TIME magazine - Wanted: A New Miracle
- From: Ablang <ron916@xxxxxxxxx>
- Date: Thu, 31 Dec 2009 06:04:16 -0800 (PST)
Wanted: A New Miracle
By Bill Powell/Shanghai Wednesday, Dec. 31, 2008
Huang Shaobi was just 7 years old, growing up dirt poor in southeast
China, when the world she would inherit changed forever. It was 30
years ago--December 1978--when China's leadership decided the time had
come for their country to open up its economy and embrace something
akin to capitalism. The monumental shift--China under Mao Zedong had
been a centrally planned economic disaster--reflected the growing,
behind-the-scenes influence of a man few in the West had then heard
of: Vice Premier Deng Xiaoping. China, the ruling Communist Party
decreed back then, "required great growth in the productive forces."
And Deng was smart enough to know that it would come in only one way.
China would get on the road to capitalism.
Today, Huang, who has chosen a Western name, Colleen, works in a
gleaming office tower in the manufacturing center of Guangzhou in
southern China. At 37, she is the very image of a polished chief
executive officer, right down to her Milano briefcase. Huang is the
founder of an advertising agency that employs nearly 70 people in
three Chinese cities and counts as customers major multinational
companies, including Procter & Gamble and Sony Ericsson. Like so many
of her generation, Huang never looked back after racing through the
door that Deng's economic reforms opened, and her accomplishments show
how far the country has come. But just a few miles from Huang's
office, the evidence is everywhere to see that China's capitalist road
is leading toward a wall, that the first phase of its 30-year economic
miracle has run its course.
Every day at the Guangzhou train station, hundreds of migrant workers
wait to start the long journey back to their home provinces. They have
been laid off from jobs at toy and textile factories and construction
sites throughout what used to be a booming province. Among them is
Zhang Dingli, 36, who worked at a toy factory for a decade. But in
early November, the plant closed. He is a victim of an economic
transition--a move away from the low-end, low-wage, export-oriented
manufacturing on which much of China's rapid growth was built--that
has been made more urgent by the global economic crisis. As China's
double-digit growth rate plummets, thousands of factories are being
shut down, and millions of workers are being thrown into the streets.
They will need jobs in the years to come, and the Chinese government
is scrambling for an answer to Zhang's plaintive question as he
prepares to return to his native Sichuan province: "What am I going to
do after I get home?"
China needs a new economic miracle--and the trajectory of the global
economy may depend on whether one can be conjured up. China,
theoretically, should be one of the locomotives that will eventually
help pull the world out of its slump. That won't happen overnight;
overhauling the world's fourth largest economy is going to take some
time. For the moment, to tread water, Beijing is slashing interest
rates and frantically throwing money at infrastructure projects, much
as U.S. President-elect Barack Obama promises to do in America. But
ditch-digging on a national scale, Beijing knows, will not take China
where it needs to go. Only if leaders execute a series of complex
alterations to the foundations of China's economic growth will the
country maintain its momentum. "The [global slump] is absolutely
accelerating the fundamental changes that were already taking place,"
says Daniel Rosen, a former senior adviser in the Clinton
Administration, now a principal at the Rhodium Group, a New York City--
based economic-consulting firm. "The Chinese may have understandably
felt entitled to relax a bit after 30 years of wrenching change.
Unfortunately, they can't."
Turning Savers into Spenders
The goal for China's transition sounds straightforward enough. "We've
become a big economy," says Wang Zhenzhong, an adviser to the Chinese
government and director of the economic-research institute at the
Chinese Academy of Social Sciences (CASS). "Now we need to become a
strong economy." In a nutshell, this means becoming a bit more like
Japan by developing domestic, technologically formidable
manufacturers, rather than just making a lot of inexpensive stuff for
the rest of the world. It also means becoming a bit more like the
U.S., where over the years, factory jobs have been supplanted by the
growth of the service sector and knowledge-based companies. China's
need to emulate America may seem counterintuitive at the moment, given
the parlous state of the U.S. economy. But it is precisely because
tapped-out American consumers have stopped buying Chinese-made goods
that this economic rebalancing act needs to proceed with haste. The
country's factories need new customers. Chinese consumers can fill
that void by spending more and reducing their stratospherically high
national household savings rate, which stands at more than 25%,
compared with a savings rate in the U.S. that hovers near zero. China
needs to start creating new jobs by boosting its underdeveloped
service sector, which contributes just 40% to overall GDP, compared
with 79% in the U.S. In that way, the country can reduce its
dependence on exports and continue to grow, thereby increasing its
role as an outlet for the goods and services produced by the rest of
Can technocrats in Beijing pull this off? The country has an
advantage: it has not yet leveraged its enormous domestic market. The
service sector has huge potential. Consider entrepreneurs like Colleen
Huang. Instead of employing low-wage metal benders, her ad agency,
Rayken, provides jobs for young, middle-class professionals: graphic
designers, art directors, a couple of account executives and several
This is unremarkable, of course. It's what advertising agencies do.
What is remarkable is how few Chinese companies like Rayken exist.
China's service industry is shockingly underdeveloped for an economy
that will likely be the world's largest by 2050. In a country of 1.3
billion people, only about 5 million work in health care, just 2
million in jobs related to the environment and conservation, and only
4 million in banking and insurance.
This needs to change--and it has started to. Beijing plans to increase
the service sector's overall contribution to the economy by three
percentage points by 2010--to 43% of GDP--and by 10 points a decade
from now. Earlier this year, the government ordered state-owned banks
to step up lending to service-sector companies. Beijing has also begun
to break down barriers that have prevented foreign companies from
investing in highly regulated areas of the economy. Health care, which
should generate an enormous number of jobs as China's population ages
rapidly, is one example. Taiwanese companies have already invested in
14 hospitals across the country--and see that as only the beginning.
Says Michael Tseng, an executive at Taiwan's BenQ Corp., which runs a
hospital in Nanjing: "China was the world's factory, but manufacturing
is yesterday's story now."
How quickly a new story can be written may depend largely upon the
Chinese becoming a whole lot better at consuming more and saving less.
But while the authoritarian government continues to pull the strings
in many parts of society, Beijing cannot simply order citizens to buy
Gucci for the good of the country and the world. The Chinese save much
of what they earn because the government has yet to provide the web of
social services available in other countries. China's national social-
security system and government health-insurance schemes are
drastically underfunded; moreover, they don't cover the millions of
migrant workers who helped power the country to high growth but are
now being laid off.
The lack of safety nets demands frugality, as does Chinese cultural
tradition that all but dictates that working children care for their
parents as they age. Even ad-agency chief Huang takes care of her
parents. This requires the Chinese to accumulate very large nest eggs,
particularly because China's long-standing one-child policy means
there is often just one offspring caring for two parents.
The government is committed to freeing up discretionary spending.
Earlier this year, Beijing vowed to double the size of the national
social-security fund, to $147 billion by 2010, and to steadily
increase it thereafter. "This," says CASS economist Wang, "is like
turning around an ocean liner. But at least we've started to turn."
A High-Tech Solution
To economic policymakers, the real meaning of becoming a strong
economy lies beyond getting citizens to spend more and expanding the
service industry. The next Chinese miracle, at root, will mean
becoming a first-rate technological power. China's road ahead was on
display in Shanghai in early December, when a San Francisco--based
company called the Cleantech Group hosted a venture-capital forum
aimed at driving investment dollars toward alternative-energy
entrepreneurs on the mainland. Opportunities appear to be plentiful,
despite the dim economic environment. Forum attendee Patrick Tam, CEO
and general partner of Beijing Tsing Capital, says he is investing
heavily in Chinese clean-tech companies--most recently in a Beijing
firm called NetPower Technologies, which makes a battery that helps
power-hungry businesses reduce their electricity consumption. "The
government is just letting the venture-capital market rip in this
field," says Tam. "It's exactly what needs to happen to develop new
technologies and new jobs in China. I think in a lot of ways this is
It's a compelling vision: China as a high-tech powerhouse. But making
it come true will take years, and there are major obstacles. Idea
theft is the biggest. Though the country has made progress in
strengthening intellectual-property rights over the past several
years, rampant piracy of software, music and other intellectual
properties remains a huge issue. "People with the ideas have to be
protected," says consultant Rosen. "They've moved on this because they
know without it, a high-tech China remains a dream."
The next miracle, in other words, will be harder to pull off than the
last one. That doesn't mean it won't happen. Consider what in 1978
constituted a "rich" eligible bachelor in urban China: he had to own a
radio; he had to be able to buy his bride a fashionable wristwatch
made by a state-owned company no one would ever confuse with Rolex;
and he had to commute on the coolest set of wheels available--a
bicycle called the Phoenix.
In just three decades, China has remade its world. For all the
challenges the country now faces, is it wise to bet against it
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