referred to as Grandpa to the nation’s children and endless copies of poems and watered down policy statements are studied in the country’s schools with almost a religious fervor. The country under Jiang has created something almost akin to the religious concept of Father, Son and Holy Ghost. Everywhere in China are pictures of the only three leaders that China has had since World War II, with Mao playing the role of the country’s father, Jiang as his mystical son and Deng, who was the most ephemeral of the trio, playing the part of the Holy Ghost../../._span style_.css"mso-spacerun:yes">   The competition among younger leaders for recognition by Jiang is attributable to his imminent retirement.  He wants to insure that his godlike qualities are well delineated for prosperity. The problem is, though, that this former electrical engineer, party hack and factory manager is really not much of a poet at all../../._span style_.css"mso-spacerun:yes">   He has plagiarized the works of Tang Dynasty poet Li Po.  

In spite of the fact that the stuff is mediocre at best, the country’s newspapers carried some of his latest works on their front pages early in the year, hardly a spontaneous tribute to Jiang’s talents. As a matter of fact, he has started to publish poems that reflect his daily responsibilities. When he recently visited with Cuba ’s Castro, Jiang took great pleasure in writing a poem for the occasion, which admittedly was one of his most disastrous efforts. His uninspired literary effort compared the unkempt, cigar-smoking Cuban leader with a weathered pine tree.  

Jiang has tried to emulate Mao’s traits in every conceivable way. This was dramatically revealed when he recently climbed the magnificent Yellow Mountain (Huang Shan) in China at the same age as Mao was when he performed the same task. Naturally, he wrote a poem about the experience which, although second rate, was published throughout the country. We are convinced that this poem angle that Jiang is pursuing has a lot of merit, but we would strongly urge him to hire a ghostwriter before he becomes remembered for his inability to string two sentences together in grammatically correct fashion.

A Higher Education

Although Jiang loves having the kids read his poems in school, not all schools are created equally. ../../__147.css;Public Schools” in China are neither free nor public. In order to enroll in a Chinese school, the student or his parents must provide the educational authorities with proof of residency. Because of the enormous transient population of laborers in China who lack the critical residency papers, private schools evolved to take care of these families. The fees charged the families of children enrolled in these schools run about 25% of those charged by the state, and in many important areas, the schools are better. The parents who are working people are allowed to drop of their children at the school in the morning and retrieve them after their workday has ended. The education that these students receive is essentially the same as they would have received in public schools.  

However, these schools usually exist in neighborhoods where China ’s nomadic population has settled down in their frantic search for a better life. Generally speaking, they are in the poorer neighborhoods and for the most part, the constantly shifting migrant workers have pushed the local residents out of the area. This has made it difficult to fill the local public schools. In the meantime, it has caused a crunch in the neighborhoods to which the card-carrying residents relocate. The public schools are overcrowded in some areas and virtually empty in others. The schools for nomadic workers are usually staffed with teachers who also came to the big city looking for a better life and are willing to work for a pittance with the hope of eventually getting a much needed residency permit.    

China has lost control of the ebb and flow of its population. Workers in outlying provinces cannot make a living, and travel to the larger cities in order to support their families. This creates a number of problems, the most critical of which is that the land lies fallow, creating the potential for failure. Starvation is a great motivator and people who can afford to do so seek a better environment. Residents of Eastern China have better jobs, a higher standard of living and a more pristine environment. Thus, there is constant pressure among families to want to provide better for their children and this only exists in the east.  

In China , people must have what is called a Hukou or household registration. This binds them to their land in several ways. If you live in a city and have a farm Hukou you must continue to pay the taxes on your farm whether you are working it or not and more importantly, if it cannot be shown that you are a resident of the particular municipality that your are living, you are obligated to fees for social services such as medical services that are offered free to city residents. However, nothing in China is ever as simple as it appears. In some of the outlying territories, when factories open in cities, there is often not enough indigenous labor to supply the required labor pool.  

Cities are offering residency or urban hokou to attract workers. This is an enormous inducement and although it is totally contrary to Beijing ’s edicts, it is necessary to run the factories. At the same time, those with residency permits require much higher salaries than the rural workers that want to get in. Thus, wages and urban passports are a driving force in the economy. Rural workers offer themselves up to urban factories for substantially less money in exchange for a city Hukou. This of course enrages the city workers but does have a tendency to keep wages lower. However, this system is diametrically opposed to Beijing ’s desires and will eventually be stopped because it is only adding to the number of migrant workers traveling from place to place looking for work.  

By controlling the scholastic system, many of the leaders in Beijing believe that they can regain control of their nomadic population, which standing at over a hundred-million people is has become a more than substantial concern. Thus, they have experimented with selectively closing these private schools. This has the effect of forcing families to return whence they came, to send their children home to live with relatives or to teach them at home. The last option is the least acceptable, because in nearly every family, both the husband and wife are working long hours. Moreover, many of these people do not have the education to teach their children. The private schools provide both education and baby-sitting at an affordable cost. They have become the lifeline for China ’s ../../__147.css;floating population.”  

Returning home is not an option to most of these people. They can earn only a fraction of what they can in the major cities, and more importantly, when they left, in most cases they sold everything they had. In other words, in reality there is no other home. There is literally nothing there. Thus, the only viable option is sending the children back to relatives to be educated at the place of their roots. However, not all of these people have relatives. In addition, even if they exist, do they want another mouth to feed. Moreover, if they take that route, the children still be stuck living in the sticks with no future whatsoever.  

This seems to put the government of China in an untenable position. It is the immovable object meeting the irresistible force. If the government moves too quickly  in closing the private schools they could well be facing an insurrection and if they delay it, they will only be sending the signal that migration to the larger cities although illegal, is acceptable and that Beijing will look the other way. In the early years of China ’s industrial mobilization, looking the other way was critically important, because it needed the labor to create its industry. Now however, much of the first task has been accomplished and they are faced with dealing with a problem of their own origination.  

In the country’s early experiments in dealing with this problem, they have faced fanatical opposition. Literally, they give notice for the school to close and in an otherwise orderly and law-abiding community, it does not happen. The people have nowhere else to go and no options. It may be that leaders in Beijing will either have to be more forceful in their approach or find another alternative to solve this massive problem.

Prosperity Doesn't Always Help Everybody 

If a viable welfare system could be created in China to replace the now doomed practice of family support for the aged, the ever-shifting population could be controlled. However, the government mandates ever-smaller family groups../../._span style_.css"mso-spacerun:yes">  When a couple grows old, there is no family support to fall back on and most of these people only have meager savings. Today in China , there is no social security and literally no welfare and this has created a problem of catastrophic proportions.  

In the past, the government took care of the indigent../../._span style_.css"mso-spacerun:yes">  Now, however, every company in China is expected to produce a profit, and layoffs have created an ever-increasing unemployed population. While privately owned companies can do as they wish with unemployment, retirement funding and health benefits, as a general rule, Chinese management avoids taxes with magic bookkeeping and secretes profits abroad for future use. With no help from the private sector, the government owned facilities, which still comprise the great majority of Chinese businesses, are forced to delay downsizing, decreasing their ability to compete with private industry.  

Bureaucrats who get their marching orders from Beijing are now getting conflicting messages, including, ../../__147.css;show a profit but don’t lay people off.” This is not possible. The officials that run these factories for the government are rated by their performance, and are bewildered. The innovative Chinese system of having workers put enough money away to pay for their own retirement just wasn’t workable. They has not come to grips with the fact that they couldn’t simultaneously put restrictions on population growth by paring family size and expect the aging population to pay for its own retirement. This huge miscalculation has tended a substantial population of poverty stricken aged workers totally without the ability to buy food or get medical care and no one to turn to for help../../._span style_.css"mso-spacerun:yes">  With migrant young people leaving the farms for life in the big cities, the aging rural population was literally left to fend for itself in an increasingly hostile environment. Even if there had been some merit to the system’s theory, in practice, the people of China never had any disposable income to put away for a rainy day.  

The further West you travel in China , the worse conditions become, because there are few outlying industries to support workers. Roads and other means of transportation were nearly none-existent and travel between these remote provinces was nearly impossible for peasants. Thus, these areas were forced to become self-supporting, and the only way they could that was to become agriculturally independent. This created an enormous schism between the West and East. As the people in these regions started to have access to what was going on the world, they realized that they had remained in the Dark Ages while those in the more industrialized areas were enjoying an ever-improving standard of living../../._span style_.css"mso-spacerun:yes">   

This has led the Muslim Fundamentalists in Xinjiang province in southwestern China to make substantial inroads, and has caused no end of consternation in Beijing . The hard-pressed government is redirecting money vitally required in other areas, back into supporting social services.  The province of Liaoning was supposed to set an example for the rest of the country in this regard. The money to support the social system was supposed to come from additional taxes collected from both private and public companies. However, there was no system for collecting taxes from private industry, and thus no contribution was received from that quarter. The Government owned facilities were ordered not to lay off any more workers, and couldn’t turn a profit. Thus, neither sector created the necessary funds for the province to fund addition social support services. When push came to shove, the Central Government has been sending money into Liaoning Province to augment the catastrophe in a disastrous experiment that has totally failed.  

Local banks are expected to keep the unprofitable state businesses in operation by supplying ever-increasing amounts of money. This in turn is destabilizing local banks, and very few continue to be economically viable. Yet, the government is in no position to close them down, because there is no alternative method of funding. If the companies close, everyone will be out of work and China will become an economic disaster. In spite of its miraculous economic growth, the fate of the Chinese economy is still too close to call. Economic projections and goals should be pared back to allow the country’s social system to evolve../../._span style_.css"mso-spacerun:yes">  The leaders in Beijing are straining their social system to the breaking point with foolish experiments doomed to failure.  

China in the haste to modernize and compete has tapped into its equivalent of the social security fund, severely depleting it. Even given China ’s robust economy, the absence of a social safety net bodes badly for the bulk of the population, particularly for almost one-billion people who carry a rural Hukou.

Getting Ahead In China

China is building a prodigious industrial machine and the country is capable of mass producing huge quantities of highly sophisticated products. The population is largely poorly paid and industrious. However, fortune supplied it with more than adequate natural resources, and Chinese schools are producing a highly educated labor force in which fully 37 percent of university graduates earn degrees in engineering; by contrast, only 6 percent of U.S. graduates go into engineering.

This background plays well in China, which is setting up complicated production lines in ever more diverse and sophisticated industries. Japan, Singapore and Taiwan, all highly mechanized and known for their ability to mass produce quality products, are shifting more and more of their production to China simply because they can get the job done at a fraction of the cost that is required at home. In an interview with the Wall Street Journal, Ash Ghardwaj the president for the Asia-Pacific region for Singapore-based Flextronics, the world’s largest out-sourcer of electronic components ../../__147.css;…compares the market rate of 60 Cents an hour for unskilled labor in China to $2.50 in Malaysia, $5 in Singapore and $25 in Japan.”  This statistic also give us an insight into why Japan has lost its competitive edge and most economists predict that China will oust Japan as the number two economy in the world within the next three decades.  

However, with engineers running the show and a educated low cost labor more abundant here than anywhere else in the world, it does not take a brain surgeon to figure out why the world is beating a path to China for its production. To give you an idea of the advantages that China has at its disposal, even highly educated engineers are starting at $200 per month when they graduate from college.  Even at this price, the competition for jobs is cut-throat and more often than not newly diplomaed graduates are forced to relocated great distances from their homes in order to find any work at all. However, once established, the road up the career ladder can be startlingly fast. For those who succeed, life here can become quite good, and living standards are rising rapidly.  

Only to the chosen few, engineers and upper management, share in the new prosperity.  Factory workers have found that pay scales have remained almost constant for the last three years, with little change in sight. If a worker is not happy with his salary they or working conditions, he is hardly in a position to complain to the shop-steward, as unions are an anathema. With a workforce growing at the rate of the entire population of the State of California literally every year, there is certainly no shortage of people to take on the job. Those countries, which used to be alternatives to China are quickly losing the global race to industrialize.  Multinational corporations, which are always searching for someplace to do their production a tad better for a little less, have gravitated to China in ever increasing numbers.

Foreign direct investment in China is expected to increase to over $50 billion in 2002 and is escalating at approximately 15% a year. China now is third only to the United States and the United Kingdom in this category. When compared to competitors in the region, China leads in every category, while its competitors have been lucky to see any growth at all. For example, companies are pulling out of Indonesia at an alarming rate because of its increasing political instability. However, Malaysia has had the same government for decades and is faring only a tad better than their Indonesian neighbors, while South Korea and the Philippines are literally going nowhere in a hurry. During the last year, foreign investment in China grew, but shrank by 15% in the rest of Asia. China’s gross domestic product is growing twice as fast as wages are rising, possibly a unique statistic. From a competitive point of view, the prospect is overwhelming.

Three quarters of China’s population still lives on farms. Rural areas are going nowhere in an economic sense, and since the Chinese can now move around more freely, those with any gumption are no longer satisfied to leave their fate to fickle weather and falling farm prices. For every factory that opens in China there are easily 20 job applicants along with the massive nomadic workforce that circumnavigates the country in a constant search for work. Put out a sign offering employment with a future and you’d better have steel doors in on your factory or you could be overrun.

While the conglomerates originally set up shop on the east coast of China, which was closer to transportation and sophisticated when it came to production; today they are moving inland to take advantage of even lower wages. Wages are now the driving force in locating new plants. China has evolved an internal transportation system that is the envy of the world, and no longer has a problem moving finished goods from most parts of the interior to the waterfront region on the eastern seaboard. The World Bank in their recent statistics have shown that China’s high-tech exports grew 43 percent a year in the last 15 years compared with an average of about 23 percent for the other East Asian countries. Interestingly enough, most multi-nationals setting up shop here to make high-tech products are discouraged from selling internally so that indigenous companies can grow without serious outside competition.

While many economists see the situation in China remaining competitive from labor originating in countries for another decade or two, this does not bode well for what have historically been low quality manufacturers in other parts of the globe. Mexico and Philippines are examples of countries that are going to get their heads handed to them by Chinese competition during the next decade and just about the only thing that countries like this are going to be able to do is find their way back to their agricultural roots. Their wages have eclipsed their abilities to competitively produce, which economist say is something that is not going to happen soon in China.

However, in spite of the enormous growth in the Chinese job market, it is still not keeping pace with new entrees into the labor force and dislocations coming from dislocations in rural areas. China is doing an excellent fandango dance to keep these folks in check, but as a highly educated workforce determines that better can be had, we feel that the Chinese system as it presently exists is in for some very rough sailing and some of the ultimate repercussions have already begun.

Trouble in River City

While China is a true dictatorship it is not as oppressive as some, which doesn’t say a lot about anything. . However, it is an educated country and the people here are industrious and aggressive. As opposed to the totally oppressive government orchestrated by Mao, successive leaders have given the population ever more rope and today they are rapidly becoming a strange breed of capitalistic communists who are able to quote from Mao’s Little Book while simultaneously attempting to skin their competition alive. In spite of all these fancy words though, the country can not afford to put with much dissent because of the fact that once the dike of dissent has been opened it will be nearly impossible to shut. Beijing’s leaders are painfully aware of that fact. Thus, the country is still attempting to a greater or lesser degree to control the media so that although what the government may consider to be dangerous ideas may be allowed to flourish in one sector but may be reined in elsewhere. This process of selective inoculation and contamination is used in China to keep great economic ideas from infecting the entire country at once in which instance there would probably be revolution followed by anarchy.

Communication is the life blood of revolution and if that can be kept to a minimum, the people here will be allowed certain rights of dissent by the government on a local level provided there is little chance of these concepts infecting the entire system. Such is the case currently with PetroChina, the largest oil company in the country. Its labor protests are currently being waged against it from every corner of the country. It seems that China is constantly cutting and pruning its labor force in order to create an ever more dynamic mix, which will produce the greatest possible production at the lowest conceivable cost. This means that wages, vacations and benefits along with early retirement and pension costs must consistently evaluated against competitive forces. Thus the market factors in China are constantly being tuned like a fine violin. However, as we know, sometimes when you tinker a little too much the strings tend to break.

Some time ago; it seems that PetroChina offered a number of their employees an early retirement program, which then appeared on its surface to be a nice deal, but with the passage of time, its elements no longer appear as generous as was originally assumed by those being willingly turned out to pasture. While retirement benefits seemed adequate then, no one had taken the time to evaluate the offer by considering the lack of medical benefits in the package along with the potential costs of inflation. At the time these were not critical considerations due to the fact that China was fundamentally a welfare state and medical care was freely given to anyone that needed it. In the meantime, inflation was not a factor as money was not a necessary means of exchange in what was until recently a very rural society. However, as time has gone by, the state itself has passed on the role of social godfather to local government as well as to local industry and considering that it was not available or considered necessary in the original package workers that retired from PetroChina. The now find themselves naked when it comes to medical treatment and are additionally seeing their hoped for retirement checks worth less every time they get one.

Moreover, at that time, there was no true social security system in the country and it was a ../../__147.css;given” that the government or one’s family would take care of their elders once they became too old to work. However, as private companies grew in importance, programs were developed for both pensions and social security benefits upon retirement and while workers retiring from PetroChina today are able to receive payments of both kinds, those that thought early retirement and the package that they were offered were a panacea at the time are now having serious second thoughts about it. These thoughts have become serious enough of late to worry leaders in Beijing that if it spreads any further, it could cause a revolution.

These second thoughts have become very vocal and it would appear that almost in unison these retired workers have gathered together in unfriendly groups to demand something more. Moreover, they organize demonstrations of 20,000 or more unhappy people and surround the main headquarters of PetroChina in Daqing, they are screaming for a better retirement package or their jobs back, both of which are hardly in the cards, at least the way Beijing plays cards; face down! 

../../__147.css;At the Daqing oil fields, workers say they were deceived by managers when they agreed to the buyouts, sundering the traditional lifetime worker-factory relationship. Company executives, told to downsize, had warned the workers of imminent corporate bankruptcy and the likelihood of massive layoffs with little or no compensation. So more than 200,000 took severance offers of up to $500 for each year of service. The sums, which were set without negotiation, seemed large at the time, workers say, and were much higher than the national norm in such situations. But after more than a year of unemployment and rising expenses, many of the former employees feel scared and vulnerable.”

"The protests began when the Daqing Oilfield Bureau announced it would stop paying the former employees’ heating bills. It also said they would have to make large annual payments themselves if they wished to keep their medical and old-age insurance. On some days, more than 30,000 Daqing workers have filled the streets, witnesses say.”[1]

However, if this occurred in the United States, both sides would continue their stare down until one side blinked. In this instance, that is not the main concern. It is highly likely that in this controlled economy neither side will ever blink. What is more likely is that as the unhappy pensioners become more vocal and physical in their protests, many of their leaders will be removed from the throng and placed in detention; thus hopefully, at least as far as the people in Beijing are concerned,  taking the wind out of the mob’s sails.

Conversely, to some degree this has already happened and the vocality of the crowd has only increased. Now Chinese leaders are concerned that something much worse could happen. While they are still not concerned about the situation becoming violent, they are very apathetic about news of the protest spreading to other cities and the potentiality that the people could have the misconception that potentially, by banding together they can possibly improve their lot.

The Chinese Government is extremely concerned about this job action spreading from city to city so that they have made efforts to contain the protest as well as possible without getting physical. The city has become almost closed to traffic and those that live here are not allowed out and those from the outside are not allowed in. ../../__147.css;Those police actions-standard in dealing with labor protests in China show how keen Chinese officials are to prevent disgruntled workers in disparate pockets of the country from linking up…Taken together, the protests also reflect the government’s unresponsiveness to labor grievances that are growing as China’s new privately owned and operated companies along with the country’s leaders carry out dynamic economic reforms. China only allows government co-unions which critics say often serve management first and leave workers feeling that their voices are stifled and that street protests are their only recourse.”[2] A co-union in conjunction with a government would seem to be the very antithesis of what the union movement was all about and the fact that anyone could conceive of one co-existing with a state is almost a fearsome thought. If you recall, in Poland it was literally the shipbuilders that changed the face of both the country and the Soviet bloc. Hardly what you would call coexistence.

Moreover, today China has a new problem to deal with that for them is extremely unique. Previously all companies in the country were state owned and managed.  Thus, they not only didn’t have to show a profit as that was not in their agenda, but they also had no mandate to replace archaic equipment. More often than not, full employment was much more important than making money, but that system has changed dramatically in a few short years and the rules are now significantly different. If China is determined to use their securities markets to bring fresh capital in from under the mattresses from the provinces where tax collection is virtually impossible or; in lieu of that attract foreign investors into their marketplace, their businesses are going to have to show a profit. In addition, that profit is going to have increase on a recurring basis so that the market can justify the lofty price-earning ratios that it has already attained. The government of China has recently learned that you can’t have it both ways and have opted for capitalism and its substantive benefits while continuing to call themselves communists of the first order. Communism no longer includes running corporate soup kitchens and the folks in Beijing have indeed opted out of continuing to play the role of big brother to an entire population that wants to live the good life when they are ready to retire. Sadly, many in the country were unprepared for that turn of events and have not been able to readjust to the changing times.

China uses what we in America would call ../../__147.css;job buyouts” to simultaneously solve two problems. One is the fact that with a bunch of older less-productive workers hanging around producing little or nothing, offering them a package that looks substantially better than it really is sometimes is the only thing that works. While this illusion become readily apparent with a short passage of time, by the time that the Rubes catch on to the trick they have signed away their financial freedom. Thus, through the art of cheap magic tricks, Chinese leaders have been able to cut down on their total working population, increase the plant’s earnings and lower their unemployment figures are all in one breath. ../../__147.css;Thousands of these laid-off workers who took to the streets don’t even exist in china’s jobless statistics: they are considered xiagang, laborers who are offered a tiny monthly stipend from their former companies and because of an anomaly in record keeping are then not counted as being unemployed. Protests most often stem from the fact that even those meager benefits have vanished into thin air. And if GDP growth really is much slower than officially announced – some economists think China could have grown as little as 3-percent last year – then such demonstrations are sure to intensify.” [3]

Fundamentally, none of the corporate cost cutting was illogical. Consultants were brought in to give the Chinese companies the best possible advice on how to best to prune and run the company from a fiscally conservative point of view. The consultants came up with what had to be accomplished to run a tight ship and it was then up to managers that made Attila the Hun appear as a pacifist to carry out the program. In this particular case, the oil wells were playing out and the cash flow had to be carefully managed for tougher times ahead. A magical  offer was constructed by ruthless managers that appeared to look good to workers in moonlight but in the light of the day when there was not enough to provide for the worker’s medical care and sustenance, it was clear that they had been shortchanged. While the workers had been sold a pig in a poke, it had not been intended that things would turn on a dime so quickly here. China’s changes have been unexpectedly dynamic but many of its people were caught unawares and these folks are now getting a tad restless. This may soon become a case of the irresistible force meeting the immovable object and the winner is still in doubt. Moreover, the country’s moves towards efficiencies are affecting some locals more devastatingly than others.

../../__147.css;The failure of state enterprises in Liaoyang is pervasive – everything from paper and leather to chemical factories, from textile mills to steel mills, has gone bankrupt or will soon. As a result, workers from diverse industries have joined together in the demonstrations, a rarity in China and a development that is not welcomed by the governing party or security agencies.” [4]

One of the problems that China is facing is that they are paying a terrible price to buy hard currency and market share. The pattern that they are copying in spite of the difficulty in discerning it because they are approaching it from a different angle is the same Japanese model. The Japanese had found it extremely effective early on, but after years of pseudo-regulation of critical industries and economy geared more toward the id than the superego, it came back to bite them in the rear big-time. There was little regulation in Japan, profitability was sacrificed for market share and one industry within the country defended another, more often than not in spite of some very bad business practices. Similarly to Japan’s problematic banking industry, China’s is so badly off that the government is afraid to even talk about fixing it by regulation. This situation is only going to get far worse as western banks move in under the recently signed WTO agreement. What will eventually happen is simply that these foreign banks will be able to offer the better Chinese companies deals that domestic banks will not even be able to touch because the good clients also have to support the ones that are in default in the Chinese system. Remove these support pegs and the government will be forced to step in to right the entire system and the shortfall is going to be massive.  It took Japan almost two generations after World War II to get their banking industry into so much trouble that it would be best to collapse it and start all over. The Chinese with their admirable work ethic have managed to accomplish the total destruction of their financial industry in less than a decade.

The Chinese stock market is the Wild West and price earnings ratios are at levels, which are unjustified by any stretch of the imagination. Companies that are public are selling stockholders on the values of their inventories, which have not been worth the cardboard they are boxed in for years. This was the trick they had used for decades to fool the bureaucrats that would conduct an inspection every now and again to insure that these companies were solvent. The stock market in China allowed these companies to show worthless merchandise on their books and to carry it at a geometric premium over value. This caused an initial spike in stock prices when investors thought they were getting substantial book value along with their share certificates. In reality, inventory controls in China are literally non-existent and the value of these mountains of junk comprising substantial percentages of these companies net worth’s will eventually cause a disastrous loss to Chinese investors. Moreover, Chinese banks have lent substantial money against these worthless inventories and when push comes to shove, there are a lot of surprises out there waiting to happen.

Construction here is carried on more for the glory of doing, to keep people employed and to put a beautiful face foreword for the rest of the world to see in spite of the fact that most of what is going on in China cannot be justified. For example their highway program will probably be ahead of the country’s needs for the next 30 or 40 years. Chinese highways are virtually empty as there are not enough cars to populate the roads, not enough money to for the population to buy them and no gasoline stations to provide fuel along the way.

If China is to get its house in order before it follows Japan into the land of economic oblivion, it is going to need controls and a thorough house cleaning. While many of the controls have been put into place, the house is still wildly out of order and growing worse by the day. This will bring political and economic unrest and in preparation for the worse days to come the commander of the People’s Armed Police the Beijing antiriot force informed his fellow officers at a conference that, riots of the kind going on around the offices of PetroChina all over China are of the kind that would become standard fare in China in the near future and that his fellow officers should be prepared for that occurrence. No less a publication than the People’s Armed Police News carried the story.

A Comparison Between Neighbors

We saw many of the same things in Japan, a country with a totally bankrupt banking system that had really gotten to sick to fix before anyone paid attention to it. The consistent mortgaging of tomorrow’s pension programs to build uneconomical effigies to what appeared on the surface to be a country in excellent economic health but under the gloss, was both corrupt and bankrupt.  Among other debacles that have littered the Japanese landscape were bullet trains that were neither uneconomical nor ever able to justify themselves from any standpoint along with the country’s support of decadent industries for historical reasons rather than logic and a political system that was too rigid to change even when faced with oblivion. While China doesn’t have the same problems a Japan does, in many respects theirs are even worse.

China is unwieldy just as is Japan and physics teaches us that it takes forever to stop momentum from going in one direction or another. For example, China would not admit that they had an AIDS problem until it got so severe that they will probably become one of the most stricken countries in the world within the next decade. They allowed their stock markets to meander totally out of control causing their people to lose confidence and money within a system that operated more opaquely than any other markets in the world. They protect emerging Chinese companies in order to get them going in spite of the fact that they may never be competitive especially because of the fact that they are protected and cannot function in a real economic environment, which has tariffs and other even more restrictive measures.

The Chinese are not as mundane as the Japanese and will not allow themselves to site idly by for much longer as the rich grow even richer and the disparity between the economic classes becomes ever greater. These disparities were part of a heritage in Japan that spanned centuries. It is not part of the Chinese culture to sit idly by while getting trampled on. Unbelievable there is an unemployment rate of over ten-percent in the urban areas of China already and it is growing exponentially. As foreign companies bring their more efficient techniques into the Chinese market, factory competency will continue to rise to the point where there will be real unemployment problems facing a government that has been able to keep its people toeing the mark.

On another front, some economists are saying that if China cannot continue to grow at 7% or more, they risk causing the unemployment figures that are already serious to grow even faster. Furthermore, because of the fact that the country has become so increasingly dependent on an ever expanding foreign market to achieve the 7% growth yardstick, they will run into the two edged problem created by WTO membership. That is the fact that the playing field must be leveled on both sides. Moreover, as China’s GDP grows ever larger, achieving 7% will take substantially larger cuts into the production of other countries (China’s export grew 12% in 2001 while the U.S. dropped almost 5% and Japan over 9 %.) Strangely this will cause China for the first to become ever more dependent on world economic health; something by the very nature of their economy will soon become a zero sum game. In other words, there is only so much that an economy can grow without creating economic problems for competitors. Once China’s inroads have become substantial enough, their own economy could eventually fall upon the weight of itself. This is a simple law of physics and is based on projection made by China’s own economists that the country can continue to grow at this rate for at least another decade. Newsweek in their March, 2002 edition put an interesting spin on the situation in China:

../../__147.css;Since 1998 nearly all Chinese provincial authorities have over reported growth rates, leading to a situation in which the sum of the parts adds up to more than the whole. (In statistics unveiled before the Chinese Parliament this month, every province but Yunnan reported GDP growth rates that exceeded the national figure of 7.3 percent.) In January, Hong Kong brokerage house CLSA declared that ../../__147.css;the data that show China as the fastest-growing economy in the world are not worth the paper they are written on”; the company refuses even to forecast China’s 2002 and 2003 GDP growth. Thomas Rawski, a professor at the University of Pittsburgh, has conducted probably the most exhaustive review of Chinese GDP growth figures by comparing them against energy consumption, farm output, industrial production and other factors like floods and drought. He says China’s economy may actually have shrunk – minus 2.2 and minus 2.5 percent, respectively – in 1998 and 1999.”

With Japan yen weakening at heady pace, it will soon have its own effect on the Chinese Yuan. The simple fact is that if the yen continues to drop at the same rate for much longer the Chinese will be forced to devalue the Yuan probably causing at the very least a recession in most of Asia and at worst a global depression. China is aware of this possibility and has been fiscally responsible whenever the chips have been down in the past but they will not be able to hold the line if Japan pulls the plug and they may have no choice but to pull it.  Moreover, they have little or no interest in not seeing Japan sink into ocean and would probably give them a shove if it wouldn’t hurt their GDP too much.

Bad Things Getting Worse

"The head of China's central bank said recently that 25 to 30 percent of all bank loans in that country were not being repaid. Today, the credit-rating agency Standard and Poor's estimated that the situation may be twice that bad, with half of all loans classifiable as nonperforming. And the agency found signs that the banks were busily making matters worse. Without a robust banking system, it will be increasingly difficult for china to sustain rapid growth, attract foreign investment and develop the modern economy it needs to provide jobs and maintain social stability at a time of widespread disillusionment with the Communist ideology that united the country for 50 years. (New York Times, More Worry Over Loans by Big Banks in China, Keith Bradsher, May 10, 2002)

Part of the problem is the fact that China is expanding at a geometrical pace and  they are leaning hard on the banks to continue making loans at a helter-skelter pace so that businesses can grow at least at current levels. However, in this case the more you loan the worse it gets as these banks continue to make politically oriented loans and no matter how hard they try to put their house in order, new bad loans go onto the books on a regular basis. In 1999, the Chinese government repurchased almost $200 billion of these  loans from the banks in order to  get their house in order. While this represented over 12% of the then outstanding portfolios of loans and certainly was a giant step in getting things in order, it turned out to only provide a temporary financial respite for the lenders; practically no time at all went by until they were back in the soup again.

In an interesting sidelight, in spite of the fact that the United States, the World Bank, the IMF and just about everyone else on the planet has been harping on the Japanese to get their bank problems under control, it has recently been estimated that the problem in China is several magnitudes greater than the problem in Japan. In spite of that horrendous statistic, loans are now being granted in China at an infinitely higher rate than at any time in the country's history. So in looking at the bottom line of the in this situation,  it certainly looks like the simple fact that 50% or more of China's loans are non-performing against 15% of Japan's. When you consider the fact that the amount loaned out to clients has little to do with the capital of the bank, but is somewhat in direct proportion to the amount of deposits held by the bank's depositors and then modified relative to  the country's central bank's regulations.  When you further consider the fact that in both Japan and China, you have depositors that save an enormous portion of their incomes and that banking regulations are not particularly tight, you can well see that if Japan's or China's bad loans had to be called in tomorrow, the banks would go through their own capital like a hot knife cutting butter. Moreover, the dent that they would make in depositors funds could not be made whole in the next hundred years even at China's current rate of growth. 

Even the governments of China and Japan with their substantial amounts of hard dollar deposits do not have enough credibility to stem the tide of bankruptcies and defaults that would inundate the economic system of both countries. Furthermore, when you consider this in light of  the fact that China's problem is more than three times that of Japan, you can get some idea of the magnitude of the crisis. The New York Times article quoted above further mentions the following: "In the Mao Zedong era, Chinese banks were not businesses in the Western sense. They were conduits for distribution of state subsidies to local enterprises, and for collection of taxes and other contributions to national revenue from those enterprises. How much borrowers received had little to do with how much they repaid."

All four of the major Chinese Banks are now very desirous of going public and raising equity funds in the United States in order to improve their balance sheets. However, with both Standard and Poor's along with Moody's evaluating  these banks only modestly over the disaster category, the chances of that happening before they start to firmly get their houses in order has chances of somewhere between zero and none.

Friends and Enemies

Often it is the rebellious of those living in a country that are filled with exactly the proper spirit to make new and great things happen. China had been a nation of automatons until the mold was broken for good at Tiananmen Square. That event seemed to make something snap among many of the people who suddenly realized that the old ways were not necessarily the best ways. These folks decided that they were just not going to take it anymore. Who are these people that are willing to rise up and say they have had enough? We are talking about those that can look death in the face and say, ../../__147.css;I will just not live any longer under the type of oppression that we are seeing in this country”. These people in my belief are something special and we saw them last as the founding fathers of the United States.

These people eventually turn out to become noteworthy, not just in government but in industry as well. However, not all are what we call successes because they continue on in their revolutionary careers and spend their lives rotting anonymously in jails while others are quietly executed before we even got to know them. Others take the path of working among the cracks in society by playing the darker side. If they ever want to blend into society once again they are forced to do it under another name and while living a more sedate life. Russia had absolutely no direction or hope until their mafia and their associates created order out of chaos along with direction. Many of the wealthiest of American families are able to trace their fortunes to Robber Barron ancestors who did not play the game by any rules other than those that they made up as they went along. Many of these people fail but some however, survive their first bout with economic and political revolution and do not take up guns but move somewhere saying, I will go back to my homeland when it becomes the kind of country that I dreamed about when I was a child.

Specifically, many were indeed killed in Tiananmen Square, while many others faded into the landscape and disappeared, giving up their dreams of change. Others sought greener pastures abroad with a number later settling in the United States, getting educated and becoming successful in their chosen profession. China is blessed with having many loyal people interspersed in populations throughout the world. A great number of these folks are still intensely loyal to their homeland and whether they live in Indonesia, Malaysia or San Francisco, they are Chinese and as such for the most part have a lasting affinity for their country. Many of the bravest and brightest of those that fall into this category are the survivors of Tiananmen Square and its consequences.

After pulling up stakes, moving and then finishing school, the number of these people that have become successful are legion. Now, these have become the folks that can become the leaders of a next generation of Chinese. Quietly, the leaders of China are extending an olive branch to many of these people offering them the opportunity of coming home under cordial but very controlled circumstances. Just like the revolutionary guard members that held court in Iran twenty-years ago, many of these wanabee revolutionaries have matured and with maturity came a wisdom that would today be very welcome in an evolving China that if anything needs those with these most desired leadership qualities.

So more often than not, they are going back, many just for a visit, others on business and some to set down their roots once again on native soil. All of them must carefully negotiate their return. The Chinese elders are no fools; they do not want a bunch of historically successful revolutionaries plying their former occupation in downtown Beijing. Conferences are held where the rules of return are thoroughly considered and in most cases the methodology of the return is successful negotiated. The Wall Street Journal reported on several of these unusual cases and they said:

../../__147.css;Some returnees are cutting their own bargains with a receptive officialdom eager for foreign investment and willing to forget the past. …In an apparent bargain, he (Mr. Xin, an expatriate Chinese from Tiananmen that has become extremely successful in the United States) sticks mainly to the commercially oriented south and avoids Beijing. Other once-active dissidents are quietly being sounded out by police officials over dinner on visits to Beijing, Shanghai and other cities, says Xiao Qiang of New York’s Human Rights in China. ‘They’re saying, ‘We would like you to come back. What kinds of conditions can you accept? ‘says Mr. Xiao.”

There is no question that China is doing the right thing for both themselves and the former revolutionaries. They are bringing back some of their brightest stars who had left under a cloud. This is one of the reasons that in spite of the many tribulations facing this country in the not too distant future, China’s light will be bright for generations to come.

Wealth

And many returnees are not doing it just for whatever obligation they may happen to feel for the motherland. For a Communistic country there is certainly more wealth in China than you can shake a stick at. As a matter of fact the situation is becoming critical because of the continuing increase in the numbers of super-affluent in this country. Moreover, the fact that as far as the world is supposed to be concerned, this is a Communist State in which every one is theoretically supposed to be equal. However, the people are becoming increasingly more unequal every day and the government is not anxious that anyone find this out, either externally or internally. In quiet meetings with the government these industrialists are carefully beseeched to keep as much of their wealth hidden behind the walls of their homes as possible. However, no everyone is following the rules and this is making this ominous for the rest. 

This is becoming increasingly difficult to keep a secret because in spite of the warnings, those that are affluent are buying the kind of toys that rich people normally accumulate and the extremely wealthy are becoming more conspicuous in showing them off. This is creating a more conspicuous dichotomy between the philosophy that the people are taught in school and the one being practiced in reality. Moreover, most people that are very wealthy here got their start by doing something or other that was illegal under the old rules and is probably just as illegal today under communist doctrine. After all, you can’t really become filthy rich overnight working at the same job that everyone else has. The wealthier you are now, the longer it probably took to accumulate and the more laws you probably broke in getting there.

However, you can’t always look the other way because many of the inherent statistics are becoming common knowledge. While Chinese people have almost $900 billion in bank deposits according to the Chinese Academy of Social Sciences, 80 percent of this sum is owned by only 20% of the people. In addition, some of the most expensive shops in the world such as Fendi and Hermes have opened in Beijing and other major Chinese cities. No one notices a lot of foreigners knocking down the doors, yet these shops are extremely busy and very profitable. Someone is obviously making substantial purchases.

But making money here is still not a walk in the park. It seems to be a fact that without excellent tentacles into the highest levels of the government no one is going anywhere in China.  However, that seems to contradict the basic tenets of communism and the government is having a difficult time coming to grips with it.  The following is representative of what is going on. It is a story of a house built by Hao Yaning, a former tank company commander,

../../__147.css;He is now a millionaire advertising executive who used connection with his former comrades to build a veritable palace in a valley east of Beijing. For the front, Hao said he took as his inspiration William Randolph Hearst’s castle in California. Hao modeled the back – whitewashed walls and blue shutters – on a Greek hideaway owned by Aristotle Onassis. Underneath a spacious lawn graced with a fountain runs a bowling alley. Out back, a kennel contains more than 50 purebred dogs including a Tibetan mastiff.”[5]    

You can’t keep a house that looks like Hearst’s castle at San Simeon a deep dark secret especially if it located near Beijing and has a kennel with 50 dogs in it. But this is not the only Chinese story of extreme demonstration of substantial wealth. Another example is the one about Deng Hong, a former military officer that started out selling clothes. As time went by he became increasingly rich and was living in the United States. However, Deng wanted to be really ../../__147.css;big rich” and thought that China was an easier market to tackle than the United States:

../../__147.css;He was right: At last count he owned 35 cars, including a Ferrari, a Lamborghini, some Jeeps, a Corvette, several 600 series Mercedes-Benzes and a fat Lincoln Continental. He shuttles between two houses in Chengdu and a suite at his convention center. He recently purchased the rights to develop 100 square miles of land next to one of China’s national parks.” [6]

Even Forbes has run an article showing that the 100 wealthiest people in the country have a total of $18-billion in net worth.  The point is that there are $1 million homes going up in these parts like popcorn and the Porsches that are seen in downtown Beijing are about as common as flies on a dead mule. It has been indicated that these very rich folks are not even obligated to pay taxes and most regulations that apply to common folk do not apply to them. Furthermore they are not required to keep their family planning in check. There are special schools for their children, which are far more costly than the most expensive universities in the country.

Moreover, just as it became highly popular in Japan when the people started to make substantial money, golf has become the sport of choice. New courses are becoming de rigueur in new housing developments and memberships in the more exclusive golf clubs have become a key gift to be granted to senior government officials that are cooperative to their efforts on behalf of friendly industrialists. In addition, the payment of dues is part of the deal. While the openness of officials to this form of bribery is surprising, it just may be the fact that they are taking a page from President Jiang Zemin’s book when he said that rich people should be able to become members of the party, a statement that seems to be contrary to the definitions of the terms.

This seemed to make whatever went on from that point forward pretty much alright, but as these ultra-rich folks demonstrate their wealth ever more publicly, those that do not have these luxuries and probably have little chance of ever getting them are not going to be overjoyed about the restrictive abilities of getting rich here. In the meantime, villas now being erected along the Great Wall selling for a $1 million or more or if you prefer the water buy yourself a place in the village of Boao where all of the homes are located on canals and sell for something higher than those by the Wall. In the meantime, China has become the latest country to practice conspicuous consumption, the only thing that makes them unique is the fact that they try to practice their conspicuous consumption in private. If they didn’t there would probably be a revolution.

Conspicuous Consumption

Sadly for many, this persona of wealth may be illusionary. Most of the wealth in China is deposited in the local bank and in spite of protestations to the contrary by Chinese banking officials, if all of the bad loans in the country were simultaneously called, it would make the 1929 excesses induced 1929 American Depression look like ../../__147.css;money city”. When people seem to lose track of the essence of what things are really about and are more interested in hype than subsistence, serious problems have arisen throughout history.

What China is doing in avoiding a confrontation with fraudulent banking is only going to make the coming economic crash much harder to deal with. The country’s industrial and financial underpinnings have become so flawed by over-reporting of economic gains, under-reporting of unemployment, fudging on the health of banking system along with a military budget that is covertly burgeoning totally out of control and far off any discernable balance sheet. The books not only don’t balance in China, the fact is that even the government has come to the conclusion that the auditors are part of the problem itself. The country is so anxious to bring in foreign investment that they are in the process of fudging everything in sight. And believe it or not we are not talking about something that is going to happen somewhere down-the-road, China is already economically bankrupt, but at the moment, no one seem to care. The multinationals are getting their materials produced at what in China’s infrastructural terms may be a negative cost if everything that went into the equation was accounted for in a realistic fashion.

China is building up debts, environmental or otherwise  that they hope will not become payable for a number of years, but nevertheless, sooner or later the piper is going to need to get paid. No consideration is given to the eventual environmental cleanup that will have to take place and what the cost is going to be for becoming a global junkyard with an anything goes philosophy relative to doing business at any cost. Even less thought is being taken in addressing how the single family economics will deal with an aging population with a precipitous base to support it. But before either of these potential atomic economic missiles strike the country the overriding debt problems will have their effect:

../../__147.css;…An even more urgent time bomb may be hidden in China’s debt numbers. Central bank governor Dai Xianglong confessed to Parliament this month that national domestic debt was much higher than the official numbers – 16 percent of GDP in 2001 – suggest. Dai said the figure was closer to 60 percent if unfunded state pension liabilities, local government debt and major banks’ nonperforming loans were thrown in. Dai’s unusual candor is the good news. The bad news is that independent economists say Dai’s statistics are still based on China’s yearbook GDP growth statistics. A more realistic figure is higher still – closer to 100 or even 125 percent, according to economist Rawski. The bad-loan numbers at state banks alone are terrifying. The Bank of China has reported two different figurers for its nonperforming loans in 1999 – one based on Chinese methodology, the second more closely in line with Western accounting standards. The latter is 2.6 times bigger than the former. (The books of China’s ../../__147.css;Big Four” banks have been called ../../__147.css;meaningless” by Moody’s.)  [7]  

We are reminded about the statistics that kept coming out of the Russian propaganda machine during the Communist years. Everything was always rosy until the economy and just about everything else just plain fell apart. The Russians had spent themselves into oblivion and only the Politburo was aware of the extent of Russia’s troubles. Even the stalwarts at the CIA were totally hoodwinked by the voodoo statistics coming out of the Soviet Union and it was not until many years later that they admitted their shortcomings in the field of economic prognostication. The cost of this misjudgment was very expensive at it cost the United States tens of billions of dollars that were unnecessary in military contingency planning and spying. Almost universally we had accepted the hogwash coming out of Moscow showing that they remained competitive when in reality the communist bureaucrats invented the statistics as they went along. In the Chinese situation we in the West are being handed more of the same and the theory that nothing succeeds like ../../__147.css;apparent” success is as true today as when it was first stated by a succession of Russian leaders.

However, in Russia, orders went from the top down and God help you if you didn’t play the game straight with the Commissars. In China, though, you can’t tell the players without a scorecard. These economic figures are fictionalized at all levels but provincial results are reported on demand. However, bigger isn’t always better in some areas of the country and many economists are of the mind that in Zhejiang province where millionaires have become a dime-a-dozen, there has been substantial under-reporting of real gross domestic product. The same could be true of Guangdong but that would be more to keep tax collections out of Beijing’s hands.  It would seem that literally everyone that is anyone here is a robber baron or is in training to become one. There is literally no where in this country that you are going to get an honest count and why should you. They are not running their economy for the benefit of the west, they are operating it to eventually economically bury it.

The Chinese Bible Says, ../../__147.css;You Will Not Steal Too Much”

All of this apparent prosperity has made everyone in the country more than a little greedy. It started with the bureaucrats and has more recently spread into both of the important segments of the private sector, the criminals and the businessmen. However, government officials were calling the shots in Beijing and things had gotten so out of hand that literally nothing was getting done without a payoff of some kind or other. The country became known as Mexico West. Mao would be twisting in his grave should he have become aware of the morass that had become his dream.

But, once established on easy street with years of bribery behind them, many elected and appointed officials got religion for whatever that may mean in the land of the godless. It was necessary to create something like Mao’s little book that would remind political figures that dipping their hands too deeply into the pork barrel would likely result in them getting trichinosis of the greenback., a common but incurable disease in these parts.

Something unique had to be found that could remind everyone of their obligations to the state, to their fellow citizens and the law of the land. This would not be easy because in China the adage often spouted by philosophers was, ../../__147.css;rich or poor, it is good to have money.” Simply put, the ploy had to be simple but repetitive. What was the common denominator? What was it that the people here did nearly to the exclusion of all else. One of the knowledgeable elders remarked that the bureaucrats seemed to spend all of their time engaged in only two pursuits, shaking down their constituents and playing cards while they should have been tending to their civic duties.  It was added that more people play cards in China on a regular basis than participate or/and watch soccer matches. The thought process in Qiuxian, China went as follows, as long as they are playing cards so often, why not print messages on the decks that would explain to officials what is right and what is wrong. Everyone involved in the debate seemed to agree immediately that this indeed was the way to go.

../../__147.css;The ace of spades describes the meaning of embezzlement, showing a smug official with a stuffed cash box behind his back. The king of spades depicts a practice that is much reported these days, the bribery of officials with sexual favors rather than cash. No statute specifically refers to sexual bribery, but the cartoon is explicit: a man covered only by a towel luxuriates on a beach, shielded from the sun by a woman with her dress billowed out, forming an umbrella. The 10 of diamonds shows a police officer interrogating a woman who has been hauled into the air by her arms. The crime is ../../__147.css;obtaining evidence through violence” and in a caption, the officer says into a telephone, ../../__147.css;The witness’s living conditions have been raised, and she’s finally talking.” [8]

Governmental officials have been selling the playing cards and telling everyone in sight that it is mandatory that they purchase them. Business has been booming and the cards are flying out the door in smart style. This has become a better business in some areas then taking bribes as the profit on these cards is substantial and recurring with nagging. Meanwhile, people are learning what is and what is not allowed. Once knowledgeable about the law, they are finding even better ways of getting around it. Many officials did not know how serious some of the crimes they were committing were. Now when they take a bribe they are being much more careful thanks to the playing card reminders. As playing card religion becomes more pervasive, the bureaucrats are only using their messages to find new and hopefully legal methods of detaching their constituents from their money.

Sports of All Sorts

However, when you are really rich and are not allowed to publicly display your toys, it is a real downer. What could someone that had become really rich here do with their money that would be socially accepted and not frowned upon by the government. Sports was something that appealed to the masses was clean a perfect combination.  Thus, it shouldn’t have become surprising that the super-rich folks in China had recently developed an interest in all kinds of sports. From laboring at a desk or in the field countless hours a day, the rich at least now have earned the time to relax and many of them have become proficient in all facets of sports activity in a very short period of time.  From there it become only a small push when they started to own the professional teams that inhabited the large cities. Moreover, the Chinese are extremely competitive and the owners were not only interested in a way to show the people their new found money, but to illustrate their power as well. The rules of the games when played in China soon changed.

This soon became a land where whoever paid off the largest amount to the game’s referee would win the match.  The fact that one team had substantially better skills than its competition had nothing to do with the outcome. Early sponsors of professional teams in China set the stage when they began to report a string of soccer victories with obviously inferior players. It took some time before the other owners caught to what was going on but eventually it boiled down to the fact that the team with the richest owner would always win. The talent that they were purchasing though was the referees not the players. However, this type of activity caused the referees some sleepless nights because China is a country of gamblers and you wouldn’t want to have the wrong people betting on a fixed game and lose. Many of the referees thought long and hard about this dilemma and they seem to have universally concluded that their fixing of games with its potential downside of getting killed was worth the effort if the price was high enough.

While professional sports figures in China are not highly paid, referees there are now getting almost $10,000 to fix a home game and a tad more for those that are played away in the larger cities. This includes enough money so that the referees can hire a number of bodyguards to get them safely out of the enemy stadium once the crowd has learned that the outcome of the event has been predetermined. However, this practice of fixing Chinese professional sporting events has become so well known around the world that international bookmakers are no longer willing to accept a bet on any sporting event in China. One only has to see how well the referees are living to come to conclusion that none of them has an honest bone in their body. However, the cities where the home team has lost because of their pay for play officiating could well be injurious to their health and even with bodyguards the smart ones do not travel the circuit after dark.

The whole ugly matter came to light when some of the owners that had been having their why with payoffs were no longer able to pay the going freight to the ever gouging officials. (Other people had bought teams that had even more money than they did)  During the normal pre-game negotiations of how much the referee would get to fix a given match, matters such as fringe benefits, homes, pensions and additional goodies were bandied about with whoever placed the higher bid getting the nod. Overnight, winning teams went into tailspins no matter how good their athletes were. These owners that originally had very successful teams because of the payoffs no longer were literally guaranteed the championship, but as other more wealthy owners came along, the price had reason to high for them to compete. The simplest way to solve the matter they concluded was to make the matter public. The situation went up the official ladder all the way to senior officials in Beijing. At the same time, these owners filed litigation against the China Football Association, the ruling body in Chinese soccer.

However, the government was not having any of this. They maintained that referees could not be charged under the country’s bribery laws because they were not civil servants. The China Football Association was even more generous; they indicated that the referees should be forgiven for the immoral activities.[9] In the meantime, everything in professional sports in China is business as usual and if you want to get your head handed to you, don’t bet against the team with the richest sponsor or in lieu of that, find an owner that has the most money and try to get a bookie to take the bet. However, the odds against the later are slim to none.  


 


[1] Leaner Factories, Fewer Workers Bring More Labor Unrest to China, Erik Eckholm, The New York Times, March 19, 2002.

[2] Wall Street Journal, PetroChina Faces Massive Protests As It Pushes Forward With Reforms, Peter Wonacott, March 14, 2002. 

 

[3] Why China Cooks the Books, Melinda Liu, Newsweek International, 30-2002

[4] Where Workers, Too, Rust, bitterness Boils, Erik Eckholm, The New York Times, March 20, 2002.

[5] In China, rich seek to be ‘big rich’, New wealth creates massive gap between classes, by John Pomfret, The Washington Post.

[6] Ibid

[7]  Why China Cooks the Books, The reputation of the People’s Republic as an economic powerhouse is based in part on pure bunk, By Melinda Liu, Newsweek International, March 2002.

[8] Chinese Prosecutors Deal a Full Deck of Warnings, By Erik Eckholm, The New York Times, March 25, 2002

[9] China set to tackle cases of football bribery, Richard McGregor in Shanghai, March 17, 2002, The Financial Times. 

 

 

 

Big Brother

China ’s fragile economy is increasingly scrutinized by international media and the people are becoming increasingly aware of domestic news. Chinese leaders are not at all happy about this development and having been working out new regulations to control the news being redistributed within the country. All domestic television stations must have government licenses. However, once it grants the license, Beijing cannot control content. There are several approved foreign companies beaming information to the population, including Phoenix Satellite Television a minority owned arm of News Corporation and AOL. In addition, far more television channels are allowed to enter the country through hotels catering to foreign travelers. These channels include a litany of stations from all over the world. However, the same converters that are able to pick up the approved stations are able to pirate the media that is being beamed directly to this excusive network.  

While these non-hotel television networks are only allowed to operate at certain approved locations, there are illegal television conversion boxes all over the country to which the entire population has either indirect or direct access. The hotel networks are fair game. With the various problems that the country is facing, officials would like to spoon feed the people pre-digested news keeping everyone as happy as possible. They are not particularly anxious for the population to be aware of riots by farmers, Muslim Fundamentalists proposals for secession or revolution, or the government’s approved policy of selling organs to the highest bidder../../._span style_.css"mso-spacerun:yes">  Choice bits of information are, though, gradually becoming the subject of local chatter. Dictatorships don’t fare well under policies of total information access and China is extremely unhappy with the groundswell.  

In order to bring the media in the country back under control, officials in Beijing have ordered the China International Television Corporation, the agency in charge of satellite broadcasting, to harness this openness. Reporters for the Wall Street Journal uncovered a letter sent out by the agency stating that a government re-broadcasting platform will be set up to redirect all television after it had been screened by government censors. The policy is set to be enforced starting on January 1, 2002 and those that try to evade the regulations are being threatened with losing the franchise. All boxes that can decode will have to be Government Issue and those in existence will have to be replaced at an enormous cost to the purveyors.  

In spite of the fact that AOL and Phoenix have been rather careful to toe the official line and still convey a tad of bipartisan reporting, they too will probably be caught up in a net primarily aimed in other directions. China can ill afford to allow its natives to become restless at this key juncture of its economic existence. Interestingly enough, almost simultaneously with the imposition of harsh restrictions on media content, a show trial was held in Guangzhou by the so-called Intermediate People’s Court.  

In an unusual change of pace, 200 criminals were indicted in one day and then put on display. With 20,000 spectators looking on five of the convicted men were dispatched with a bullet to the head. While China is a firm believer in sending serious messages in its ../../__147.css;Strike Hard” campaign against crime, it never before resorted to what could have been described as an execution orgy../../._span style_.css"mso-spacerun:yes">  The civil libertarians were up in arms but government officials could have cared less what they thought. In many cases, the crimes that these people were executed for would have been determined to be the ../../__147.css;white collar” variety anywhere else in the world and included several men that were convicted of forging documents to acquire tax rebates.  

The Church

Civil rights have never been one of China ’s strong suits and with a population of at least 1.3 billion, it is not hard to figure out why. China broke off relations with the Vatican soon after the Communists took over the country. China had no end of problems with the Church. They felt that it was interfering with internal affairs, it had recognized Taiwan and was appointing clerics within an atheistic state. Overtures were made by the Vatican to compromise their problems with a land that had no less than 12-million Catholics. To some degree, the matter escalated out of control when the Vatican created 120 Catholic saints from ethnic Chinese who they described as martyrs who lost their lives between 1648 and 1930. Chinese officials were particularly incensed by the fact that they were convinced that many of the martyrs were in reality opium peddlers and Chinese turncoats who were aiding invasions by western armies.  

The Chinese Government retaliated by arresting Catholic leaders who were running what they called underground churches. Furthermore, China named its own cadre of Catholic bishops. Eventually, cooler heads prevailed and the parties worked out some agreements. Most importantly, the Vatican agreed to withdraw recognition of Taiwan as the lawful government of China . The Pontiff pointedly referred to Beijing as ../../__147.css;the great capital of modern China .” The Pope himself agreed that the Church, through its missionaries, had indeed worked in the past with foreign colonial powers in ways that that tended to undermine the then existing government of China . In spite of the conflict created by Chinese subversion of Church authority, many have pointed to the situation in Vietnam, where the Church eventually agreed to consult with the state before making appointments.  

It is bad to get on the wrong side of the Chinese, who have long memories. For this reason, I would hate to be sitting in Japan ’s shoes when the Chinese decide that the time has come to settle the score. It is important to Chinese ../../__147.css;face” to settle old debts and to defeat competitors. The City of Shanghai and the building of the Chinese infrastructure has shown what the will of China can create when given the opportunity. The Chinese Communist achievement of agricultural independence a few short years after seizing power was amazing. People did not expect the Chinese to have a viable telephone system for decades because the country was not wired for it. In just the last several years, the country can boast 100 million cellular telephones in use within China , by far the largest number in the world../../._span style_.css"mso-spacerun:yes">  This statistic is particularly interesting because just four years ago there were only 10 million, and a few short years before that, literally none.

Much Ado About Nothing

China also boasts of its great historic accomplishments such as the creation of the Great Wall of China . Along with the Great Wall, there is another similar structure that holds the population in awe but has not received the same type of national and international attention. It is called the Wall of Genghis Khan (1165-1227) who is credited with uniting China and literally creating the country that exists today. Khan was one of history’s great warriors and he had his bad days just like those before him. There came a time when his hordes had conquered so much land that the spacious territory became difficult to protect. The neighborhood was filled with prowlers who would have loved to carve up a little of what Khan had created. Khan, however, was not into sharing. Despite logistical considerations, he demanded that his men keep his conquered territories intact.  

His generals protested that this was not possible but a compromise was reached when Khan hit upon the idea of building a 300 mile wall from eastern Mongolia and ending at little east of Zabailkalsk in far off Russia. Because Khan was in a hurry to get the wall up, he determined that it would be made of earth instead of the solid rocks that composed the Great Wall of China . He indicated that it could be just as wide and just as high, but would take only about 10% of the time to complete if inferior materials were used. The wall was built and it accomplished its goals of keeping the land safe for Khan and his cohorts. The Chinese people endlessly point to Kahn’s wall with great pride, comparing it with the more famous ../../__147.css;Great Wall” and it is listed in many World Atlases such that of the Federal Service of Geology and Cartology of Russia. However, in spite of the fact that the Wall is proudly taught about in school, literally no one has ever seen it.  

The fact that there were not even any pictures of this supposedly magnificent structure caused no end of consternation within the foreign press and eventually, Michael Wines, a reporter with the New York Times visited the historic spot and wrote a story entitled, ../../__147.css;Behold! The Lost Great Wall. Don’t Trip Over It” on September 21, 2001 . Getting there was a story in itself because it was almost impossible to reach from almost everywhere. His complex trip eventually took to his destination, which was Zabikalsk , Russia , just over the Chinese border. Someone there said that they had seen the enormous wall, a Mr. Nazarov a resident of the vicinity. Wines and Nazaov searched the neighborhood for some time until the local finally pronounced that ../../__147.css;Here it is.” ../../__147.css;There, in front of him, was a smallish lump of earth, perhaps 30 yards long, 18 inches high and about as wide as a one-car driveway.”  It appeared to be a structure created by a rather broad mole; however, this certainly was not the world-class structure that its public relations claimed it was.  

This was easily explained by the fact that the wall had been constructed of earth, which had probably been dispatched by the elements centuries before. However, the most horrifying problem that the visit created was the knowledge gained from local residents that Genghis Khan had not built the structure at all; it had been created by local tribes called the Liao, centuries before the mighty warrior was born. The residents apparently call what historic documents refer to as the Wall of Genghis Khan as the Molehill of the Liao.

A City Below the Ground

The Chinese are big on large construction projects. The Three Gorges Dams have caused substantially more trouble than they are worth by displacing hundreds of thousands of people, destroying fertile farmlands and burying ancient treasurers; yet this does not stop the people of China from bragging about it to any and all that show any interest. For this reason, it is strange that an even greater building accomplishment gets no press and very few people in China have toured it.  

China and Russia were the co-reigning leaders of the Communist World following World War II. As such they shared an agreed upon philosophy about how the world should be carved up and who would get what. As time went on however, the partners in crime began to become suspicious of each other, the Russian believing that the Chinese hoards were gathering to attack them in waves. For their part, the Chinese were convinced that Russians were about to launch an atomic attack. The Chinese couldn’t hold a candle to the Russians technologically, and while Mao was still in charge of operations went to work on an enormous solution to the problem.  

Mao Zedong determined in his infinite wisdom that massive caverns would be built beneath Chinese cities that could accommodate their entire populations while at the same time, providing food, water and air for a prolonged period of time. Possibly as long as a year. Accordingly, the project was commenced and at the end of 1970, every major city in China had these monolithic structures, which could accommodate almost their entire populations within their bowels. In spite of the fact that these caverns are wonders to behold, for the most part, the Chinese population is not only unaware of them but is not allowed to visit them in spite of the fact that limited tours are now being conducted for foreign visitors in Beijing. Interestingly enough, it is indeed surprising that there is such a dearth of knowledge about these structures because when Mao died in 1976 he was buried in the Beijing complex for a period of time.  

While many of the cities have caves that have been sealed or covered up in the years since the Russian threat waned, the complex in Beijing is still in existence. It was constructed twenty-five feet under street-level and one section of the project extended from under the Walled City to the Beijing Airport , a distance of more than 20 miles. This was only one of the four arms of the system, which contained among other things, four-lane highways, gas-proof roofs along with radiation-proof steel doors../../._span style_.css"mso-spacerun:yes">  Including within most of the structures were massive hospitals, movie theaters, granaries, schools and whatever else a population would need to sustain itself for a prolonged period of time.  

There are some amazing statistics attached to this project according to the Liberation Army Daily. They include, 3,700 hotels, 13,000 underground warehouse and over 4,000 restaurants. In addition, in spite of the fact many things in the tunnels have been cannibalized for other uses, there are still karaoke, manufacturing facilities and souvenir shops. Moreover, when talking about massive projects, the number of people that were consumed in its construction is almost uncountable as nearly every able-bodied person (man, woman and child) in China ’s seventy-five largest cities were engaged in this project which took the better part of a decade to complete. There really seems to be little question that more people worked on this combined project than any other in the history of man. Yet find a mention of it history books or even try to sign up for the tour if you can even find anybody that ever heard of it. China is indeed still a land of mystery and these caverns, which are still considered to be ../../__147.css;military secrets” with in the country but tourist traps to those that know about them.

A Home Away From Home

The ability of China to produce a prodigious quantity of anything is no longer something that is called into question. While for many years, the ability of the Chinese Government to harness millions of people to construct whatever was needed was not an issue, today however, China has the capacity to mass produce high quality products on sophisticated production lines using state of the are equipment run be well trained production people. There is no longer any question that China can out produce all competitors in terms of quantity and price. They can also hold their own in terms of quality production of all but the most technical products. In addition, if you have any questions regarding the statements the easiest thing to do is ask the Japanese about Chinese competition.  

Recently for the first time since before World War II, a Japanese company allowed their products to be produced in a foreign country in a plant totally under foreign ownership. The company was Sony and the country was China . Even the manufacturing plants that were built in the United States for example, were owned by the Japanese manufacturer and were run by Japanese management reporting directly back to Tokyo . Today the situation has evolved to a point where such items as chopsticks, neckties, towels, eels, seaweed for sushi and raw silk for Kimonos are now produced in China with order having already been placed for bicycles, motorcycles, buses and cell phones.[1]  What has the world become?  

The entrance of China into the World Trade Organization only pumps up their ability to compete and the Japanese now see themselves hopefully becoming a service industry power. However, the United States has already staked that claim and Japan has almost nowhere to turn. Japan is unable to compete with China ’s ability to use either prison or low cost labor, which believe it or not averages 1/20 of that of Japan . In addition, the Chinese Mainland has an abundance of natural wealth and has most essential materials easily available in their own country. Japan must pay the piper when it comes to labor costs having probably the wages in the world and yet, the have no natural resources available whatsoever. Moreover, it appears that things are only going to get worse as a survey conducted by the Japanese Financial Newspaper Nihon Keizai Shimbun finds that fully 50% of Japanese manufacturers intended to increase their overseas production capabilities, with 71% of those heading for Mainland China .  

In more understandable terms, Japan will suffer a negative balance of payment with China for the first time, although these statistics do not include Hong Kong , which is a net importer../../._span style_.css"mso-spacerun:yes">  While the entire country of China has become Japan ’s anathema, the city of Suzhou has become its nightmare. It is likely that you have never heard of Suzhou , although that city produces more of China ’s manufactured goods that any other Chinese city. However, it literally didn’t exist as anything other than a spot on the way to Shanghai until very recently.  

China has a system of creating manufacturing hubs in close proximity to financial centers, which allows the moneylenders to keep informed as to their investment. This keeps everything in a neat condition and has been an important factor in fostering China ’s unparalleled growth. Nothing comes close to Suzhou , which recently registered an export growth increase of 47%.  

Many companies locate their offices in Shanghai because that is where the money is in China , but are not all that excited about paying Shanghai rents and wages.  Enter Suzhou , a low rent and wage district just a stone’s throw away. This year as Suzhou starts to throw its public relations weight around and begins to understand what kind of things attract foreign investment, on a year to year basis, this figure has risen by an unbelievable 150%. Moreover, would you believe that these guys are just now learning how to play the game? In the meantime, both Japan and the United States are in the middle of recessions, unemployment in Europe is rising faster than you can count, other countries in the Pacific Rim economy’s have nose dived and China itself has suffered a slowdown. Suzhou has become a steamroller in a porcelain shop, not a Chinese bull. However, there are already places where rents are just a little cheaper, labor just a tad less expensive and benefits to foreign investors just a little higher, waiting right around the corner. The battle is no longer China against the world, that has already been decided, it is now, who among the Chinese will win the war?

Neighbors

China has recently won most of the wars that it has engaged in, although the country has never been conquered. They are no different than other victors and tend to rule with an iron hand. There was little question on the part of the Chinese Government that Tibet belonged to them. There was not much question in the minds of those living in Tibet that they were independent and even worshiped a religion considered unacceptable by Beijing . The people that lived in this country were basically firm believers in the Dalai Lama, their spiritual leader. Religious differences plunged Tibet into a revolution in 1959, at which time Chinese repression forced the Dalai Lama to flee.  

Over the next forty years, China attempted to imprint the Tibetans with their iron-fisted rule, which included the outlawing of their religious beliefs. This accomplished little and only tended to arouse the world against this terrible repression on a land of less than three-million people. Although the never admitted it, the Chinese had been badly burned in the public relations department and went back to the drawing board with a new but unpublished strategy. Forget anything that you have read anywhere else, what the new line is seems to be no different in phase one than what is being done in their southwestern most province which has a high percentage of its population practicing the Muslim Faith. Rather than outlaw the practice, which proved unworkable in Tibet and elsewhere in China , they are encouraging and even forcing emigration into that province. Along with that strategy they are also allowing to the migrs to breed like bunny rabbits while severely restricting the birthrate of the Muslims. 

Sounds like a plan and indeed, it is. In this manner, no one can accuse the Chinese of restricting religious beliefs or practicing euthanasia. The Muslims will ultimately become such a small percentage of the community that their efforts to be treated separately or even be partitioned will not be taken seriously. However, the most important aspect of this somewhat nefarious plan is to induce the Muslims immigrate to Tibet . The climate there is fierce; the elevation is high and infrastructure decrepit. Why on earth would anyone that didn’t believe in the Dalai Lama want to even hang out in this god-forsaken place? Forget the movies of the Dalai Lama’s palace. Only the top dogs get to live there. The locals hang out on the lower terraces where they are forced to compete for breakfast, lunch and dinner.  

The Chinese have come up with the answer: throw a lot of money at the economy of Tibet and make the region as rich a Croesus, bringing the heathen Chinese to God Fearing Tibet faster than you can spell ../../__147.css;filthy rich.” The Beijing Government’s carrot and carrot program is already starting to show substantive results. As the lot of the people improves, the ever-jealous and hard charging Han Chinese from neighboring provinces are moving in like ants at a picnic lunch.  To facilitate emigration, the Chinese Government has just finished building the first railroad with a terminus outside Tibet. 

Those Tibetans that hang on and are not pushed out by the foraging Han Chinese are reaping major economic benefits../../._span style_.css"mso-spacerun:yes">  The province’s economy is scheduled to grow 12% per year for each of the next five-years. This would be fully 50% higher than the most optimistic growth rate for China proper. Furthermore, Tibetan Communist leader Guo Jinlong is convinced that Tibetans will have incomes equaling the average of all Chinese Citizens within the next decade. Considering the fact that in Tibet you are literally starting a ground zero, this is one big mouthful, even for the super-project conscious Chinese Government.  The Beijing Government is going to provide more than 90 percent of the Tibetan budget, which will allow the remaining funds to be used for schools, power, transportation and improved agriculture.  

The other side of the coin of course still treats the followers of the Dalai Lama as second-class citizens. The number of monks is strictly limited by Beijing , a keeper of the faith can only rise so high in the Tibet bureaucracy because although China indicates that they have religious freedom, the country is still Communist and some people under that banner are freer than others. While many of the country’s monasteries are being rebuilt, a defiant monk is a monk who is on his way to an ugly Chinese jail../../._span style_.css"mso-spacerun:yes">  We believe that the Chinese idea is just obtuse enough to work, but with the Americans seeing terrorism with slightly different colored glasses; the Chinese may be able to cut out the middleman and solve their problem on the cheap. Watch for an update.     



[1] Tokyo Fears China May Put an End to ../../__147.css;Made In Japan ”, James Brooke, November 20, 2001 , New York Times.

 

 

 

 

 

 



 

 

1] Chinese law takes aim at concubinage, James Kynge, Financial Times, April 30, 2001.

 

[1] Opinion: The Fallacies of Falun Gong, Why is this Chinese movement so popular even as its supporters are persecuted by their government? Don’t expect to find the answer in the philosophies of founder Li Hong-zhi says writer Adeline Yen Mah. Newsweek.

[2] Opinion: The Fallacies of Falun Gong, Why is this Chinese movement so popular even as its supporters are persecuted by their government? Don’t expect to find the answer in the philosophies of founder Li Hong-zhi says writer Adeline Yen Mah. Newsweek.

[3] Falun Gong founder’s Demands Entail Greater risk and Sacrifice for Loyalists, Ian Johnson, The Wall Street Journal, March 27, 2001.

[4] Mike Khaw.

[5] Thanks to Ray’s List of Weird and Disgusting Foods.

[6] China’s City Slickers Satisfy Taste for Rural Fare, John Krich, The Wall Street Journal, Monday March 12, 2001.

[7] China unveils huge welfare plane, BBC News, Sunday March 11, 2001.

[8] China After Deng, Deng Xiaoping transformed China into a global economic power. After his death, new leaders vying for control faced an array of problems unleashed by Dent’s reforms, Joseph Fewsmith, The World Books.

[9] ../../__147.css;In the early seventeenth century, trading companies in England leased lands in what is now the United States. In order to make profits, the companies assisted settlers in developing natural resources.” American railroad companies, in need of a large supply of laborers for their transcontinental railroad construction, persuaded many Chinese to emigrate to the United States to work as unskilled laborers.” Center for Migration Studies of New York, International Migration Review, spring 1995../../._span style_.css"mso-fareast-font-family:"Arial Unicode MS"" class="MsoFootnoteReference">

[10] ../../__147.css;The last few decades have also witnessed extraordinary growth in global industrial and agricultural productivity, with profound social consequences. Among these have been migration and urbanization that in turn have upset traditional household structures and gender roles. The same forces have depleted non-renewable natural resources and produced environmental pollution.” Our Global Neighborhood, the Report of the Commission on Global Governance../../._span style_.css"mso-fareast-font-family:"Arial Unicode MS"" class="MsoFootnoteReference">

[11] Economic

[12] As China Trims Health Care, The Rural Poor Suffer, Elisabeth Rosenthal, The New York Times, Wednesday March 14, 2001.

[13] Reuters, 2/26/98.

[14] February 24, 1998.

[15] The only rational reason, if you are Chinese would be the fact that the region has become so sensitive that if the Chinese devalue, everyone else in the region will devalue even further, setting off a terrible downward spiral that can’t be stopped. Sometime they call this deflation, a word almost unspoken since the early 1930s.

[16] Corruption Wiped Out 13% to 16% of China’s GDP, Researcher Says, Peter Wonacott, The Wall Street Journal, March 8, 2001.

[17] China Sentences 7 to death in Huge Tax Fraud Probe, Jeremy Page, Reuters, Beijing, March 2, 2001.

[18] China and Tibet, Human Rights Developments, Human Rights Watch World Report 2001.

[19] 10,000 Li=about 5,000km

[20] Secrets of the Great Wall, by Vince Rause, Discovery Channel

[21] In the arid Gobi Desert, the poor quality of the sandy soil forced Han builders to resort to an ancient and painstaking method of wall construction. First, they laid a bed of red willow reeds and twigs at the bottom of a wooden frame, then they filled the frame with a mixture of water and fine gravel, which was tamped solid. When the mixture had thoroughly dried, the wooden frame was removed, leaving behind a solid slab of tamped earth, strengthened by the willow reeds just as modern concrete is reinforced by steel rods.” Ibid.

[22] Secrets of the Great Wall, Vince Rause, Discovery Channel.

[23] Ibid.

[24] China makes Great Wall even greater, Vestiges of earthen wall extend the westernmost end. Science News, MSNBC, February 22, 2001, Associated Press.

[25]  The Three Gorges Dam and China’s Energy Dilemma, Lawrence R. Sullivan, Journal of International Affairs. 9/22/1999.

[26] China is the largest coal producer in the world.

[27] The Three Gorges Dam and China’s Energy Dilemma, Lawrence R. Sullivan, Journal of International Affairs. 9/22/1999.

[28] Reluctance to relocate is a crime against the state, and legislation hastily passed in 1994 makes ../../__147.css;threats to state security” punishable by death../../._span style_.css"mso-spacerun: yes">  Valley of the Dammed, Elizabeth Gilbert, The Sunday Telegraph London, 9/26/1996.

[29] The Washington Post, Steven Mufson, The Yangtze Dream, Feat of Folly? 11/9/97.

 

 

 

China's  Treasures

The Junju Monastery

The Junju Monastery (Xiyu Monastery) is not that much to write home about../../._span style_.css"mso-spacerun: yes">  It is not exactly off the beaten track considering the fact that it is only 15 miles south of Zhoukoudian, in Beijing Province../../._span style_.css"mso-spacerun: yes">  The Monastery taught young men how to become Buddhist teachers and has existed on this spot for no less than 1,500 years../../._span style_.css"mso-spacerun: yes">  That was, until the Japanese came along during World War II and burned the place to the ground../../._span style_.css"mso-spacerun: yes">  The monastery was rebuilt after the war was over and remains a religious school to this day. 

In 605 A.D., there was widespread persecution of Buddhists in this section of China that included burning Buddhist religious texts../../._span style_.css"mso-spacerun: yes">  Because of book and scroll burnings, the religious works that were contained at Yunju were transferred to indestructible tablets../../._span style_.css"mso-spacerun: yes">  Until recently, the tablets were hidden in caves.  

The monastery was abandoned during World War II and in 1939, the south tower in the Yunju Monastery collapsed../../._span style_.css"mso-spacerun: yes">  A villager who lived nearby named Baoquan and found one of the tablets in the midst of all of the wreckage../../._span style_.css"mso-spacerun: yes">  He took one of the tablets home intending to use it as a millstone, but for whatever reason, Zhang ultimately buried the stone in back of his family’s house../../._span style_.css"mso-spacerun: yes">  The Japanese came and went and with the stones largely still undiscovered../../._span style_.css"mso-spacerun: yes">  In 1957, a scholar passing through the region happen to find Zhang, who at the time was busily plowing his field../../._span style_.css"mso-spacerun: yes">  Zhang was asked if he had ever seen any stone tablets in the area../../._span style_.css"mso-spacerun: yes">  Zhang remembered exactly where he had planted the tablet and proceeded to dig it up.  

This started the equivalent of an archaeological gold rush as Chinese academics rushed into the area to mine the discovery../../._span style_.css"mso-spacerun: yes">  This turned out to be the largest single discovery of Buddhist scriptures in history../../._span style_.css"mso-spacerun: yes">  Sadly, it was soon discovered that the engravings, although neatly arranged on iron racks in cement storage rooms, had been subjected to climatic changes and environmental pollution over the years, and in many cases, the writings can not be deciphered../../._span style_.css"mso-spacerun: yes">  In an attempt to raise enough money to insure the stones could be placed in an area where their deterioration could be kept at a minimum, Beijing allowed a minimal amount of press to convey the story../../._span style_.css"mso-spacerun: yes">  Soon, the site became crowded with Chinese visitors that were willing to pay big bucks to view the tablets../../._span style_.css"mso-spacerun: yes">  For whatever reason, this spot, which for a time became the hottest tourist spot for resident Chinese in the region, soon lost its cachet because of the way the tablets were being stored and the tourists just stopped coming. Once again the tablets fell into to a state of oblivion../../._span style_.css"mso-spacerun: yes">   

While China has authorized a nominal amount of funding for its many worthy archeological projects such as this one, the funds are disbursed among so many worthwhile ventures that what is left over will hardly make a dent../../._span style_.css"mso-spacerun: yes">  No one has come up with a method of restoring the stones’ luster, and short of placing this massive number of stone carvings in a totally clean room that is temperature controlled, the unrelenting decay will continue to obliterate historically significant archeological treasures../../._span style_.css"mso-spacerun: yes">    

If a method of preserving this find is not employed soon, the world will lose another priceless treasure../../._span style_.css"mso-spacerun: yes">  These are most unusual tablets in that they are in the form of a single book, which traces the Buddhist Religion from its origins../../._span style_.css"mso-spacerun: yes">  Although almost totally unknown in the West, this book is probably the most critical history of religious conditions that existed in China during those early times../../._span style_.css"mso-spacerun: yes">  The delicate stone chiseling was begun early in the 7th century and over the next millennium, 16,000 monks worked round-the-clock engraving 35 million Chinese characters onto the stone tables../../._span style_.css"mso-spacerun: yes">   

What they spent all those years copying was a 3,400-volume set of over 900 Buddhist classics, all of which were combined into one massive book../../._span style_.css"mso-spacerun: yes">  Moreover, these tablets are not the diminutive variety: they range in size from two feet by one and one-half feet to eight feet by two feet../../._span style_.css"mso-spacerun: yes">  Not only that, but the inscriptions are contained on both sides and the slabs that they are written upon weigh a prodigious amount.  

Recently, a German Archeologist named Josef Guter, who is the director of the Vokshogeschool in Bremen, Germany, was allowed to visit the nine caves where these tablets were being stored../../._span style_.css"mso-spacerun: yes">  He was utterly astounded../../._span style_.css"mso-spacerun: yes">  These caves were carved out of a solid rock cliff, rising 1200 feet above sea level in order to insure them against pillaging../../._span style_.css"mso-spacerun: yes">  He was so astounded by these 14,300 stone tables that made up the parts of the most massive single book ever found on earth that he immediately reported his discovery to UNESCO and requested that they name the Yunju Monastery and its treasures, a ../../__147.css;World Heritage Site”.  

While the Yungu tablets were not seen or known in the West until Guter’s discovery, during the 1950s, then former Indian Premier Jawaharlal Nehru was shown the engravings../../._span style_.css"mso-spacerun: yes">  We are told that he made a proposal on the spot to purchase a number of the stone carvings for their exact weight in gold../../._span style_.css"mso-spacerun: yes">  While this gives us some inkling of the tablets’ intrinsic value, until UNESCO makes up its mind, nothing is happening and the fabled tablets continue to rot../../._span style_.css"mso-spacerun: yes">     

  The Great Wall of China

The government of China during the Qin Dynasty about 200 years before the Christian era began determined that they had the best little spot on earth. The country was run by Qin Shi Huangdi who was also the first emperor of China. It seems that they had neighbors all over the place that were coveting what they had, and every once in a while they would attempt to grab a piece of property here and a piece of property there../../._span style_.css"mso-spacerun: yes">  These neighbors were highly educated god-fearing people that would have done justice to almost any community, but the Chinese just had something or other against these folks, whom they disparagingly referred to as the ../../__147.css;Mongol Hoard.”  

Qin Shi Huangdi being both paranoid and fearing for his life determined to build a Wall around his kingdom to keep the Mongols and evil spirits out of his kingdom. This became known as the Great Wall of China or ../../__147.css;Wan-Li Qang-Geng) which means 10,000-LiLong Wall.[19] In reality, Qin did not originate the concept of walls which had been around for a long time and when he started building in earnest he was able to incorporate what was left from four aged fortification walls that were located in the North of China which had been built 500 years earlier or approximately 2500 B. C. 

The first real enemy that Qin determined to address was the Hsiung Nu tribes of the north. These were the forbearers of the Huns, a highly nomadic and viscous group of marauders. On the other hand, Qin added about 3,000 miles to the Wall’s length and while construction was carried on at a frenzied pace, his contractors add a mile a day to the structure; an most amazing feat. While most of the wall was made of stone, as it expanded ever further from its source, this material was not readily available in distant locals and when that occurred, he had his workers would construct the wall out of compacted earth or whatever was locally available../../._span style_.css"mso-spacerun: yes">  

In reality, everyone was Qin’s enemy at that time because he was a particularly ferocious fellow that believed in torturing and maiming his subjects as well as his enemies. ../../__147.css;He made nonconformist thought a capital offense and sentenced thousands of intellectuals to years of forced labor on the Great Wall.”[20] On the other hand, he was a fabulous general and under his rule, seven adjoining warring states were subjugated and for the first time China became the nation that covers the area that it literally has today. When Qin’s Empire ultimately dissolved after only 15 years, it was followed by the Han dynasty in 206 B.C. Their rule was more benevolent and under Han Wu-Di, wall building began again in earnest. After having destroyed the Xiongnus, the Hans wanted to protect their expanded borders in Central Asia rebuilt and restored the Qin built wall and extended its distance by 300 miles across the Gobi Desert[21]. This allowed for the establishment of the Silk Roads and the opening of China to international commerce. Because no one could get into China at that time without passing through the ../../__147.css;Great Wall”, it soon became legendary and this was a period of great prosperity in the country. It was under the Hans that the first public school system was established. 

The fact that these folks had terrible table manners, sacrificed their neighbors to pagan gods, and were totally unfamiliar with the sayings Confucius caused the Wall to be constructed../../._span style_.css"mso-spacerun: yes">  It was quite an architectural feat../../._span style_.css"mso-spacerun: yes">  The peace-loving Chinese were obligated to turn many of the own people into slaves in order to get construction moving, and it progressed nearly a mile a day but only with great loss of life../../._span style_.css"mso-spacerun: yes">  Another name for the ../../__147.css;Great Wall” was the ../../__147.css;Wall of Death” due to the fact that as construction workers died from various causes, they were sealed into the wall itself and it became a four thousand mile tomb stretching from the Gobi Desert to the Yellow Sea. There was a lot of room to put bodies in the Wall because, while it had masonry and rocks on the outside, the interior was mostly fill, packed earth and bodies. The Wall could hold literally as many bodies as were required because its dimensions were a prodigious 15 and 30 feet wide and 25 feet tall.  

Interestingly enough, while those in the West believe that the wall was a momentous achievement, the Chinese were not quite as sanguine about it. As a matter of fact, there is little mention of the ../../__147.css;Great Wall” in early Chinese literature, almost none in art and stranger yet, even Marco Polo failed to make mention of its existence. In addition, the Chinese could not have been at all happy with the fact that during World War II, the Japanese used the wall as a transportation device to quickly move the troops over the rough terrain from one part of China to another, allowing the Japanese to plunder China to their heart’s content.  

The fact that the Wall was originally constructed by a totally mad emperor who was more afraid of demons and goblins than he was of the Mongols didn’t help one bit. He had learned that demons could only penetrate places by going in a straight line, by creating the weaving wall that tended to follow the earth’s geography, he his advisors led him to believe that the wall would certainly keep out all evil spirits. Moreover, this was the very same emperor of China that created one of the most unusual tombs in the world. It contained an army of 6,000 life-sized soldiers each with a unique expression, to probably guard his spirit in the great beyond. It is conceivable, although somewhat unlikely that each of these ../../__147.css;terra cota” soldiers as they become known, was actually a true likeness of those that had so fiercely guarded Qin in real life.  

China’s first emperor was concerned that others would learn the secrets of his tomb, so he had all of the builders buried alive in when the tomb was finished. His tomb has never been fully excavated because of several reasons, among others, the people living in this region today, still fear the demons that they believe have taken control of the surrounding property, the tomb is a morass of secret passages and rooms which are well hidden underground and cannot be easily located. Archeologists indicate that there many are great treasures still hiding within the tombs but efforts to locate the historical finds have been both poorly organized and insincere.  

The emperor that originally started construction of the Great Wall was quite paranoid and more than a little wacky. Qin Shi Huangdi, proceeded to burn all of the country’s history books, buried alive the country’s academia, created as system of uniform weights and measurers, evolved the first true Chinese currency, unified China and standardized written language. Certainly a very large mixed bag of accomplishments. He also became extremely concerned about living forever and was given a potion containing arsenic and mercury, which the priests said, would provide him with eternal life. He died shortly thereafter living the kingdom to his dimwitted son who was son expunged by his unhappy subjects. For all of the accomplishments and failures of the Qin (Ch’in) Dynasty, it only lasted a total of 15 years. (221 B.C. – 206 B. C.)    

As the wall went up, the Mongols continued their pillaging and raping in the vicinity../../._span style_.css"mso-spacerun: yes">  This only made the Chinese work harder at getting the job done../../._span style_.css"mso-spacerun: yes">  When it was finished, there was great celebration in all of the land, while the Mongols walked through the Wall at the many open parts that had never been joined../../._span style_.css"mso-spacerun: yes">  You see, the Wall was not continuous in spite of history’s many stories leading us to believe the contrary and this architectural achievement although magnificently conceived was a total failure at doing its job. At best, the wall was cheered by the superstitious population for being proficient at keeping out the non-existent demons and it in addition it may have had some use as an early warning device. Within the wall’s ramparts, there was the ability of creating signal bonfires. Interestingly enough, these signals, that were given off were highly sophisticated, if there was a force of less than 500 troops, one smoke column was sent up, two columns indicated that the force was under 3000 and so on../../._span style_.css"mso-spacerun: yes">   Although this would not be helpful in keeping away Mongol hoards, at least the Chinese Army would have advance warning that they were coming or in the alternative would be aware of how many were coming to diner so that they could plan ahead.  

Because of the fear of the Mongols, during the Ming Dynasty (1368 – 1644) the Great Wall was both enlarged and spruced up. Cannons were placed in strategic locations on the wall and the massive watchtowers that have now become so much a part of the Walls heritage, were added. ../../__147.css;The truth is, though, that the Great Wall was actually a series of walls built and rebuilt by different dynasties over 1,000 years. In addition, while they often served the same purpose, these walls reflected the times --- both natural and cultural --- in which they were erected. For all its seeming timelessness, the Great Wall is indeed an emblem of China’s evolution.”[22] Moreover, The Great Wall as we have come to know it, was constructed by the Ming’s. ../../__147.css;The Ming not only built more of the wall than any other dynasty, but theirs was also bigger, longer, more ornate and more imposing. Theirs is the wall with which we are familiar,”[23]  It seems that the Ming’s had discovered a new way of making by using kilns and this method was extensively used in the wall’s construction. Many have said that without this process they could not have accomplished many of their wall building feats.  

Those in charge of the Cultural Revolution thought so little of the Great Wall that they used its rocks, gravel and other components for the basics in other construction projects. It was not until China opened up to outsiders, that government officials realized the awe that the Wall was held in by non-Chinese. All of there early heads of state that visited China, from the Mongolia, United States, Russia, Britain, France and literally everywhere else wanted to pay homage to the wall and the Chinese opinions of its value soon changed../../._span style_.css"mso-spacerun: yes">    

The Wall’s history as a tourist attraction started soon after the wall was constructed. The Chinese Government seeing a buck in the deal early on started taking Mongol tourists for visits to the awesome structure../../._span style_.css"mso-spacerun: yes">  The Mongols who for the most part, lived in tents were overwhelmed by what they saw and were given discount tickets for addition visits../../._span style_.css"mso-spacerun: yes">  This replenished the Chinese treasury mightily../../._span style_.css"mso-spacerun: yes">  In the Ming Dynasty, some 1500 years later, substantial additions and modifications were made to the structure creating the Wall, as we know it today../../._span style_.css"mso-spacerun: yes">  By this time, the Chinese and the Mongolians had inter-married so frequently that the only logic historians could see in this restoration of the ../../__147.css;Great Wall” was to keep the Mongols from leaving../../._span style_.css"mso-spacerun: yes">  Contrary to early folklore, the Great Wall of China is not visible from the moon, but the people doing the public relations work on the project were stuck with the story.  

China by this time having come to grips with the fact that the Great Wall is indeed newsworthy and a magnet for tourism, has finally gotten with it and on February 22, 2001, officials reported that the Wall was actually 310 miles longer than they had previously thought. Having made that announcement, the Chinese Government was also preparing us for a series of Wall lengthening announcements to come by indicating that beacon towers extend even further. Thus it will not be long until their public relations people are able to come up with a literal series of expansion announcements, keeping the Wall in the news. 

../../__147.css;A recently discovered section stretches to the edge of Lop Nor, a desert used as a nuclear test site until China stopped testing in 1996, the Official Xinhua News Agency said Thursday. Previously, the Wall’s westernmost end was thought to be a remote fort4ress at Jiayu Pass. The rediscovered earthen wall extends from Gansu province the neighboring northwestern region of Xinjiang, according to Xinhua. It makes the Great Wall 4,470 miles long instead of 4,100 miles. Xinhua said.”[24]  

There was a great deal of logic in building the wall based on early Chinese tradition and folklore. It was felt that a wall could both define individual people’s property and keep ferocious demons away at the same time. However, everything in early China was walled, houses, cities, municipal buildings and even agricultural plots and this tradition has continued on until even today as evidenced only by looking at where the center of the Chinese Government is located; within the Walled or Forbidden City. Thus, it was extremely fitting that a wall would have been created defining the boundaries of greater China../../._span style_.css"mso-spacerun: yes">   

The Three Gorges Dam

The country has tried very hard to control its population explosion with relative success as a result of the harsh manner in which it the government edicts were carried out../../._span style_.css"mso-spacerun: yes">  China was determined to become agriculturally independent and moved people around like pieces on a chessboard to achieve this goal../../._span style_.css"mso-spacerun: yes">  They wanted to make access between their cities easier, and the country went into a building mode that at one time was using fully one-half of all the concrete poured in the world../../._span style_.css"mso-spacerun: yes">  To say that when the Chinese set their minds on something, that the earth seems to move, may be awfully conservative../../._span style_.css"mso-spacerun: yes">   

While China has the World’s largest reserves of hydroelectric power, they are utilizing on a small fraction of what is currently available within their boundaries../../._span style_.css"mso-spacerun: yes">  Moreover, China is very concerned about the country’s energy shortage and for that reason has begun the construction of the largest dam in the world, the Three Gorges Dam../../._span style_.css"mso-spacerun: yes">  When it is completed, it will become the most expensive construction project in the history of the earth, costing no less than $25 billion../../._span style_.css"mso-spacerun: yes">  On the other hand, the project has been graft-laden, and the amount of money that has already vanished is extremely large../../._span style_.css"mso-spacerun: yes">  Some independent estimates of the dam’s eventual cost range as high as $72.2 billion, an amount that cannot be borne by the Chinese Government.  

The dam itself will rise 60 stories high, and 134 million cubic yards of dirt and stone will be extracted from the earth to prepare the site../../._span style_.css"mso-spacerun: yes">  The project will use almost 400,000 tons of steel reinforcing rods, and nearly 40 million cubic yards of concrete, which will be poured into the construction site../../._span style_.css"mso-spacerun: yes">  It is interesting to note that the Gezhouba Dam, erected to create a safe passage for the Yangtze while Three Gorges Dam was being built, itself is an imposing structure and, if standing alone, would rank among the world’s largest dams../../._span style_.css"mso-spacerun: yes">   The Three Gorges Dam will hold 51.4 billion cubic yards of water when filled to capacity../../._span style_.css"mso-spacerun: yes">  The dam in terms of electrical capacity will be almost fifty percent larger than its nearest competitor, the Itaipu Dam located on the border between Brazil and Paraguay../../._span style_.css"mso-spacerun: yes">  While the Three Gorges Dam will generate 18,200 megawatts of electricity, Itaipu only churns out 12,600.  

The dam when it starts generating electricity in 2003 will easily churn out more power than any other man-made object../../._span style_.css"mso-spacerun: yes">  The energy it will produce will be the equivalent of just under 20 average-sized nuclear plants, thus requiring 26 of the world’s biggest generators of 700 megawatts each to complete the task../../._span style_.css"mso-spacerun: yes">  Fifteen 500-volt transmission lines will deliver 84.7 billion kilowatt hours of electricity annually, the equivalent of burning 40 million tons of coal../../._span style_.css"mso-spacerun: yes">  Lines will send energy directly to Shanghai and beyond, while the reservoir of water that will be backed up by the project will extend almost 400 miles (the length of Lake Superior) and average almost a mile in width, raising the area’s water table by 575 feet../../._span style_.css"mso-spacerun: yes">  Two million people will be displaced by the project and almost 70,000 acres of fertile land will be inundated by the massive amounts of water that will be backed up as the droplets await their turn to go through the massive generators.  

Eighteen thousand people work on the project each day, which will ultimately stretch 1.4 miles across the Yangtze River (Chang Jiang – Long River, the third longest in the world)../../._span style_.css"mso-spacerun: yes">  The dam will substantially diminish the threat of floods (300,000 people were killed in the 20th century by floods of the Yangtze River, and in 1998 over a million people were displaced by its raging waters) in the area, which have plagued the region../../._span style_.css"mso-spacerun: yes">  The Three Gorges Dam will also make the river substantially more navigable, adding another commerce highway to the already bustling roads that have recently been completed../../._span style_.css"mso-spacerun: yes">  Builders estimate that instead of flooding every ten years, after the dam’s completion, flooding will only occur every hundred years../../._span style_.css"mso-spacerun: yes">

It is anticipated by the project’s architects that the building of the Three Gorges Dam will increase the amount of goods transported down the Yangtze from 10 million tons to 50 million tons, with transportation costs through this channel dropping by approximately 35% due to volume savings../../._span style_.css"mso-spacerun: yes">  Ten thousand ton barges, will transverse the waterway through five navigation locks, 918 feet long and 114 feet wide having a water depth of  16.4 feet../../._span style_.css"mso-spacerun: yes">  When the Three Gorges Dam is complete, ocean traffic will be able to navigate the river for 1,500 miles from its mouth.  

The logistics that had to be added included a new road carved through treacherous terrain in order to get supplies to work crews in the area, while a new airport was also installed for rush shipments of personnel and equipment../../._span style_.css"mso-spacerun: yes">  Apartment buildings were constructed to house the thousands of workers employed by the project, and a for-profit agricultural community (a joint venture of British and Chinese interests) is already producing 6 million chickens, 60,000 pigs and eggs from 200,000 hens to feed the workers and their families../../._span style_.css"mso-spacerun: yes">   

Taming the Yangtze was a dream going back to the ../../__147.css;Grand Tactics to Build up the Country” proposed by Sun Yatsen in 1919../../._span style_.css"mso-spacerun: yes">  The river is ../../__147.css;…home to 300 million people and rests in one of the world’s most fertile regions../../._span style_.css"mso-spacerun: yes">  In an 11-month growing season up to three varieties of rice and other crops are raised in the rich alluvial soil left behind by centuries of flooding.”[25]  Plans were ultimately put together for beginning the project during the 1930s and 40s, but with the advent of World War II, all hopes for progress were shelved../../._span style_.css"mso-spacerun: yes">  Ultimately, in the early 1970s, Chairman Mao gave his official go ahead to the project, but it was another two decades before all the pieces fell into place../../._span style_.css"mso-spacerun: yes">  One of the major advantages this project derives from the fact that the air quality in China is among the worst in the world../../._span style_.css"mso-spacerun: yes">  China burns primarily fossil fuel for energy, and that takes the from of high-sulphur coal.[26]  Energy is produced by 430,000 medium- and small-scale industrial boilers (95 percent of them coal-fired), and China consumed over 350 million tons of coal.[27]   

Because of this fact, fully a quarter of all deaths in China are caused by pulmonary disease../../._span style_.css"mso-spacerun: yes">  This problem is becoming more endemic every minute../../._span style_.css"mso-spacerun: yes">  China once one of the poorest countries on earth, yet in a short span of time has become the fourth largest producer and consumer of electrical power on earth../../._span style_.css"mso-spacerun: yes">  That progress has come at an enormous premium../../._span style_.css"mso-spacerun: yes">  A recent World Bank study estimated the total cost of air and water pollution at about 8 percent of China’s Gross Domestic Product, or about $50 billion annually.  

The Journal of International Affairs published some interesting statistics on the above subject in an article by Lawrence R. Sullivan entitled, ../../__147.css;The Three Gorges Dam and China’s Energy Dilemma”:  

../../__147.css;This energy has not only fueled domestic economic growth rates of 8 to 10 percent   during the 1980s and early 1990s, but it has also turned the People’s Republic of China (PRC) into a major indigenous producer of energy equipment and an important buyer on the international market../../._span style_.css"mso-spacerun: yes">  One of the most energy-intensive economies in the world, China consumed 37 quadrillion British thermal units (BTUS) of energy in 1996, two-thirds by its industrial sector../../._span style_.css"mso-spacerun: yes">  Of total energy production in the same year, 70 percent came from coal-fired thermal plants that burned 1.4 billion tons of coal../../._span style_.css"mso-spacerun: yes">  Consequently, China has attracted the interest of such notable energy multinational corporations as the American Bechtel and Westinghouse and Switzerland’s Asea Brown Boveri (ABB) and has received huge financial support for various energy projects from the World Bank and the U.S. Export-Import Bank../../._span style_.css"mso-spacerun: yes">  Unfortunately, its heavy reliance on coal as a source of energy has made China a major contributor to carbon emissions../../._span style_.css"mso-spacerun: yes">  In 1996, total emissions were 805 million tons, or 13 percent of the world’s total, second only to the United States in gross terms.”

The article goes on to say that, ../../__147.css;in spite of the fact that five of the top ten most polluted urban areas in the world are located in China – including Chongquing in the province of Sichuan – the Chinese government has put great emphasis, beginning in the early 1980s on expanding electrical power generation by as much as 9 percent annually, with much of it coming from increased production and burning of coal.” 

There is a lot of downside to the massive undertaking that many Chinese are now calling the ../../__147.css;modern Great Wall.”  The area in which it is located, among the magnificently beautiful in the world, Three Gorges Canyons,  has inspired Chinese poets and writers for centuries../../._span style_.css"mso-spacerun: yes">  Most of what has stirred them will vanish, with the water level rising almost 600 feet in the canyons, very little will be left of the once magnificent panorama../../._span style_.css"mso-spacerun: yes">  In the meantime, when backed up, the river that will be formed by the dam will destroy both villages and artifacts that have been in use for centuries../../._span style_.css"mso-spacerun: yes">  As the waters of the dam backup through century of ancient human civilizations and modern mines and factories, the pollution of the Yangtze will rise to dangerous levels../../._span style_.css"mso-spacerun: yes">  Both the World Bank and the U.S. Export Import Bank have agreed that the negative environmental impact of the dam is just plain too high for them to become involved in financing it.  

The government is moving as many archaeological sites as possible to escape the rising waters, but critics say that as many as 1,300 valuable, historic sites will disappear forever beneath the dam’s waters, including a number of stone-age sites 30-35,000 years old../../._span style_.css"mso-spacerun: yes">  Nineteen cities and 326 villages are in the water’s path, while the 530 million tons of silt that will be backed up yearly is expected to clog the river channels of the city of Chongqing for decades../../._span style_.css"mso-spacerun: yes">  Up to 2 million Chinese will have to be relocated, and although they will not have much choice, there is not equivalent land available[28].  

Critics of the dam suggest that in no less than 70 years shipping on the Yangtze will grind to a complete halt, caused by the massive amount of silt that the river’s no longer raging torrents will be able to carry downstream../../._span style_.css"mso-spacerun: yes">  ../../__147.css;Some hydrologist say, the Yangtze’s heavy load of sediment and its shifting floor of gravel will hamper the dam’s turbines, fill the bottom of the reservoir and cause even worse flooding.”[29]  Moreover, there does not seem to be much doubt that the Baiji river dolphin, already on the Chinese government’s endangered species list, will be wiped out of existence by the Three Gorges Dam project../../._span style_.css"mso-spacerun: yes">  

While all of the inhabitants have been promised new land for the property that they are going to give up, the ../../__147.css;promised land” is nowhere as rich as the alluvial soil fund abutting the Yangtze River../../._span style_.css"mso-spacerun: yes">  In many cases, people have been placed in homes on mountaintops where the soil will produce literally nothing or totally different and less profitable crops../../._span style_.css"mso-spacerun: yes">  Worse yet, the dam is constructed directly over an earthquake fault line, which could cause even greater problems down the road../../._span style_.css"mso-spacerun: yes">  

This is not the first time the Chinese have tried to dam the Yangtze../../._span style_.css"mso-spacerun: yes">  It had been attempted once before in the late 60s and early 70s../../._span style_.css"mso-spacerun: yes">  In an article from the Sunday Telegraph London, 9/29/96,a story called ../../__147.css;Valley of the Dammed” by Elizabeth Gilbert, tells what happened better than we could ever do.  

../../__147.css;I was an act of savage ambition, even during the post-war era of proud happy dams../../._span style_.css"mso-spacerun: yes">  America had Hoover, Egypt had Aswan, but the Chinese wanted something else altogether: a network of 62 dams along the Yangtze, the Yangtze, the third-largest river in the world, a muddy brute and unpredictable killer../../._span style_.css"mso-spacerun: yes">  But China persisted, technology triumphed, and the project was duly completed../../._span style_.css"mso-spacerun: yes">  The whole system performed perfectly until August 4, 1974../../._span style_.css"mso-spacerun: yes">  That was the morning it started to rain.”  

../../__147.css;The rain turned into a typhoon, which caused a flood../../._span style_.css"mso-spacerun: yes">  On the night of August 7, all 62 beautiful new dams broke, one after another, in a fast row, like buttons on the Incredible Hulk’s shirt – pop!  Pop!  Pop!~ - all the way down the river.”

../../__147.css;The last dam to fall that night was a monster called Banqiao, the pride of the fleet../../._span style_.css"mso-spacerun: yes">  Banqiao had been constructed under Soviet supervision and was called the Iron Dam because – officially – it was indestructible../../._span style_.css"mso-spacerun: yes">  When the flood wave reached Banqiao, it crumbled in an instant – taking with it a string of workmen who had just been sent out across its crest (in the dark, in waist-deep water) to build with sandbags a last line of defense against the river../../._span style_.css"mso-spacerun: yes">  Tens of thousands of people died in the immediate aftermath; a hundred thousand or more died in the following months from famine and disease.”

There is no question that this is one of the greatest engineering and architectural projects ever attempted in the history of mankind../../._span style_.css"mso-spacerun: yes">  There is no question that the Three Gorges Dam will provide clean energy for a country whose lungs are about to burst from the pollution../../._span style_.css"mso-spacerun: yes">  It appears equally true that there are many important downsides to the equation as well../../._span style_.css"mso-spacerun: yes">  Interestingly enough, history judges monoliths by their sheer size and technical prowess, as opposed to their utility../../._span style_.css"mso-spacerun: yes">  The Three Gorges Dam will rank along with the Great Wall and the Pyramids as attributes to the human ego. 

In an interesting sidelight to the story, an elderly Chinese official named Madam Qian Zhengying is the chief government proponent of the dam project.  A few decades ago she was also in charge of building the 62 dams that all broke in one night. 

MISSTEPS 

Recently China entered the global trading arena perceived as full-grown. As in Russia before them, the Chinese had little experience with international economics.  Business practices like balancing the budget, delivering when promised and keeping their word were alien. China seemed to want to participate in everything all at once,  like a kid walking into a candy store.  

The Chinese have historically been perceived as high rollers. Many of their industries soon gravitated to international commodity trading and the world wanted their business. The only problem was that the Chinese became so transfixed with the game that they neglected to study the rules.  Their mandate from the massive government companies was to bring home the bacon, and they chose the most direct route to accomplish their task.  

Had not China's credit over the years been superb in spite of their isolation? So the world let China play but the field was not level. Each of China's massive state run companies set up competing commodity operations with the motive of bringing in enormous profits. These companies offered to represent all Chinese industry and each became a representative of a cadre of clients needing a wide assortment of goods from the West. All of these companies were perceived by western trading partners as having excellent credit because all presented themselves as agencies of the Chinese Government.  

Thus, the traders for these operation were perceived as having  the power of the pen over transactions. not just by a multinational entity, but for a large nation with good standing in the world community. that could lead to a disaster of far greater proportions. If this country sanctioned this type of speculation as in their national interest, they would not be just betting their country, but they would be gambling the resources of the other nations and companies as well. Such is the situation in China today.  

As nations furtively take their first look out at the globe from behind self-imposed barriers and attempt to join the world’s economic players, they sometimes attempt to move too quickly in areas in which they have little or no sophistication. When China took its first small steps towards becoming an economic superpower it realized that it would need to beef up its heretofore-restricted trade policies with the rest of the world. An infrastructure had to be created in order to be competitive and that would require the purchase of raw materials from all corners of the globe.  

WRONG 

One of the largest companies in the world, China National Nonferrous Metals Company, employs two million people and will process 2.55 million tons of ten nonferrous metals this year. It handles $2 billion in foreign trade and is certainly well versed in what the country would need to carry out its mission and where to find it.  

Nonferrous sent tentacles out, in the form of offices, to global trading centers in an effort to become an international player in the nonferrous metals trade. Originally, the operation lacked any structure, since Chinese companies had little experience in setting up international subsidiaries. China had not entrusted its fate to outsiders for many years and found the nuances of commodity trading difficult to grasp.  

ON THE JOB TRAINING 

Thus, transplantees from Nonferrous opened up operations in New York and began extensive commodity trading with an emphasis on aluminum, which was in short supply in China. Brokerage accounts were opened with Lehman Brothers and Merrill Lynch, among other major U.S. firms. Trading proceeded at a furious pace and when the dust cleared, nonferrous employees in the United States had caused the company losses in the hundreds of millions of dollars. China blithely proclaimed that because the transactions were not sanctioned, they were not a legitimate debt of the country and would not be paid.  

The international economic community shuddered and missionaries took it upon themselves to politely explain to the Chinese that if everything had worked out well, China would have pocketed the profit without so much as a thank you. On the other hand, it was carefully spelled out, if you want to be a player in the global arena, you have to back your bet with cash. The American brokerage firms had added to the problem by not demanding either sufficient margin or any margin at all on the trades, and thus were out the entire amount. Chinese authorities pondered long and hard over what they had heard.  the international community would hold them responsible for their own acts seemed to have taken the leadership by surprise.  

The concept that the Government of China could be held responsible for an act committed by an errant employee of a small subsidiary of a wholly owned government corporation was beyond their comprehension. In Beijing, the matter was weighed mightily, with government officials arguing the pros and cons of accepting responsibility for their own acts.  It was a close call, with China  determining to make good on their mistake. If this had not happened, China, would not have been welcomed to the global trading table for some time to come.  

LET'S TRY AGAIN 

China, which learned little from its first foray into the commodity markets, was one of the few players on the long side of copper, getting there just before Sumitomo Corporation pulled the plug on the errant trader who had lost them $2.6 billion. China's losses were horrendous, and it was felt that the government would tighten the reins on seemingly the Chinese traders who had dreamed up unworkable scenarios. 

Not exactly.  Nonferrous stuck its foot into the water again in zinc. They predicted that zinc prices would collapse.  Chinese smelters, believing that the government could do no wrong, sold it short. They were wrong again, and zinc rose 40% to almost unheard of heights before China’s losses were locked in by government order. When the smoke cleared the Chinese smelting industry had lost a very substantial amount of money.  That, you would think, under normal circumstances would be enough to dissuade the lemmings from continuing to march to the sea.  

ONCE MORE NOW, BUT WITH FEELING 

Not exactly, the Hainan Commodity Exchange, for some inexplicable reason, determined that margins were no longer required for the acquisition of rubber contracts. The ability to speculate without funds generated massive buying at the rate of 50% over the world price. Obviously, if you had rubber to sell, you would sell it where you could get the highest price, imports ../../poured in and the market_nbsp.css; broke.  Today, most of the former customers of the Hainan Commodity Exchange are sadder, but wiser and infinitely poorer.   

The Wall Street Journal August 25th, 1997, put the China commodity scene into perspective:  

China’s 14 commodity exchanges mostly are small, inefficient and corrupt. Last month, the heads of two exchanges were removed for alleged collusion with speculators. More than 120 of China’s 300 futures-brokerage firms are near bankruptcy, government officials say. Adds Alan Williamson of Deutsche Morgan Grenfell in London: “China is now the major preoccupation of world markets, the problem is, no one understands what’s going on.’”      

 

We are forced to add, neither do the Chinese, and if they don’t figure it out in a hurry, we can all be in big trouble.([1]). 


 

[1]  Citibank estimates that by the year 2000, 50 - 60 percent of trades will be settled on the day of the trade, and the rest within three days.

 

 

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