Business and technology in china

In this, the Chinese Communist Party, the mid-dle class, and people of all strata seem strongly bonded together.This is known as the ‘‘China Model.’’Going forward China faces a strong he

Business and Technology in

China

readers the opportunity to thoroughly examine and better understand the key contemporary issues that continue to keep China in the news and sometimes at the center of global controversy These issues include business, technology, politics, government, civil liberties, family life, and gender concerns, among others.

Narrative chapters in each volume provide an introduction and brief history of the topic, followed by comprehensive discussions of the sub- ject area as it pertains to China’s present and future With each vol- ume, specialists and scholars present a solid, up-to-date foundation for learning about contemporary China, written in an accessible, engaging manner.

As the world moves into the second decade of the 21st century, China’s position on the global stage is more prominent than ever The Under- standing China Today series provides vital insight into this interna- tional powerhouse for new generations of students, and others, seeking

to understand a complex, ever-changing nation with a future as nating as its past.

All rights reserved No part of this publication may be reproduced,

stored in a retrieval system, or transmitted, in any form or by any

means, electronic, mechanical, photocopying, recording, or otherwise,

except for the inclusion of brief quotations in a review, without prior

permission in writing from the publisher.

Library of Congress Cataloging-in-Publication Data

Luo, Jing.

Business and technology in China / Jing Luo.

p cm.—(Understanding China today)

Includes bibliographical references and index.

ISBN 978-0-313-35732-9 (hard copy: alk paper)—ISBN 978-0-313-35733-6 (ebook) 1 Business enterprises—China 2 Technological innovations—Economic aspects—China 3 China—Economic policy—21st century I Title.

This book is also available on the World Wide Web as an eBook.

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List of Figures and Tables

Figure 1.1: China’s GDP Growth 1978–2008 2Table 1.1: The U.S.-China Business Council Top 15

U.S exporters to China in 2008 14Figure 1.2: Per Capita Annual Income (Yuan) 15Table 1.2: Urban and Rural Incomes of Selected

Table 2.1: Losses of Chinese Banks during the Global

Financial Crisis 39Table 2.2: Losses of Chinese Firms during the Global

Financial Crisis 39Figure 4.1: Technical School Graduates in 10,000s 113Figure 4.2: Number of Students Abroad and

Figure 4.3: Number of Postdoctoral Graduates

(1985–2008) 123

The question is what has fundamentally changed to makeall this happen? An obvious answer is the adoption of the mar-ket mechanism in 1978 A less obvious but more profoundanswer is that Mao Zedong had created, unintentionally,through prolonged and ruthless class struggles, not only thereversing economic momentum, but also a mentality ready toreject ideological entanglement Thus, the China phenomenon

is a fruit of the conjugation of push and pull, of which thepushing force, or the internal force, was decisive The result isoverwhelming: once the ordinary Chinese were allowed to get

rich, their will cannot be thwarted and their creativity knows nolimit The new generation is free-thinking and pragmatic Intheir mind, if the West appropriately learned technology andgot strong as a result, so too can the Chinese; if democracybrings social harmony, the Chinese embrace it and graduallyphase it in; if globalization is the way of modernity, the Chinesecharge in that direction wholeheartedly If, however, the Westsinks into ‘‘subprime mortgage crisis’’ and the like, the Chineseare not willing to follow The past 150 years of modern historyhave done much of the enlightenment, to a point at which theChinese are just too cynical to let the ‘‘invisible hand’’ of marketmechanism run loose They carefully maintain the prosperity byshrinking the gap, building a safety net, developing domesticmarkets, and working toward justice, fairness, equality, rule oflaw, and so on, so that elements that may derail the economy areunder control In this, the Chinese Communist Party, the mid-dle class, and people of all strata seem strongly bonded together.This is known as the ‘‘China Model.’’

Going forward China faces a strong headwind Rising costs

of labor, shortage of energy, shortage of natural resources, andgovernment-monopoly-induced corruption are but a few of along list of hurdles Successfully managing the market mecha-nism may be the best of challenges Ask a government official

or a grassroots entrepreneur, and they will tell you that themarket economy is such that if you try to regulate it, you mayend up killing it; but if you fail to regulate it, it grows out ofcontrol This book presents China’s challenges in six chapters:Growth, Handling the Global Financial Crisis, Growing Pains,Innovative Nation, Economic Reform, and The China Modeland Sustainability The book will present challenges and showhow the country prepares itself to win

The book was written with classroom needs in mind ters are structured to complement typical lectures on mod-ern China Special terminologies are explained; a bibliographywith abundant online resources and a chronology are included.The book is also intended for the general public Instead of

Chap-extensive theoretical discussions, the reader will find als’ stories and cases that are helpful for understanding thenature of events.

individu-I am indebted to the generous supporters surrounding me

Dr Lu Bin, chair of the Department of Urban and RegionalPlanning at Peking University, and Professor Gong Liwei,architect and senior engineer at the Design and Research Insti-tute at Tsinghua University, provided enormous help during

my research in Beijing Mr Luo Qiang, of Golden ConcordNon-Ferrous Metals Holdings Limited, was an importantsource of inspiration on industrial development in China I

am appreciative of Ms Kaitlin Ciarmiello of ABC-CLIO forher careful editing work Last but not least, I would like tothank Bloomsburg University where I work for its generoussupport of all academic work that I do

Chronology of Recent

Events in the People’s

Republic of China

1949 The People’s Republic of China (PRC) is founded on

October 1 in Beijing The Nationalist governmentwithdraws to Taiwan Mao Zedong declares the ‘‘Peo-ple’s Democratic Dictatorship.’’ Mao is appointed chair

of the Central People’s Government; Zhou Enlai isnamed premier; and Zhu De becomes general com-mander of the People’s Liberation Army (PLA)

1950 The Sino-Soviet Treaty of Friendship, Alliance, and

Mu-tual Assistance is signed in Moscow by Mao Zedong andJoseph Stalin In June, Mao denounces American aggres-sion in Korea In October, the Army of the Chinese Peo-ple’s Volunteers publicly enters Korea in support of NorthKorea Also in this year, the Marriage Law is promulgated

by the central Government The Trade Union Law andthe Agrarian Reform Law of the PRC are also passed

1951 The Korean War progresses, with Chinese troops

tak-ing Seoul Mao Zedong’s son, Mao Anytak-ing, is killed in

Korea Domestically, the Agreement of the CentralPeople’s Government and the Local Government ofTibet on Measures for the Liberation of Tibet is signed

in Beijing; the agreement recognizes Tibet as part ofChina and grants the region autonomous status

1952 The Three-Antis Campaign is launched in January,

tar-geting corruption, waste, and bureaucratism In ary, the Five-Antis Campaign begins; focused onbusiness operations, it is commonly viewed as the pre-cursor to deprivatization campaigns Deng Xiaopingbecomes deputy premier

Febru-1953 The armistice ending the Korean War is signed on July

27 The First Five-Year Plan (1953–1957) starts DengXiaoping becomes finance minister

1954 Zhou Enlai and Indian prime minister Jawaharlal Nehru

sign a joint communique that becomes the first tional declaration to include the PRC’s ‘‘Five Principles

interna-of Peaceful Coexistence.’’ The first National People’sCongress (NPC) convenes Deng Xiaoping becomesdeputy chair of the National Defense Council

1955 Zhou Enlai attends the Asian-African Conference (Bandung

Conference) in Bandung, Indonesia; the conferenceseeks to build a united front of Asian and African nationsagainst colonialism and racism Deng Xiaoping is elected

to the Politburo The Chinese Language Reform mittee releases the first batch of simplified Chinese char-acters for use in newspapers in Beijing and Tianjin

Com-1956 In April, Mao Zedong delivers his influential speech ‘‘On

the 10 Major Relationships.’’ In September, the EighthParty Congress elects Mao party chairman; Liu Shaoqi,Zhou Enlai, Zhu De, and Chen Yun are elected deputychairmen; and Deng Xiaoping is elected as secretary gen-eral of the Chinese Communist Party (CCP) In May,Mao Zedong calls for greater artistic and academic

freedom with the slogan ‘‘let a hundred flowers bloom,and a hundred schools of thought contend.’’

1957 Mao Zedong delivers his speech ‘‘On the Correct

Han-dling of Contradictions among the People.’’ In June, thePeople’s Daily states that rightists are trying to overthrowthe Communist Party and an Anti-Rightist Campaign islaunched

1958 In May, the Great Leap Forward is launched with the

phrase ‘‘more, faster, better, and more economicallysoundly’’ as its general guiding principle In August, atthe Politburo’s Beidaihe Conference, the People’s Com-munes plan is endorsed; the plan results in the organi-zation of 26,000 communes in less than two months

1959 In March, the State Council appoints the Panchen Lama

to chair the Preparatory Committee for the TibetanAutonomous Region Democratic reforms start in April

in Tibet In April, Liu Shaoqi replaces Mao Zedong aspresident of the PRC, with Song Qingling and DongBiwu as deputies During July and August, an extremelyserious drought hits vast areas of China, affecting 30 per-cent of farm production Rebellion erupts in Tibet LinBiao replaces Peng Dehuai as defense minister

1960 In July, the Soviets notify China of their withdrawal of

technological support With the exception of Xinjiangand Tibet, serious famine occurs across China, causingtens of millions of deaths

1961 Wu Han’s controversial play Hai Rui’s Dismissal is

pub-lished in January The 26th World Table Tennis pionships take place in Beijing, with the Chinesewinning both the men’s and women’s singles titles

Cham-1962 In October, Chinese troops launch major offensives

on the Sino-Indian border A cease-fire is declared inNovember Mao Zedong steps up emphasis on classstruggle

1963 In May, Mao Zedong launches the socialist education

movement in rural areas

1964 In January, Zhou Enlai launches an extensive tour of

Africa In August, the United States bombs North nam In October, China carries out its first nuclear test

Viet-1965 In May, China carries out its second nuclear test In June,

the Wenhuibao newspaper denounces Wu Han’s dramaHai Rui’s Dismissal as an anti-Party poisonous weed,thereby signaling the coming of the Great Cultural Revo-lution The Tibetan Autonomous Region is formallyinaugurated in September

1966 In May, the Politburo sets up the Cultural Revolution

Group and calls for attacks on all representatives of thebourgeoisie who have infiltrated the party, government,army, and cultural world In July, Mao Zedong swims inthe Yangzi River at Wuhan, refuting the rumor that he issick In August, Mao Zedong, Lin Biao, and Zhou Enlaipreside at a Cultural Revolution rally in TiananmenSquare at which Red Guards make their first appearance.The Guards subsequently begin destroying historicalrelics Chairman Mao’s Quotations are first published inthe form of the Little Red Book Deng Xiaoping is oustedfrom his offices

1967 In June, China tests its first hydrogen bomb By

December 25, 350 million copies of Mao’s Little RedBook have been distributed

1968 The army takes control of government offices, schools,

and factories Millions of young people are sent to thecountryside to receive reeducation from peasants

1969 In March, Chinese and Soviet forces clash at

Zhenbao-dao Island in the Ussuri River More clashes occur inthe following months In July, the United States liftsrestrictions on travel to China, and in December, it liftsits partial trade embargo Liu Shaoqi dies

1970 In April, China launches its first satellite.

1971 In April, the U.S ping-pong team visits China and is

followed by U.S Secretary of State Henry Kissinger,who comes to Beijing in July In October, China isadmitted to the United Nations

1972 In February, President Richard Nixon signs the joint

Shanghai Communique in China, admitting that there

is one China and that Taiwan is a part of it In September,China purchases 10 Boeing 707 civilian jet airlinersfrom the United States

1973 Deng Xiaoping becomes vice premier in August The

United States and China announce their intention toestablish liaison offices in each other’s capital

1974 In April, Deng Xiaoping addresses the United

Nations and denounces the world hegemony of theUnited States and the Soviet Union, the world’s

‘‘superpowers.’’

1975 In January, Deng Xiaoping is elected deputy chairman

of the Chinese Communist Party Central Committee(CCPCC)

1976 An earthquake hits the city of Tangshan, killing more

than 250,000 people Premier Zhou Enlai dies in January,and Mao Zedong dies in September at age 82 Mao’sdeath ends the Great Cultural Revolution The radicalgroup called the ‘‘Gang of Four,’’ led by Mao’s widowJiang Qing, is arrested by Hua Guofeng, Mao’s hand-picked successor

1977 University admissions based on college entrance

exami-nations start Enrollment based on recommendationsends Deng Xiaoping is politically rehabilitated

1978 The ‘‘Deng era’’ begins Deng Xiaoping steps into the

spotlight as an important leader and begins to repairthe devastation caused by Mao Zedong’s rule Deng’smarket-oriented reforms, embodied in the maxim ‘‘to

get rich is glorious,’’ spark over 20 years of exponentialgrowth, lifting the masses out of poverty In December,the Coca-Cola Company reaches an agreement withChina to sell its soft drinks in the country and open upbottling plants In the same month, the Third Plenum

of the 11th Chinese Communist Party Central tee (CCPCC) shifts the party’s focus to modernization,which is also seen as the onset of the economic reforms

Commit-1979 In January, Deng Xiaoping visits the United States and

resumes the Sino-American diplomatic relationship.From January to February, Chinese troops invade Viet-namese territory and destroy logistics facilities In July,the Fifth National People’s Congress (NPC) announcesthe Criminal Law and the Organic Law of the Local Peo-ple’s Congresses and Local People’s Governments Spe-cial economic zones are opened, including Shenzhen,Zhuhai, Shantou, and Xiamen In September, the partycriticizes Mao Zedong’s Cultural Revolution as illjudged and calamitous In October, political dissidentWei Jingsheng is sentenced to 15 years in prison

1980 In February, the NPC Standing Committee declares

regu-lations on issuance of academic degrees In December, thePeople’s Daily declares that Mao Zedong made great mis-takes during his last years and that his Great Cultural Rev-olution was a disaster

1981 Deng Xiaoping is elected chairman of the Military

Commission, and Hu Yaobang replaces Hua Guofeng

as chairman of the Chinese Communist Party CentralCommittee (CCPCC) Both Zhao Ziyang and HuaGuofeng are appointed deputy chairmen The trial ofthe Gang of Four is held

1982 In September, British prime minister Margaret Thatcher

arrives in Beijing to start discussions about the future ofHong Kong

1983 Selected Works of Deng Xiaoping is published in July.

Sino-British talks over Hong Kong’s future begin

1984 In October, the Third Plenum of the 12th Chinese

Com-munist Party Central Committee (CCPCC) adopts a cision on reform of the economic structure, shifting thefocus to urban enterprises Measures are taken tostrengthen the Tibetan economy Fourteen coastal citiesand the island of Hainan are opened to foreign invest-ment A Sino-British declaration on Hong Kong’s return

de-is signed

1985 In May, the Chinese Communist Party Central

Com-mittee (CCPCC) releases its Decision on the Reform

of the Educational System

1986 In September, Deng Xiaoping, during an interview

with Mike Wallace of CBS for the television show 60Minutes, endorses Mikhail Gorbachev’s reforms in theSoviet Union and indicates that China’s economicreforms are not in conflict with communism In Sep-tember, the Shanghai Stock Market reopens for the firsttime since 1949 The Bankruptcy Law is issued inDecember In May and December, students in largecities stage demonstrations demanding more rapidreforms and more democracy

1987 Faced with rising democratic pressures, the Chinese

Communist Party (CCP) reiterates its determination tostick to the ‘‘Four Cardinal Principles.’’ Hu Yaobangresigns in January Writer Liu Bingyan is expelled fromthe party Zhao Ziyang is appointed general secretary ofthe CCP, replacing Hu Yaobang Student unrest occurs

in 22 Chinese cities In November, Deng Xiaopingremains in control of the Central Military Commission

In December, Zhao Ziyang resigns as premier and isreplaced by hard-liner Li Peng In October, 2,000 Ti-betan monks demonstrate in Lhasa in favor of Tibetan

independence; the demonstrations lead to clashes withChinese authorities.

1988 China slides into economic chaos due to the rising

infla-tion that peaks at more than 30 percent in the cities, mately setting the stage for future protests andprodemocracy demonstrations Hainan is approved forprovincial status The first exposition of nude paintingsopens in Beijing in December

ulti-1989 On May 16, Deng Xiaoping and Mikhail Gorbachev

meet and announce the normalization of Sino-Sovietrelations On June 4, followed by several weeks of stu-dents protesting in Tiananmen Square in Beijing,troops arrive with tanks, allegedly killing hundreds ofprotesters The event once again isolates China on theworld stage On June 5, President George Bush sus-pends high-level relations with Beijing in protestagainst the massacre On December 10, U.S NationalSecurity Adviser Brent Scowcroft meets Deng Xiaoping

in Beijing Soon after, Deng plucks Jiang Zemin, whowas relatively unknown, from Shanghai to be the newCommunist Party chief Jiang replaces Zhao Ziyang

1990 In January, almost 500 students who participated in the

demonstrations of the previous year are released fromdetention In April, President Yang Shangkun promul-gates the Basic Law of the Hong Kong Special Adminis-trative Region (SAR) adopted by the Seventh NationalPeople’s Congress (NPC) The law is scheduled to takeeffect on July 1, 1997 Campaigns that aim at strength-ening patriotism and discipline are launched at educa-tional institutions

1991 The first partial direct elections are held in Hong

Kong

1992 During his tour to Hainan and coastal cities, Deng

Xiaoping reiterates his determination to continue

China’s economic reforms Beijing establishes matic relations with South Korea.

diplo-1993 Chinese president Jiang Zemin meets with U.S

presi-dent Bill Clinton in Seattle, Washington, during aninformal meeting of APEC leaders

1994 The Three Gorges Dam project starts

1995 Hong Kong holds legislative elections

1996 Dong Jianhua (Tung Cheehua) is selected chief

execu-tive of Hong Kong

1997 Deng Xiaoping (1904–1997) dies at age 93 Deng’s

successor, Jiang Zemin, visits Washington The Britishformally hand Hong Kong back to China on July 1.1997–

1998

The Asian Financial Crisis negatively affects many ofChina’s coastal businesses and causes severe deflation.The Chinese government maintains the yuan’s value.U.S president Bill Clinton visits Beijing

1999 NATO’s accidental bombing of the Chinese embassy in

Belgrade, Yugoslavia, sparks a crisis in Sino-Americanrelations China and the United States reach an accord

on the terms of China’s entry to the World Trade zation (WTO) China recovers sovereignty over Macao

Organi-2000 Chen Shuibian of the Democratic Progressive Party is

elected president of Taiwan, while Li Denghui (LeeTeng-hui) of the Kuomintang Party (KMT) resigns.The 9th National People’s Congress (NPC) is held inBeijing in March; the Congress stresses anticorruptionefforts and economic cool down

2001 In an act of terrorism, hijacked civilian planes take

down the World Trade Center in New York City onSeptember 11 An Asian-Pacific Economic Coopera-tion (APEC) meeting held in Shanghai in October isattended by American president George W Bush JiangZemin pledges to support the American war on

terrorism China joins the World Trade Organization(WTO) in December China wins a bid to host the

2008 Olympic Games

2002 The 16th Congress of the Chinese Communist Party

(CCP) is held in November The party completes asweeping leadership reshuffle Jiang Zemin and otherolder leaders allow for a younger generation to takecontrol, headed by Hu Jintao and Wen Jiabao JiangZemin remains chairman of the Central Military Com-mission The SARS outbreak occurs in November, andattempts to cover up the spread of the SARS infectioncause scandal

2003 The Tenth National People’s Congress (NPC) is held

in March Hu Jintao and Wen Jiabao are elected dent and premier, respectively, of the PRC JiangZemin and Zhu Rongji step down

presi-2004 Hu Jintao quietly consolidates power while both he and

Premier Wen Jiabao reveal populist agendas in their firstyear in office Chen Shuibian is reelected president ofTaiwan in March, taking advantage of the popularity gen-erated by an unsuccessful attempt to assassinate him Thegrowing belief that the assassination attempt was con-trived sparks suspicion of Chen Shuibian’s campaign strat-egy In September, Jiang Zemin steps down from his lastposition as chairman of the Central Military Commission

In December, President Bush meets with Hu Jintao at the12th APEC meeting Both sides express a commitment to

a stronger Sino–U.S relationship

2005 CCP stresses curbing corruption and

strengthen-ing education of morality and ethics A Chinese tion team reaches the highest peak of the South Pole.National People’s Congress passes the Anti-Secession Law.China starts floating the renminbi (RMB) based on mar-ket demand and in reference with major currencies

explora-Shenzhou 6, a manned spacecraft, is launched and returnssuccessfully The agricultural tax of 1958 is eliminated.

2006 The State Council makes a proposal to stress China’s

innovative and competitive abilities in building a style country Protection of migrant workers’ rights isurged The Three Gorges Dam is completed with a totallength of 2,309 meters The Qinghai-Tibetan Railway of1,958 kilometers opens Three volumes of Selected Works

new-of Jiang Zemin are published China hosts the BeijingSummit of the Forum on China-Africa Cooperation

2007 National People’s Congress passes Property Rights Law,

emphasizing investment in low-income housing TheState Council proposes a plan to expand the service sec-tor and issues National Rural Minimum Living Stand-ard Guarantee System Chang-e 1, a lunar explorationsatellite, is successfully launched The Shanghai StockMarket Index rises from 3,000 early in the year to6,124 on October 16 The State Council makes energysaving and emission reduction part of the evaluationpackage for businesses managers

2008 The Labor Law is promulgated to require a clearly

defined contractual period Violent riots break out inLhasa, Tibet A 7.9 magnitude earthquake hits WenchuanCounty, Sichuan Province, on May 12 killing 69,227people During August 8–24 and September 6–17,Beijing successfully hosts the 29th Summer Olympicsand the Special Olympics China ranks first in goldmedals in both Olympics The scandal of melamine-tainted formula produced by Sanlu is revealed Thou-sands of children are poisoned China successfullyconducts the flight of Shenzhou 7, a manned spacecraft.Shanghai Stock Market plummets to 1,600; the gov-ernment cuts benchmark interest rate and one-yearbank deposit rate Lehman Brothers declares bank-ruptcy; the government deploys a stimulus package of

4 trillion RMB The Chinese mainland and Taiwanstart direct air and sea transport and postal services,ending a 59-year ban.

2009 The State Council announces a plan of reform in

health-care and medicine to provide basic healthhealth-care to all ruraland urban residents Hu Jintao attends a financial sum-mit in London and commits to joining efforts in com-bating the global financial crisis The State Councilurges preventive measures for H1N1 flu The China,Russia, India, and Brazil Summit is held in Russia tooutline cooperation between the countries Serious eth-nic riots break out in Urumqi, Xinjiang AutonomousRegion, killing more than 180 people Gross domesticproduct of the first six months grows by 7.1 percent,reflecting economic recovery

2010 China reports 2009 GDP of 33.5 trillion RMB or 8.7

percent increase over the 2008 figure Google threatens

to pull out of China after accounts of political dents are hacked, reveals that hackers exploited a ‘‘backdoor’’ intended for government’s forensics research.Secretary of State Hilary Clinton gives speech on freeInternet U.S makes $3.1 billion arms sale to Taiwan.President Obama meets Dalai Lama in the WhiteHouse, triggering Beijing’s strong protest In defiance,Google stops censoring web searches and news services

dissi-in Chdissi-ina and plans to redirect users to its services dissi-inHong Kong

The economic reform launched in 1978 by Deng Xiaoping hasresulted in profound changes in China The most obviouschange would be the country’s productivity As a result, people’sstandard of living is significantly higher According to theNational Bureau of Statistics of China (NBS), back in 1978,China’s gross domestic product (GDP) was merely 364.5 billionrenminbi (RMB) In 2008, the GDP reached RMB30.067 tril-lion or approximately 4.2 trillion in U.S dollars, which was a

9 percent increase over the figure of 2007 Urban per capitaincome grew by 14.4 percent, and rural per capita income grew

by 15 percent The 9 percent growth represents, however, a fallfrom five years of consecutive double-digit growth due to theglobal financial crisis Within three decades, China’s GDP hasrisen to number three in the world, next to Japan and the U.S

To get a feel of what the GDP figure means, one comparesthe GDP with its value of purchasing power parity (PPP) ThePPP theory says that for each identical product or service there

is only one price, inflation and other adjustments considered.Although it is not always easy to find ‘‘identical’’ products, thetheory is a convenient tool for estimating purchasing powersacross economies For example, a regular haircut costs 10 yuan

in China, which includes washing, drying, and, occasionally, acup of tea This converts to 1.45 in U.S dollars at the currentexchange rate of $1 to 6.88 yuan A barber in the United States

might charge $10 before the tip for a 10-minute quick cut out washing, drying, or tea Obviously, the yuan is worth a lotmore in reality than what the exchange rate tells The PPP value

with-of a nation’s GDP is measured based on the cost with-of a commonbasket of goods and services To make it simple, if measured onPPP basis, China’s GDP is estimated to be $7.97 trillion,according to the World Bank, surpassing Japan and rankingnumber two in the world, second only to the United States (with

a GDP of $14.44 trillion in 2008) Nevertheless, China remains

a middle-income country due to its large population of 1.3billion.1 The World Bank estimates that China’s ‘‘$1 per daypoverty rate’’ may have increased from 10 percent in 2004 tobetween 13 and 17 percent in 2008, as a result of rising prices.2Yet, China’s progress is astonishing In 2005, President HuJintao announced China’s goal of achieving the $4 trillion GDP

by 2020 Results as of 2008 show that he surpassed his goal forGDP well ahead of his prediction On May 16, 2005, in hisspeech delivered at the opening ceremony of the Fortune GlobalForum, Hu had the following to say:

We in China have identified the goal for the first 20 years of this century That is to firmly seize the important window of strategic opportunities to build a moderately prosperous society of a higher standard in an all-round way for the benefits of our over one billion people By 2020, we will quad- ruple China’s GDP of 2000 to approximately 4 trillion US dollars with a per capita level of some 3,000 US dollars, and further develop the econ- omy, improve democracy, advance science and education, enrich culture,

China’s GDP Growth 1978–2008

Figure 1.1 Source: National Bureau of Statistics.

foster greater social harmony and upgrade the texture of life for the people.

We are deeply aware that China, for a considerably long period of time to come, will remain a developing country The population figure of 1.3 bil- lion alone will make the fulfillment of the above goal a formidable chal-

Many elements have contributed to China’s economic off; three seem to stand out: market mechanism, science andtechnology, and a stable society, all of which will be examinedthroughout this book The book begins by selectively examiningthe GDP components in more detail and with respect to theunderlying changes in the society For purposes of consistencyand convenience, up-to-date data compiled by the National Bu-reau of Statistics of China (NBS) will be used throughout thebook, unless otherwise indicated

take-THE RISE OF take-THE TERTIARY SECTOR

Since the start of the economic reform, a fundamental changehas gradually taken place: China’s primary and secondary sector-dominant economy is changing into a tertiary sector-dominanteconomy The ‘‘primary sector’’ is typically composed of agricul-ture, forestry, fishery, and mining The ‘‘secondary sector’’ is typ-ically composed of heavy and light industry and construction.The tertiary sector is known as the service sector Before 1978,approximately 90 percent of the GDP was contributed by agri-culture and industry This situation had a political backdrop—that is, the primary and secondary sectors were home to peasantsand workers who were, according to the classical communism,the leading classes of the society The Chinese Communist Party(CCP), as the leader of these elite classes, certainly would stressthese economic sectors more than anything else Additionally,the Cold War was big reason why these sectors were special, asthey provided weaponry to the military

Around 1990, after some 12 years of economic reform, theprimary sector started to decline dramatically, ceding place tothe tertiary sector that provides services, such as education,

scientific research, hospitals, tourism, and so on In 1990, theprimary, secondary, and tertiary sectors contributed 41.7 per-cent, 41 percent, and 17.3 percent of the GDP By 2007, theshares of primary, secondary, and tertiary sectors were respec-tively 3.6 percent, 54.1 percent, and 42.3 percent.

The economic structural change occurred for several reasons.First, the reform of State-Owned Enterprises (SOE) in urbanareas had led to tens of millions of workers being laid off Theservice sector suddenly becomes China’s new hub of employmentopportunities The most practical way to rejoin the workforce is

to open small businesses, such as restaurants, hotels, clothingstores, and other service-oriented businesses Second, rapid urban-ization and expansion of farming technology meant three things

to rural China: (1) many farmers lost their land and became towndwellers willingly or otherwise; (2) fewer farmhands are needed totill the family plot, more and more backbreaking work beingdone by machinery or by businesses that offer machinery farmingservices; and (3) farmers dream of enjoying a dazzling variety ofopportunities in the cities This has led 150 million migrantworkers to find jobs in China’s cities, primarily in constructionprojects (secondary industry) and the service area (tertiary indus-try) Third, the service sector is a ‘‘gender-equal’’ sector, meaningthat women have better opportunities to develop their potentialthere than in the primary and secondary sectors In certain areas,such as stores, hotels, airports, and banks, women have better jobopportunities than men

Equality is certainly a relative concept in China Many saythat there was more equality, whether it is gender- or income-related, during Mao’s time than in the transitional society today.But few would want to go back People are more willing to solvethe discrepancies that have arisen rather than give up the marketmechanism That said, economic polarization and social dis-crimination are serious problems that the Chinese governmentmonitors closely In fact, numerous reports have revealed exploi-tation of migrant workers, in particular, female migrant workers.Nevertheless, the general trend seems to be that the tertiary

sector is a favorable place for women to join the workforce Forexample, the Statistics Bureau of Shandong reports that, in

2007, 70.27 percent of working-age women (16 and above) areemployed,4 despite the fact that rural working women remainmore tied to farming-related jobs (64.19 percent) than men(50.64 percent), as a matter of tradition In 2007, 18.98 percent

of working women found jobs in the tertiary sector This ber was 3.86 percent higher than two years ago These womenfound jobs in business sectors, such as retail, hotel, catering,finance, education, health care, social welfare, and social securityoffices The report indicates that most jobs are temporary or sea-sonal and pay hourly wages, reflecting characteristics of the sec-tor Nevertheless, it is obvious that both economic growth andsocial stability will benefit from an expanding tertiary sector.Many speculate that China’s social equality in general will beimproved markedly due to the expansion of the tertiary sector.Finally, the dominance of the service sector has been the trend

num-of all developed economies where knowledge-based industrytakes the central position, pushing research and development(R&D) and education to a new height every day According tothe World Bank’s data, in 2005 the United States, Britain, Canada,Israel, and Germany’s tertiary sectors respectively accounted for

77 percent, 76.3 percent, 75.3 percent, 75.6 percent, and 68.7percent of these countries’ economies The Chinese governmenthas put developing the tertiary sector on the top of the agendasince 1992 ‘‘The Decision of the CCP Central Committee andthe State Council on Ramping up Tertiary Industry,’’ issued in

1992, is a milestone policy that led to the crucial economicstructural shift For example, it carries the following directives:

Article 1.

A developed tertiary sector is the necessary result of economic and social progress It reflects the developmental level of a country’s economy Our country’s tertiary sector has lagged behind and no longer fits the broader economic development We must seize the opportunity to raise the ter- tiary sector to a new level.

Article 4.

During the 1990s, a large proportion of the labor force moves out of the primary and the secondary sector each year, creating new demand for employment opportunities The tertiary sector has a unique potential in absorbing the extra labor, thanks to its diverse disciplines, specialties, and

in particular, its capability of hiring a great number of talents in science and technology Accelerating the tertiary sector will be the primary means

to alleviate our country’s worsening pressure of employment.

Article 5.

By the end of the 20th century, our people’s living condition will reach the level of ‘‘relative comfort.’’ In contrast with the ‘‘survival level,’’ ‘‘relative comfort’’ not only represents a risen income level, but more importantly, the quality of life and social service must also improve With the expansion

of the economy, our people not only will raise their expectations on ing, food, housing, transportation, communication, hygiene, and living environment, but also they will be more demanding with respect to cul- tural entertainment, broadcast and television, books, sports, physical reha- bilitation, travel, and spiritual life Developing the tertiary sector is the only way to answer the increasing material and cultural demands and to fulfill the task of promoting socialist material civilization and spiritual

CHINA’S MIDDLE CLASS

The rise of the tertiary sector brought along a new socialstrata—the middle class There are debates on how the middleclass concept should be defined Within the frame of these lines,let us adopt the popular consensus that intellectuals, governmentemployees, and businesspeople form the core of China’s middleclass It is not by coincidence that the highest incomes are earned

by people in this group Moreover, this is also the fastest ing group Economists, politicians, and marketing experts al-ready have conducted a good number of studies on China’smiddle class Property ownership, housing and transportation,access to technology, and political tendencies are among themost studied topics The following are some of the findings.The household income of a Chinese middle-class family tends

expand-to range from $6,000 expand-to $25,000 per year, according expand-to a study

by MasterCard Worldwide, Asia Pacific.6 According to thisstudy, the population size of China’s middle class has grown to

87 million in 2005 or 39 percent of China’s urban households

By 2016, this population is estimated to reach 340 million or

60 percent of China’s urban population Living in gated munities and driving import cars, the Chinese middle-class earn-ings currently account for 27 percent of China’s total disposableurban income This percentage will likely reach 40 percent by

com-2015, according to the study

Travel is not only a way to celebrate a long-deprived freedom;for intellectuals, it is also about living a traditional ideal ‘‘readingten thousand books and traveling ten thousand miles.’’ The mid-dle class are known as ‘‘travelers class’’ for good reasons NBSdata show that, in 2007, 34.9 million international-bound Chi-nese visitors (person-times) were traveling for private purposes,which was more than three times the number of 2002 Domesti-cally, there were 1.6 billion travelers (person-times) in 2007,which was approximately twice the number of 2002 The Moni-tor Group, an international marketing research firm, studiedpurchasing behavior of the Chinese middle class with respect totheir occupation and demographic features.7 Their study exam-ined China’s tourism market and found three distinct types ofChinese tourists—business, leisure, and backpacking travelers

Of the three groups, the backpackers tend to be the most ticated travelers who have time, do not mind spending heavily

sophis-on technology and equipment, and are focused sophis-on unique riences The business travelers are willing to spend as well due tothe fact that their trips are mostly reimbursed The leisure travel-ers, on the other hand, tend to be cost-conscious

expe-In the area of store shopping behavior, the Monitor Groupidentified six categories of Chinese middle-class consumers,including ‘‘Early Heavy Buyers,’’ ‘‘the Smarts,’’ ‘‘the Quality-Oriented,’’ ‘‘Trend Followers,’’ ‘‘Driven Businesspeople,’’ and

‘‘Value Seekers.’’ Early Heavy Buyers consist primarily of sionals in the tertiary industries and junior managers at multina-tional business firms They are typically young, well educated,

profes-and generally familiar with Western lifestyles As consumers,they often shop online and spend heavily on discretionary items.They tend to buy the latest products and fashions that set themapart as trendsetters Trend Followers tend to be junior white-collar employees and civil servants who are newcomers to themiddle class They have a stable salary and some leisure time.Less well informed than trendsetters, they tend to wait for dis-counts and promotions Value Seekers consist of white-collarworkers and government employees who are at the lower level ofthe middle class, but who have become good shoppers as theirincome rises They tend to be the most critical with respect toquality and prices However, they do spend handsomely to showoff their status.

The Smarts, the Quality-Oriented, and Driven Businesspeopletend to be old timers of the middle class The Smarts tend toshop in specialty stores rather than outlets; the Driven Business-people possess higher purchasing power and tend to pay premi-ums for convenience, because most of them are wealthy and busyentrepreneurs The Quality-Oriented are similar to the Smartsand the Driven Businesspeople, but they have more leisure timeand focus on family priorities when making purchasing decisions.The middle class is behind the wheel A popular saying goesthat ‘‘behind every private car there is a middle-class family.’’Statistics provided by NBS show a dramatic change in privatecar ownership In 1985, there were 19,000 private passenger cars

on the streets In 2000, 3.65 million cars were registered By

2007, 23.16 million private cars were owned In urban areas,there are 10.2 private cars per 10,000 residents, up by nearly 50percent from the figure in 2000 These numbers do not includeprivate trucks that are related to business uses If private lighttrucks are included, however, the registered vehicles in 2007 total28.76 million In comparison with the 135.9 million registeredpassenger cars in the United States in 2007 and 74.4 million gal-lons of gasoline consumed in the year,8China’s passenger car mar-ket has a lot of catching up to do That said, the 2009 passengercar sales figure is reported to be 45 percent above the 2008 number

reaching 10.3 million units, making China the biggest auto ket in the world Much of the surge, however, was attributed toBeijing’s economic stimulus.9 As a result, Beijing will constantlykeep an eye on signs of inflation for many years.

mar-Political tendencies of the Chinese middle class are certainly

no less tempting an area of study to researchers than their ping behavior It is widely believed that the middle class is thestandard bearer of democracy, freedom, and rule of law In real-ity, however, it would be a mistake to equate the Chinese middleclass to radical democratic revolutionaries who would strive toreplace the CCP’s one-party rule with a multiparty government

shop-In that respect, the Chinese middle class favors gradual ratization under the socialist system, which they liken to SunZhongshan’s ‘‘tutelage’’ stages Sun Zhongshan, founder of theRepublic of China in 1911, realized that the Chinese populacewas not ready to accept democracy His plan was to install astrong government to teach the people their rights and proce-dures, before letting a full-fledged democratic system take over.Keenly aware of China’s contemporary history, and in particular,the impacts of the Opium War (1840s) and the Great CulturalRevolution (1966–1976), China’s middle class supports the cur-rent government in achieving a harmonious and relatively afflu-ent society (xiaokang shehui) Having witnessed the unsuccessfulRussian reform, they are appreciative of Deng Xiaoping’s stronghelmsmanship in guiding China to engage in a socialist marketeconomy The Chinese middle class believes that no other politi-cal force could play the role of the CCP in leading China to eco-nomic prosperity For them, the economy is number one, therest is of lesser importance Despite the fact that members ofthe middle class view corruption of government officials with theutmost disdain and anger, that they complain loudly about lack

democ-of justice, and that they even braved the deadly repression ing the 1989 Tiananmen Event to demonstrate against govern-mental corruption, members of China’s middle class areessentially of the opinion that China’s problems can be resolvedthrough the reforms They share the understanding that while

dur-the CCP has made mistakes, it is capable of correcting mistakestoo Professor Jonathan Unger, head of the ContemporaryChina Center at the Australian National University, describesthe political stance of China’s middle class as follows: ‘‘Don’texpect regime change or democratization any time soon Therise of China’s middle class blocks the way.’’10

As such, it becomes relevant, too, to reevaluate the tion of the CCP Is today’s CCP the same communist-leadingforce that works to eliminate capitalism and to bring about a so-ciety of communism in which there is no private possessionwhatsoever and in which people’s motivation is driven not bymaterial gain but rather by the communist conscience? Is theCCP the same party that engaged in bloody class struggle duringthe 1960s and 1970s? The popular Chinese consensus is that the21st-century CCP is no longer one man’s party but rather itembodies a broad representation within itself It is no longer theleader of the proletariat marching toward the goal of wiping outcapitalism As evidence, the CCP is implementing former Presi-dent Jiang Zemin’s theory of ‘‘Three Represents’’—representingthe advanced productive force, the advanced culture, and themajority of the people President Jiang’s theory openly welcomesentrepreneurs to join the CCP, as long as they support socialismwith Chinese characteristics The 21st century’s CCP hasemerged as a fan of the market mechanism The image is boosted

representa-by thirty years of economic growth, as well as a successful record

in maintaining Hong Kong and Macau’s prosperity Despite beliefs in the West, the Chinese reality has become far more com-plex The traditional catch-all label of ‘‘communism’’ can nolonger represent the new reality The traditional view needs to bechanged Metaphorically, to watch a 3-D film, one needs to wear3-D glasses or risks missing much of the details

dis-THE RISE OF AN OUT-GOING ECONOMY

One way to understand the growing scale of China’s import andexport sectors is to watch the impacts of each global economic crisis

China stood strong against the Asian Financial Crisis of 1997–

1998 without devaluing RMB, largely thanks to RMB’s bility, which served as a protective shield against speculators TheChinese government was able to peg the renminbi to the U.S dol-lar at the exchange rate of 8.3 RMB to the dollar Additionally, atthat time, almost all of China’s foreign investment was in the form

inconverti-of fixed assets, a situation that prohibits drastic funds movements.China suffered limited losses thanks to an underdeveloped finan-cial system at the time, as well as through tough interventions bythe government in timely diffusing construction bubbles Thesemeasures helped China stave off recession temporarily, but likewisethey dragged the growth when the economy should have surged.Countries such as the United States have pressured China to give upthe peg system Eventually, the renminbi-dollar peg was partiallyeliminated in 2005, and RMB has dropped to below 7 to the dollar

as of mid-2009 The Chinese economy gradually has grown out ofthe cocoon of protectionism to open up to the world

NBS data show that the total volume of imports and exportsfor 2008 was at 2,561.6 billion U.S dollars, of which the value

of exports was 1,428.5 billion U.S dollars, with a moderatetrade surplus of 295.5 billion U.S dollars The year-end foreignexchange reserves of China reached 1.95 trillion U.S dollars, up

by 27.3 percent over the previous year Because of the global nancial crisis, however, both imports and exports were on thedecline.11The economy was hit hard

fi-One way to look at the growth of China’s foreign trade is tocompare changes with respect to dependency ratios In 2008,the ratio of import and export to GDP was 60.9 percent, inwhich export to GDP ratio was 34.1 percent In contrast, in

1997, the ratio of import and export to GDP was 34.5 percent;and export to GDP was 19.4 percent In other words, during aperiod of 11 years, China’s foreign trade sector has almostdoubled, and the export sector alone has grown to be close tothe level of import and export combined in 1997

Wider exposure to foreign trade means more money made,but it also means that China is becoming more vulnerable to

global economic crisis, and that has become the reality Despitethe 9 percent rise in GDP in 2008, analysts predict a slowdownahead, snapping a five-year streak of double-digit growth TheChinese government is doing all it can to safeguard an 8 percentGDP growth in 2009 The challenge has set in: on the onehand, China relies on fast economy growth to alleviate pressure

of job demand that seems to grow even faster; on the otherhand, the sudden drop of orders from foreign buyers is takingits toll For example, exports fell in November and December of

2008 for the first time in seven years As a consequence, sands of factories were shut down in China’s export-drivensoutheast region Job losses are in the tens of millions According

thou-to a Wall Street Journal report, out of the 200 million migrantworkers nationwide, 10 million had already returned to theirfarmlands by January 2009.12The latest figure from the Bureau

of Agricultural Administration of China indicates that, by ary 2009, 20–25 million migrant workers had lost their jobs.13With factories closing due to the plunge in orders, the masses ofjobless workers raise the specter of more social turmoil and con-flicts over land and farming rights Although migrant workers havetheir buffer space—the family plot—to return to, job loss tends tohave a psychological impact, as it involves a difficult adaptationprocess.14 The government is doing everything possible to easeunemployment pressure, and more important, to prevent unrestthat may arise when laid-off migrant workers return to their home-towns that likely have insufficient accommodative services On theheels of the U.S government’s $700 billion bailout package, theChinese government announced a 4 trillion RMB ($586 billion)plan in November 2008 to boost domestic consumption throughhigher domestic spending, particularly on construction and otherinfrastructure-related projects.15 In the West, the concern is cen-tered on potential consequences if China’s economic slowdowncontinues, which is likely to drag down surrounding economies

Janu-In January 2009, the Chinese government set out a budget of

850 billion RMB ($124 billion) by 2011 to improve health care.The long-awaited reform plan for its health care system will

provide universal medical coverage to the entire population ofChina Insurance will cover all medicines, and an agency will beestablished to administer the system.16 These measures, how-ever, tend to take time to show effects Domestic industries havealready weakened as demand for autos, real estate, and othergoods drops, particularly in the early stage of the economic cri-sis The economy was hit again by the Sichuan earthquake thatoccurred in May 2008; the death toll was close to 70,000 TheChinese government, once again, intervened to stop theencroachment of the financial downturn.

The Chinese government is fully aware of rural troubles,including occasional violent protests, and deals with them aggres-sively The government attributes such incidents to the followingcauses: (1) peasants’ land rights have not been properly protected,(2) environmental pollution has not been properly contained,(3) migration has not been properly handled, and (4) peasantassets have not been protected The government openly admitsthat in the past years all focus has been placed on growing theGDP, leaving rural interests insufficiently attended.17

Further measures will be taken, according to the Bureau ofAgricultural Administration, to ensure peasants’ land rightsissued in Document Number 1 of 1984, including their right

to transfer land Under these measures, no one will be allowed

to force peasants to give up their land or to divert land use fornonagricultural purposes Furthermore, the government willincrease investment in agricultural infrastructure, and raise levels

of subsidies for agricultural machinery, animal feeds, and izer The government also will raise the minimum purchasingprice for grains To do so, the government will increase publicgrain reserve levels as a measure to stabilize market prices Mean-while, agricultural exports also will be encouraged To improvepeasants’ life quality, the government encourages manufacturersand vendors of home appliances to open rural markets anddeliver quality products

fertil-As a result, China’s trade sector continued to grow through

2008, ranking third on the list of the largest export markets