A Tale of Two Countries

Brian Hicks

Updated October 24, 2005

Picture a society of factories and filth. On city streets, the black smog is so thick, it’s like sucking on an exhaust pipe.

I’m talking about a place where farm folk swarm cities from their rural homes, in search of a meager urban existence. The giants of industry escape to the erstwhile homelands of their workers, to breathe the clean air they have not yet sullied in their drive towards Progress.

The poor of surrounding countries dream of taking part in the boom, and at great personal risk they cross deserts and seas to win bread for their families. The government lends its assent to this whole process, even as factories catch fire with child laborers trapped inside.

Single firms are authorized to monopolize entire national chains of production, and competitors are trounced like mice underfoot.

This was the United States circa 1900.

Is History Repeating Itself?

I hope you had a chance to listen to my interview last week with Mike Norman on the Business Radio Network. If you don’t know Mike, he’s made a name as the Economic Contrarian, decrying the hot trends of the business world with an acrid incredulity that makes fickle investors think twice.

Mike thinks China is like a child actor, making everyone fall over themselves with admiration while really there’s a parent just off-camera coaxing the cutie. Mike also worries that, like a child actor, China will turn out to be a mess, good for nothing but grocery store openings and VH1 flashback shows.

I think China is the real deal – more Jodie Foster than Tatum O’Neal.

China is making up for a long spell of economic dormancy, and people seem to forget what a mess we made in our industrial infancy.

China is dirty, and the Chinese know it. A fellow waiguoren (foreigner) once told me a story of China’s seemingly Sisyphean effort to clean up its act.

The city of Chengdu is shrouded by black smoke. As in many locales in the Middle Kingdom, pregnant women are compelled by doctors and logic to wear surgical masks as they go about their day. Those who do not wear masks are treated to the vision of black snot on their handkerchiefs.

"What will you do about this terrible pollution," my friend asked a Chengdu native. "Why, we’re planting trees!" the Chinese replied ebulliently and self-assured. Of course, trees produce oxygen which would make up for the stifling carbon dioxide smoke.

Trees were indeed planted, and they promptly wilted and died as they were exposed to the same toxic soot as Chengdu’s other organisms. This is, unfortunately, what industrialization looks like.

I Learned by Watching You!

Luckily, the West has already experienced the most horrific aspects of this process and so we can act as a helpful big brother, advising the Chinese on what should be done to ensure not only economic growth but healthy, clean living.

Though we in the States often choose profit over purity, we can put our two cents in when it comes to China. We can best do that through investment.

When we invest in China’s growth, we are not only helping a rising power. We are helping the last Socialist giant to understand the benefits of the global marketplace we have extolled throughout decades of geopolitical chess.

Whatever you thought about the Cold War ideologically as good vs. evil, it boiled down to that simplest calculus: What creates a quality life for the most people?

Unfortunately, no economic system has found a way to spread happiness to every individual, but it is our basic tenet that mobility rather than social stagnation is the best way to achieve widespread dignity and prosperity.

The Chinese economy is moving in the direction of the Western model. Not because the Chinese suddenly reject Mao as founder and want to remove the sickle and hammer from their consciousness, but because dogmatic Marxism just won’t work as an economic paradigm for a ten-figure population.

It is human to compete. It is also human to try to mitigate harm, and we have to balance those reflexes through consensual government and trade.

Walking the Economic Tightrope

No nation is exempt from history’s vicissitudes. China now finds itself in a precarious position, balancing one ideology that has fallen short of its promises with another, currently more popular system which also might not deliver.

But as Treasury Secretary John Snow said in China this week: "Where we find our differences, they are largely on the questions of the sequence and pace of reforms, not the direction."

So China is moving with us.

I once translated a Soviet banner from Russian to English. The red satin bore Lenin’s face, a quotation, and the following admonition to the workers of an anonymous factory somewhere in the U.S.S.R.:

"Be victorious through Socialist competition!"

Huh? Socialist competition? Isn’t competition a Capitalist ideal?

Well, it turns out that unless you want people to sit around and play backgammon all day while eating government cheese, they need a kick in the pants.

The Chinese Model Worker Can Dunk!

The Chinese Communist Party has named Model Workers every year since 1950. Usually, the CCP would name plumbers, cement mixers, workers on collective farms and their ilk to this distinguished list.

This year, Houston Rockets center Yao Ming, a Chinese expatriate earning US $17.8 million a year, is a Chinese Model Worker.

So it seems that the Party’s founding principles are on shakier ground than we thought, and by its own volition.

The Chinese like their -isms. Legalism, Confucianism, Taoism, Communism… They have all promoted a sense of national ethics, which is comforting and (with the exception of Taoism) conducive to the maintenance of power. Why not Capitalism?

Right now, Capitalism is still a dirty word. Just like invoking Communism will draw cockeyed stares and furrowed brows here in the U.S., China is still somewhat piqued for the Cold War. But history is a process of balancing ideologies, with the added bonus that ideological shifts have gotten less and less drastic over the ages.

Some sea changes have been astounding in their calmness, like the dissolution of the Soviet Union. The Evil Empire didn’t go out with a bang, it just fizzled. And today, as in pre-Soviet Russia, they still have plenty of corruption and state control.

So Communism is not the cause of all that is bad, and Communism does not preclude all that is good.

Running on Borrowed Brains?

I have heard plenty of pessimism about the Chinese political system and how it stifles innovation. I have even been told firmly by the likes of Mike Norman that Chinese companies are forced to hire foreign technicians simply because the one-party system chokes the society intellectually.

Well, tell that to the 750,000 engineering students graduating yearly from China’s universities. The U.S., by the way, graduates close to 60,000 engineers per year.

High-tech business at Phoenix Laboratories, the world’s leading developer of BIOS software (which allows computer software to communicate with hardware…pretty important stuff), is conducted in Mandarin.

Abundant in numbers and highly qualified in technical skill while super-cheap by American standards, Chinese engineers are the norm and not the exception for foreign firms operating in China.

A New Chinese Century

I said it before and I’ll say it again: You have to ditch your old concept of China. There are still plenty of things you might not like about the government’s policies, but I think all of us could say negative things about the way our own country is run.

The current foreign attraction to Chinese markets is not a fad. This is not the Internet bubble, inflated with ephemeral promises bought by prophecy’s fools. This is history in the making, and it will happen with or without you.

I understand hesitancy to put your money in an unknown commodity. But then again, if you’re unwilling to take financial risks you should probably just stick your Benjamins under the mattress and hope no one finds them.

You don’t have to send your money to Shanghai to invest in China. New York and Toronto present many opportunities to get involved by proxy. I guarantee you that a company you trust is doing business in China, and there are many Chinese firms that will prove themselves trustworthy to your great benefit.

You will prove yourself smarter than the short-term players by doing research, developing a strategy, and of course by reading Waking Dragon. Show your skills by getting in the game, not by scoffing from the sidelines.

– Sam Hopkins

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