Beware of China’s Inner Contradictions

The Blue Paper on China’s State of Industrialization compiled by the Chinese Academy of Social Sciences indicated that China would be an industrial state by 2021, with its industrialization composite index reaching 100. The index is calculated based on five factors to include, per capita GDP, proportion of manufacture of commodities, urbanization rate, output ratio of primary, secondary and tertiary industries and their employment ratios.

A significant observation in the Blue paper was wide variation in regional levels of industrialization. Thus while Eastern China recorded a very high grade of 78, the poorer cousins in Central and Western China were at 30 and 25 points respectively while those in the North East were a wee bit higher at 45. This regional imbalance could also reflect a wide variation in the standard of living, quality of life and rights empowerment that comes naturally along with industrialization. For instance, the average Chinese worker in an electronic factory could earn as high a wage as 60 cents per hour as compared to the low wages earned by a farm laborer in Central China. To the people of China’s Western most provinces, the Uighurs, perhaps survival is a hard grind forcing many to take on the Chinese state in varied forms. Yet the contradiction is not restricted to industrialization alone.

The scale of Chinese construction in preparation for Olympics 2008 overawes visitors to Beijing. Gleaming stadiums and gigantic sports arenas are coming up while many grounds are being given finishing touches. The marvel of Chinese construction engineers and their ability to complete large sized projects is more than evident. Yet on 13 August, a bridge in central China’s Hunan Province, over the Tuojiang River on a road linking Fenghuang and Daxing Airport in neighboring Guizhou Province collapsed leading to over 30 deaths. A few months back, on 15 June the Jiujiang Bridge in Guangdong Province had collapsed after it was struck by a cargo vessel, killing nine people. The exercise of identification of over 1000 bridges across the country regarded as unsafe has been going on at Beijing’s instructions post haste.

China is regarded today as a factory of the World. A showcase for cheap yet sophisticated modern consumer goods and drugs. Chinese firms have been wining contracts from some of the global electronics as well as consumer goods giants including Nokia, Mattel and many other firms, which have led to a boom in the manufacturing sector in the country. Every Chinese small entrepreneur seems to have turned into a contract manufacturer to supply cheap yet qualitatively compatible goods for western markets. The arrangement is beneficial for both parties, each raking in profits by the Yuans.

Yet the darker side came to light when Mattel the global leader in consumer toys recalled items worth $ 30 million recently. Many feel that this is just the tip of the iceberg and there may be many more recalls ahead for Mattel, which sources 65 percent of its toys from China. This will hardly recompense the child who has been subjected to lead poison in toys outsourced through Beijing. A few weeks back a large number of stories of death due to consumption of sub standard drugs manufactured in China were doing the rounds, adding to the miseries of Chinese manufacturers.

Chinese authorities as always are quick to react, in the spurious drug case, officials were held accountable up the chain and Zheng Xiaoyu, former head of the State Food and Drug Administration was executed after the Supreme Court rejected his appeal last month. In the Mattel toys case, one of the contractors perhaps facing similar ignominy decided to end his own life.

So China’s inner contradictions, be it in industrialization, construction or manufacturing come to the fore each day. The most worrying facet however is Chinese stock exchanges. Surging skywards for many weeks, only now they have started to cool off. We only hope there are no contra indicators, which will come up in the stock bubble, for if it happens, there is no luxury of recalling trades from the market for the common investor in China.

Rahul K. Bhonsle is a Strategic Risk and Knowledge Management Consultant and writer with specific focus on defence and security, especially in South Asia.