The Reality Behind China’s Economic ‘Miracle’ (Part II)
Section 4: Money Made in Real EstateSection 5: Slavery in Modern ChinaSection 6: China PollutedSection 7: The Chinese Communist’s Way of Environmental Protection- City Officials Choose Growth Over Environment Transplanting Trees Campaigns: ‘ignorant and stupid’ Government Suppresses Desires for Clean Environment
Section 4: Money Made in Real Estate
Closely related to the frequent land grabs were the opportunities to make a lot of money in real estate. In a regime where the legitimacy of the ruling party is measured by how well the economy delivers, municipal and lower level officials are highly motivated to take credit for advancements in the local economy. One way to boost their resumes and inflate the growth figures in their territory is by promoting real estate development. It can accomplish several things at once. The land use fees paid by the real estate developers is a major source of local fiscal revenue. The real estate business also increases an array of related sectors such as steel, cement, construction, furniture, and consumer electronics. At the same time, it reduces unemployment, which is a major factor affecting state stability.Unaffordable Housing
The triad of state bank, local government, and real estate developers brought about a highly profitable system for all except for the poor Chinese farmer. The local governments leased the lands to the developers, who borrowed the money from state banks. The land lease fee, housing price, and loan amount are thus tightly bound together. When the local government hiked up the land lease fees for more fiscal revenue, and while housing prices continue to escalate due to growing development costs, the banks are placed in a quandary: they must play along and approve large, questionable loans because they can’t let the housing market falter. Yet, they cannot afford defaults by the developers.The average housing price in China is beyond what can be afforded by a normal family.
In 2011, the average housing price in Beijing and Shanghai climbed to 20,000 yuan per square meter (U.S. $350 per square foot). The price inside the Inner Ring Road went as high as 50,000 yuan per square meter (U.S. $875 per square foot), while the high-end housing market saw its price also approaching 50,000 yuan per square meter in the first quarter 2012. Even for white-collar professionals in Shanghai and Beijing, such housing prices are way beyond their affordability.
A commonly cited international measure for housing affordability is the Price to Income Ratio (P/I), i.e., the ratio of median housing price to household annual income. An accepted reasonable range is from three to six. In another words, an affordable housing price should fall between three to six times the household’s annual income. If the ratio is below three, then there is an under-demand in the housing market, making the price relatively cheap. If it is above six, the price would exceed affordability of urban residents. Using ratios circa 2011, Hong Kong’s Price to Income Ratio was viewed as one of the highest in the world, reaching 15.6. New York was almost 10, London 12, and Tokyo was at eight. The circa 2011 Price to Income Ratio in almost all the Chinese cities is above 10, with the largest cities over 20. Such high housing prices cannot last long. If house prices fall, it will cause the whole related capital chain to break and trigger an economic crisis.
It should be pointed out that there was a difference in viewpoint between the central and local governments in how corruption affected housing affordability. The local governments wanted to grab land and rent them out for projects, as the land sales income was a major source of local government’s fiscal income, but the same cannot be said of the central government. The massive drive by local governments to expel farmers off the land and rent it to the developers led to the world’s highest housing prices due to corrupt officials lining their pockets. From the standpoint of the central government, however, this development became a serious problem. It had to assuage the ordinary people priced out of the housing market in some way, and had to address the very real threat of a housing bubble that could bring down the Chinese economy.
An online joke gives a humorous description of the burden of buying a house for an ordinary Chinese person.
“Recently, a state authority issued statistics about buying a house. If you don’t belong to any of the three types—extremely rich, high official, or big name celebrity, the labor costs for various social classes to buy a 3 million yuan (U.S. $450,000) house of 100 square meters (1,076 square feet) are the following:
-For a farmer with the net income from one mu of land of 400 yuan (U.S. $60), he would have to farm three mu (0.5 acre) of land going back all the way from the Tang dynasty over 1,000 years ago till today.
-For a factory worker with a monthly wage of 1,500 yuan (U.S. $225.5), he would need to work from the Opium War in 1846 till now and could not take Saturday and Sunday off.
Corruption Especially High in Real Estate
The real estate industry in China is highly lucrative. Ever since 2002, China has published a list of the most profitable industries. Real estate has always been among the top ranks. On the 2002 Forbes China Rich List, more than 40 billionaires of the top 100 are involved in real estate. Probably no other country in the world has a higher proportion of billionaires that prospered from the housing business.The government issued laws and regulations to ensure that the state has a monopoly over the primary land market, and that the government collects taxes over the transfer of land use fees. However, there is a huge grey area when officials approve the transfer of land usage to developers.
Chen Liangyu, a core member of the Shanghai Gang and Jiang Zemin’s long-time confidant, was mayor and Party chief of Shanghai from 2002 to 2006. Chen was notorious for his utter depravity.
Real estate developers routinely colluded with officials and obtained land by diverse means. The typical process starts with bribing local government officials in charge so as to obtain a piece of land at a price far below market value. After making a minimal down payment, the developer then acquired the necessary paperwork for the loan application. Another bribe of the bank’s executive is then necessary for the loan approval. All the bribery costs are recouped in the sky-high housing price. It is no secret that 30 percent of the housing price is the transaction costs, a euphemism for the bribes.
A high concentration of corruption cases always falls under the rubric of real estate. In the early 2000s, most of the sacked officials had their hands in real estate scandals.
In early 2005, Wang Yan, the former assistant mayor of Qingdao, was charged with bribery of 4.96 million yuan (U.S. $744,000) and sentenced to death with a reprieve for two years. Former Qingdao Planning Bureau Chief Zhang Zhiguang was charged with bribery of 8.6 million yuan (U.S. $1.3 million) and received the same punishment.
For example, knowing that one company did not have the capacity to pay for the land transfer fees, Wang Yan made an arrangement so that the city’s Bureau of Land and Resources waived fees as high as 160 million yuan (U.S. $24 million) and issued the certificate of land usage rights. The company made an enormous amount of money and Wan Yan received a “reward” of 120,000 yuan (U.S. $18,000).
Real Estate Speculation
The ever-soaring prices made housing speculation exceedingly profitable compared to other industries. Numerous companies, state-run or private, could not resist the temptation. In June 2009, Sinochem, a Fortune Global 500 company and state giant, bought a piece of land in Beijing at an astronomical price of 4.1 billion yuan (U.S. $0.6 billion).[9] Soon afterwards, many state owned companies followed suit. According to a report published by property research institute China Index Academy, eight among the top ten “land kings” in 2009 were state enterprises.[10] In early 2010, the State Council issued a directive to regulate the state enterprises’ investment in land and housing.Section 5: Slavery in Modern China
Slavery refers to a system whereby humans are classified as property, who are owned, bought and sold. A well-known slave regime was ancient Rome. In addition, ancient Greece, ancient Egypt, ancient Babylon, the southern states of the U.S. before and during the Civil War, and some colonies of England, France, Spain, and Russia practiced slavery. Under the system, slaves undertook the most arduous and heavy labor usually under violent control. The slave owners took possession of the products from the slave labor, while the slaves received minimal subsistence to live on. Of course, in some cases, such as in ancient Rome, slaves had some low-level legal status and sometimes could even buy their freedom.Modern day slavery in China is quite different in form but still has much in common with the ancient versions. As in ancient times, the worker in China lacks freedom and autonomy natural for a free human being. The Chinese “slave” tends to do the drudgery tasks, i.e., repetitive, unfulfilling work in China’s production factories, working very long hours, under strict, tyrannous control, often under hazardous or unhealthy conditions, at subsistence or less than subsistence wages, and housed in crowded, harsh environments. Workers are subjected to enormous pressure to produce quickly to meet production quotas. Human needs, such as having enough rest for a day’s work, work breaks, use of restrooms, etc., are not recognized or are severely restricted.
Sweatshop Labor
While slavery as a social institution has been abolished by human civilization, its characteristics still persist around the world. The term “sweatshop” first appeared in the United States in 1867, and later referred to a workplace of poor, socially unacceptable working conditions. When the multinational companies invaded China, the modern sweatshop began to mushroom in China. It is found in the factories of Microsoft, Apple, Nike, and other large multinational corporations.In December 2015, U.S.-based Institute for Global Labor and Human Rights (IGLHR) issued a report “Dirty Toys Made in China,” giving a detailed account of the working conditions of a sweatshop in southern China.
“Popular toys, sold by major retailers across the U.S., Europe, and Australia, are made under harsh and abusive conditions at the Dongguan Zhenyang Wanju Limited factory in China by young workers forced to toil 12 to 13-plus hour shifts in near-freezing conditions, earning as little as $1.36 an hour and sleeping in crowded dorms on narrow wooden bunk beds.
“The Zhenyang toy factory has over 1,000 regular employees and 800 temporary and student workers, many of whom are just 16 years of age. Workers are required to be between 16 and 30 years old and two-thirds are women.
“Workers are not allowed to move from their work stations, or even to drink water. They must get a special pass to use the bathroom, and each production line of 35 to 50 workers has only one pass.
“In the spray paint department, the workers do not always have fans. Nor do they have masks. The spray paint and printing work rooms are full of fumes from chemicals, including industrial alcohol, phenylenediamine and sodium peroxide. Workers just starting in this department often feel nauseous and dizzy, and have headaches.
“A worker told us that she had to make 2,400 Disney doll legs in a day—an average of 218 legs per hour! She said, ‘You can’t take your eyes off it for a second.’”
“All overtime is obligatory and sick leave is not allowed.”
Hong Kong-based VTech is the world’s largest manufacturer of cordless phones and the leading supplier of corded and cordless phones in North America. It has licensing agreements with AT&T and Motorola, and is an exclusive supplier for Deutsche Telekom and Telstra in Australia. VTech telephones are sold at Walmart, Target, Staples, Sears, and other major retailers.
Thirty thousand workers at VTech’s three plants in Guangdong, China, are held under deplorable and illegal sweatshop conditions, as disclosed by IGLHR.
“Mandatory 12- to 15-hour shifts, from 7:30 a.m. to 7:30 or 10:30 p.m., six days a week. Workers are at the factory 74 to 77 hours a week, while working 68 to 71 hours, including 28 to 31 hours of obligatory overtime.”
“Workers are forced to stand all day.”
“Every 11.25 seconds a circuit board moves down the assembly line, and each worker must plug in four to five pieces—one operation every 2.25 to 2.8 seconds. The workers do this all day, all week, all month, and all year.”
“Workers who fail to meet their mandatory production goals are forced to remain working, without pay, until the goal is met.”
“Workers earn a below-subsistence wage of just $1.09 an hour. One worker told us: ‘I’m afraid I’ll never make a decent living in my life.’”
“Workers are housed in primitive dorm rooms, eight in a room, sleeping on narrow plywood bunk beds. Workers report, ‘It’s filthy, like living in a pigsty.’”
In November 2006, Hong Kong-based Students and Scholars Against Corporate Misbehavior (SACOM) published a report, “We Want Clean Computers!—No-Sweatshops Campus Campaign,” focusing on the working conditions of the computer manufacturing industry in China. SACOM identified three computer supplying factories of the computer company Dell in Dongguan, Guangdong Province. Information was collected from internet resources, corporate profile research, interviews with workers, and informants related to the three factories.
“Workers work in excess of 370 hours a month at peak season and close to 300 hours in a month of the low season. A standard day of 11–13 hours starts at 7:30 a.m. At peak season, overtime is sometimes extended through the night.
“Factories employ hundreds of children under 16 years old, working long hours of excessive overtime beside adult workers.”
“Daily wages only 17 yuan (U.S. $2.60), hourly wage 2.1 yuan (U.S. $0.32).
“No paid time off.”
“Workers fined for not sitting straight at the production line, for failure to have the uniform on properly. Wage deductions for not punching in to work. Workers are expected to pay for expenses if they fail to meet production quotas.
“A production line of 80 workers has only one pass for giving workers permission to go to the toilet. Eight to 12 workers share a primitive dormitory room.
“Workers under direct exposure to chemical poisoning, repetitive work hazards, and eye problems. Personal protective equipment is not provided.
In 2011, five former employees of Gucci’s Shenzhen store circulated an open letter to their top management on the Internet. The letter provided a list of labor condition complaints.
“Standing for more than 14 hours a day. No short rest, water, or food was allowed even for a pregnant employee.”
“Long time standing has caused spinal disease, skeletal deformities, varicose veins, infertility, recurrent miscarriage, other diseases.”
“Long working hours: normally from 9 am to 12 midnight. The daily inventory checking extends till 2 or 3 am and are not counted as normal working hours.”
“Gucci’s Shenzhen flagship store chose not to install a security system. All store employees are collectively liable for any stolen luxury goods, even though the goods had been insured.”
Labor Camp Products
It’s long been a standing practice that the Chinese communists use prison labor to make export-oriented products. When Jiang Zemin’s persecution of Falun Gong began in 1999, the prisons and labor camps across the country received an immediate surge of inmates. In its 2008 Human Rights Report on China (includes Tibet, Hong Kong, and Macau), the U.S. Department of State stated, “Some foreign observers estimated that Falun Gong adherents constituted at least half of the 250,000 officially recorded inmates in RTL (reeducation through labor) camps.”[17]In China’s prisons and labor camps, Falun Gong practitioners were subject to forced labor to manufacture products. They had to work long hours under harsh conditions. If they could not finish their assigned quota, they had to keep working and so were usually deprived of sleep. If they refused to do forced labor, they would be subject to torture. In order to get more cheap labor, labor camps often willfully extended the detention of these illegally detained Falun Gong practitioners, causing physical breakdowns and extreme mental distress.
While reeducation through labor camps were officially abolished by Xi Jinping in 2013, they may have continued under a different form or new name, such as the drug rehabilitation centers. Incidentally, the prison labor camps (laogai) are a totally separate system from RTLs.
Chinese prisons and labor camps outwardly appeared as normal enterprises to outsiders, and, in many respects, they actually were. The wardens and labor camp officials were the CEOs and executives, while the prisoners and inmates were the employees. The Chinese government even incentivize these forced labor “enterprises” by waiving corporate tax or land use fees, which added to their capital for expansion. As a result, these enterprises needed more slave labor. Some labor camps would seek more Falun Gong practitioners from other labor camps. In some cities in China, local governments even advertised the cheap labor in prisons and labor camps as an advantage to attract foreign investment.
Most of these forced prison labor products are exported to countries and regions including the United States, Canada, Australia, France, Germany, New Zealand and Southeast Asian countries. Forced labor not only violates basic human rights, but also provides a financial incentive for building more incarceration facilities, enabling the imprisonment of more innocent victims. Furthermore, with the free labor, the prices of products fall below market value determined in the international markets, encouraging some foreign companies to break national and international laws and agreements (many countries prohibit the import and sale of products of slave labor) and participate in joint ventures with prisons and/or labor camps and facilitate the import and sales of (illegal) forced labor products.
Henan Rebecca Hair Products, Inc. is China’s largest manufacturer of hair products, with its products exported to over 40 countries in North America, Europe, and Africa. The company captured over 10 percent of the U.S. market between 2001 and 2003, and has grown to hold 16 percent of the world’s wig market in 2005.
Like Three Gun, Rebecca Hair’s cost advantage came from using labor camp detainees, including more than 800 Falun Gong practitioners in Henan Third Labor Camp, and Zhenzhou Shibalihe Female Labor Camp. They were forced to work day and night on products of Henan Rebecca under the threat of all sorts of abuse, torture, and corporal punishment. In order to earn greater profits, Henan Third Labor Camp even purchased Falun Gong inmates from other labor camps at a price of 800 yuan (U.S. $120) per person.
Due to Henan Third Labor Camp’s active persecution of Falun Gong practitioners, it was awarded a plaque by CCP’s 6-10 office and local authorities. The labor camp head Qu Shuangcai was personally responsible for the death of three female Falun Gong practitioners.
Low Wage Advantage
Over the past twenty years, the high growth rate of the Chinese economy has been largely fueled by its exports in international trade. The chief reason that Chinese products can flood the U.S. and European markets is because they are cheap; they are cheap because of the “sweatshop” working conditions and the slave labor discussed above.To maintain the level of economic growth relying mostly on exports, it was thus expedient for the Chinese communist leadership to view the low wages of the working Chinese population as a necessity. The deplorable working conditions for the poor and imprisoned puts China at an advantageous position in terms of the economy.
At the same time, low labor cost induces multinational corporations to move their production base to China, bringing in another benefit to the Chinese economy—foreign investment.
Section 6: China Polluted
A Poisonous Land
Jiangsu is one of China’s most affluent provinces. Changzhou, one vertex of the Suzhou-Wuxi-Changzhou triangle, is located in the most developed area of Jiangsu. Changzhou Foreign Languages School has a middle and high school that attracts the city’s academically high-level performing children.One day in January 2016, thousands of parents of the students protested at the city government compound and urged the school to relocate again.
Since the school moved to the current new location in September 2015, many students have shown abnormal symptoms. 493 out of the 641 students (77 percent) who underwent physical examinations were found to have dermatitis, eczema, bronchitis, blood abnormalities, or leukopenia. A few were even diagnosed with lymphoma and leukemia.
The school’s new site neighbors on the tract of land of three former chemical plants. Media had reported about their potential pollution risks to the soil, underground water, and air.
Despite the protests, local government claimed that “key air quality indicators associated with soil remediation conform to the national standards.”
The incident continued to brew and escalated to nationwide attention before the truth began to surface. According to a former employee in one of the three chemical plants, the plants routinely stored highly toxic substances: carbofuran, methomyl, isoprocarb, and cyano-naphthol. Sometimes the factory workers not only directly discharged the toxic waste outside the plant, but secretly buried the hazardous waste underground. Later, the plants moved away and the local government planned to use the lot for commercial development after environmental remediation.
As disclosed by a report on the environmental impact, the lot and its underground water were found to contain organic and heavy metals pollutants at a level greatly exceeding acceptable standards. The concentration of the toxic chlorobenzene in the groundwater and soil were 94,799 and 78,899 times higher, respectively, than the standard. The carbon tetrachloride concentration was 22,699 times higher than the normal level.
Although the local government initially disavowed the problem and even sent policemen to threaten and prevent the parents from further agitation, under public pressure, it backed off and promised to take their concerns seriously.
Pursuing Growth at All Costs
The story of the poisonous land that Changzhou Foreign Languages School sits on exemplifies the colossal environmental problems in China.After 2009, China surpassed the U.S. and became the world’s leader in energy consumption. In 2015, the total energy consumption of China alone was 23 percent of the whole world. The size of energy consumed by China was greater than the total of U.S. and Canada combined, or of the European Union. Although China’s total GDP was only 60 percent of U.S., its energy use was 30 percent more than the U.S. China’s energy consumption per dollar of GDP is 2.5 times of the world average, 3.3 times of the U.S., and 7 times of Japan, even higher than some developing countries such as Brazil and Mexico. Clearly, the Chinese way of production is inefficient, requiring massive usage of raw materials and energy sources. China’s form of energy consumption brings a huge side effect: environmental pollution.
Jiang Zemin’s words of guidance on economic growth are revealing. “Adhere to the central task of economic development, and focus on advancing the national economy.” These are the words that drove Chinese to pursue economic growth at all costs, and that prodded all levels of the Chinese government to bustle to increase the GDP figure.
The blind pursuit of more GDP led to the overuse of raw materials and energy sources, which in turn brought dangerous levels of pollution. This is why the incidents like that in Changzhou are taking place again and again.
When there is a conflict between the environmental protection and GDP generation, the preferred choice for local officials is more production. The GDP figure matters for their own résumés or personal benefit, the environment doesn’t. Many local governments even use “cheap waste disposal” as an “advantage” to woo foreign investment.
We can see the role of Chinese local governments from a few examples.
Maduo County in Qinghai Province once had the world’s best grassland. The area of grassland area was 64.7 percent of the total area of the county. At that time, only five mu (0.8 acre) of grassland was needed to raise a sheep. Today, 63.7 percent of the county’s total area is degraded grassland. That means that almost all of the grass has become degraded and sandy land. Today, it takes 1,000 mu (165 acre) of degraded grassland to raise a sheep. Causes of the degradation include gold mining, excavation of Chinese medicine ingredients, and Han ethnic Chinese settlers’ pasture policy. While the communist regime may not have instigated this problem, it has done nothing to arrest the development of lost grassland, and is indifferent to the threat of loss livelihood for those who depend on the pasture for their herds.
Not Fit to Live
Land and ForestIn the early 1950s, China had 11.2 billion cubic meters of forest, and today only 1.2 billion remain. With the exception of southwest and northeast China, and the Tian Shan range bordering between China and Kyrgyzstan, the forest areas of China are almost totally degraded.
Section 7: The Chinese Communist’s Way of Environmental Protection
City Officials Choose Growth Over Environment
A 2013 National Bureau of Economic Research paper studied Chinese city-level officials’ incentives in local government spending. Using city-level socioeconomic statistics, it found that city spending is strongly tilted toward transportation infrastructure, and less attention is given to spending on environmental protection. Officials are simply not interested in the latter despite the great need. The paper also finds that investment in transportation infrastructure strongly correlates with both real GDP growth—a significant factor in government cadres’ promotion prospects—and land prices, which affect city governments’ revenues from land lease sales. It further finds a statistically significant relationship, a negative correlation, between higher city-level environmental investments and the city’s top cadres being promoted.[31]Government officials want to spend money on transportation infrastructure because it directly relates to local GDP growth, which is a key criterion for promoting an official. More spending on transportation infrastructure also induces increases in the land price, which in turn creates more revenue for the local government. However, money spent on environmental protection, although having a beneficial environmental impact, does not immediately translate into added local GDP growth and does not directly help the official to get promoted. A cleaner environment might attract migrants and investment, including foreign investment, but its impact on recorded GDP growth is apt to be slower and spread out across the more distant future.
Transplanting Trees Campaigns: ‘Ignorant and stupid’
In the city of Zhengzhou in Henan Province, a large number of trees were transplanted to urban “green” areas and new communities, to give the false impression to people that they are truly addressing environmental protection. The campaign, driven by the pursuit for quick success, has gained massive momentum and forced the relocation of voluminous ancient and rare trees.[32]As a professor and forest expert pointed out, “Transplanting trees to make a city green is both ignorant and stupid. Every ancient tree is essential for ecological conservation and water and soil protection of its original habitat. These ancient trees were in a state of an ecological balance after hundreds of years. Once ripped away from their native soil and water environment, the trees lose much of their viability.”
“Transplanted trees usually have a survival rate of 30 percent. In fact, each of them is each trying to survive on its own, while most of them will die in a few years.… Behind the 1,000 ancient trees we see in the city, are the sacrifices of 3,000 of them.”
In 2003, Zhengzhou began to build a Garden of Ancient Trees, housing over 1,000 ancient trees. Over ten years, only eight among the original 1,000 survived. And then more ancient trees were transplanted there. Opposite the garden was a high-priced residential real estate project, luring buyers by featuring what was said to be a “beautiful green environment.”
Government Suppresses Desires for Clean Environment
Lake Tai, an ancient and once beautiful lake located in the affluent area of Southeast China, is no escape from industrial pollution. Pollutants dumped by over a hundred chemical plants nearby caused a type of green algae and its decay turned the whole lake fluorescent green. The stench from the lake spread miles away. Fishermen could no longer catch fish, and two million residents along the lake had to stop using Lake Tai as the main source of water. Wu Lihong, a volunteer environmental activist, had been publicizing the pollution of the lake for years. However, what Wu did went against the local government’s drive for economic growth. In March 2007, Wu was arrested by the local government. In mid-August, Wu was sentenced to three years imprisonment by the local court.[33]Section 8: Troubles In the Chinese Economy
The 1989 Tiananmen Massacre struck the final blow to the ruling legitimacy of the Chinese Communist Party. Socialism and Communism as an ideology had lost its last bit of appeal in China. The CCP has nothing left except to tout economic growth as the way to hold on to popular support. Beginning in the 1990s, a tacit understanding emerged between the Party and the elite: the Party gives the elites the opportunity to make a lot of money, and the elites don’t organize against the Party.Since then, the economic policies and institutions have undergone drastic changes. “To be rich is glorious” became the ongoing motto. At the same time, the political structure and legal system make progress only in baby-steps. Understandably, the CCP will never give up the one-party dictatorship and allow real democratic governance and the rule of law, which are the necessary prerequisites for a modern market economy.
Modern day Communist China is thus on a collision course. On one hand, it unleashed the human desire to pursue wealth in a big way, and, on the other hand, it steadfastly continued to deny people’s desire for information transparency, equal access to capital, private property guarantees, and an equitable application of the law.
Still, there have been two visible trends in the Chinese economy that are definite plusses. One is the retreat of the state’s high degree of command and planning of the Chinese economy; the other is the emergence and expansion of the private sector.
Nevertheless, two things remain unchanged. One is the omnipresence of the Party, and state and local governments’ hierarchical structure under the one-party dictatorship. Some organizations may have undergone name changes or a facelift, but their power in daily economic decisions has never been relinquished. The other is the social political privilege enjoyed by party cadres and employees of state enterprises, in other words, the elite group.
The naked power described above boils down to one reality: the economic policies and economic institutions degenerated to an arrangement for the privileged group to prey on the vast majority of the Chinese people.
We have seen this in every aspect of the Chinese economy. During the SOE reforms, state assets were greatly undervalued, and the majority of the shares converted from state assets were given away for free, or, at greatly reduced cost, to top officials. The state owns the land and officials decide who can rent it at what price. The super high housing prices paid by ordinary Chinese people go to the local governments as taxes and to state banks as loan payments.
The Chinese stock markets operate essentially as ATM machines to transfer money from millions of individual stockholders to the state enterprises, which are under the tight control of the elites.
The elites have many means to get rich while the majority of the Chinese people have no access. And all these means are perfectly legal and legitimate and even supported as government policies.
Lacking the privileges that elites have, most people have no avenue for a way up, and is the reason why there has been an ever-growing inequality of income and wealth.
Within less than twenty years, China has swiftly transitioned from a nation under the policy of egalitarianism into a country with a widening wealth gap.
The Gini coefficient of income, a widely used measure of inequality, stood at 0.469 in 2014, down from 0.473 in 2013, according to the National Bureau of Statistics. This change indicates there was a very slight improvement toward more equality. The coefficient is a measure of income distribution. A score of zero would mean perfect equality, while a score of 1.0 would represent that all the wealth was in the hands of one person, which would be the most extreme form of income inequality.
Still, China’s official numbers don’t square with some outside estimates. A report from Peking University has found that the richest 1 per cent of households own a third of the country’s wealth, and that the poorest 25 per cent of Chinese households own just 1 per cent of the country’s total wealth.
One only needs to look at who the rich are so as to understand the essence of the Chinese economy.
It is almost inevitable when economic development is for the purpose of maintaining power that the fruits will be largely pocketed by the powerful. As long as the rule of China is totalitarian, extreme wealth polarization will result.
In Chinese society, the primary reason why the vast majority of the wealthiest are rich is not because they work hard, but because they have power. If the mainstream avenue of gaining wealth is not equitable, and a fair channel is not available for people to succeed by honest means, the wealth inequality will likely accelerate moral degradation.
Driven by the pursuit of wealth, people will acquire wealth by unethical means. If most people in a society are following this behavioral model, the moral standards will plummet. A normal society where people naturally live by self-restraint, honor, and civility becomes abnormal, with people abandoning moral codes as greed and selfishness take over. People will consider unjust arrangements as just, and the corrupt as legitimate actors. In addition, as the rule of law is lacking or unfairly applied, doing bad things goes unpunished, and those who try to do what is right often end up being prosecuted. The wisdom of the aphorism, “what goes around, comes around,” seems not to be operating in today’s China (though in truth, it will always apply in the long run). To get rich or just to survive in an immoral society, most people will forget their traditional moral values.
In return, an immoral society will inflict real damage to wealth creation. Fakery makes poor quality; intellectual property rights are not protected; lack of integrity will destroy the foundation of the market economy, namely, access to credit. To monitor and prevent immoral behavior, the social costs of implementation will greatly increase.
The economic model developed and shaped under Jiang Zemin’s reign has been fully inherited by today’s China. As the starting point of such a model is to maintain the CCP’s tyranny, the driving force for the economic growth is to gain wealth for the few, and the fruits of economic development have always been to provide the material basis for corruption, not for the welfare of the Chinese people. In other words, the growth over the course of nearly two decades has occurred hand in hand with massive corruption. This corruption is constantly undermining the potential of the Chinese economy. Although this reckless and nearsighted development model created a superficial prosperity in the short term, when the driving force of growth is exhausted, an economic and social crisis will become inescapable.
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