Cowboy Capitalism with Chinese Characteristics, Part 2: A View from the Street

Despite the growth of inequality in contemporary China and the precarious means of subsistence for the lowest rung, few voices have shouted above the parapet to protect or increase the lot of the poorest. If we take Beijing, a seemingly booming metropolis, visible indications of inequality and economic problems can be found almost everywhere. In a brief walk through the prospering nanluo guxiang alleyways (南锣鼓巷) of the drum tower area, one can take in street after streets of trendy coffee shops and ‘international bars’, pay 40 kuai for a drink (equivalent to the daily wage of a waitress serving it), or be caught in the jam-packed streets of fashionable young Chinese shoppers dazzled by various arty, luxury consumer fashion items. In less upmarket areas 9 kuai can buy you a relatively healthy meal of noodles. Instead one can consult international entertainment guides printed in English to see adverts for concerts such as ‘progressive’ metal band Opeth for 680 kuai, about three times the price of a comparable UK concert (an upcoming Avril Lavigne concert costs 1700 kuai, about 170 UK pounds). You can then turn a corner and within seconds the streets are empty, the residents are aging, and the homes are without heating, running water, and toilets. The generation gap and the income disparities are visibly staggering. This is not simply about inequality per se but about access to the means of subsistence- a basic income, health, and education. Accessing largely privatised social services is not cheap and housing prices have exploded. For example, it costs about 400 pounds a month to rent a small studio flat with no cooking facilities in the Xiaoxitian area (a relatively affordable district adjacent to Beijing Normal University). This is much the same as a one person flat with separate rooms, a full kitchen and bathroom in Manchester, UK. Average income in the UK is $38,540 compared to China’s $4,260. No surprise then that small shop-owners still have beds in their stalls all over Beijing and rely on small heaters or electric blankets though the winter. Capitalism seems to inevitably produce winners and losers and this is perhaps most dramatic in its global phase where wealth and goods are not confined by national borders. The winners and losers here are worlds apart and there is little responsibility being shown by the winners.

Pun Ngai, author of Dagongmei, brings to light a serious contradiction in the claims of China’s opening up in the reform era. We ordinarily expect capitalism and wealth creation to thrive on social and spatial mobility; business and people have to be willing to move to where money can be made and profit found. However, while the Chinese system has privatised social services and to some extent opened its markets to global capital, it has not abandoned the household registration system (hukou). This divides citizens into urban and rural residents and ties residents to their place of birth if they wish access discounts to the most basic healthcare and early schooling still available under the system. This means the rich are increasingly mobile both in global terms (they can afford to travel abroad or go to see Opeth in Beijing) and in national terms because they can move to other cities and pay for private healthcare and schooling. This maintenance of immobility combined with skyrocketing housing prices has led to the phenomenon of what Pun Ngai termed “dormitory capitalism”; not only does the hukou system make the millions of migrants who move to the city de facto illegal aliens in their own country but due to the cost of housing many have to live in dormitories in basements owned by their employers rather than be made homeless. This provides a lifestyle completely at odds with representations of a rising, powerful China and in utter contrast to the nouveau-rich playing on their laptops and sipping high status coffee. Coupled with the fact that trade unions are de facto outlawed in China, this also enables the owners of such businesses a level of control over their employees such that the most marginalised (poor, rural women) are “instantly disposable” and in many cases cannot refuse to sell their bodies. Approximately 12% of China’s GDP can be accounted for by the sex trade.

I’ll offer a brief personal story of how the process of renting a house works in Beijing. This is written from the relatively privileged perspective of my partner and me. However, much can be gleaned from it to tell us where wealth goes and the attitudes towards it in Beijing today. We were advised by both Chinese and foreign friends that to find a house in Beijing, going through an agency would cost more but it would save us a lot of trouble and avoid the risk of being ripped off later. We explored the xiaoxitian area and discovered that there are perhaps half a dozen of such firms on every street! These firms manage large amounts of property for landlords who often own entire apartment blocks. The streets are not only decked in adverts everywhere but you can see their staff standing on most street corners waiting for clients or waiting for people to look at their adverts which also adorn many street corners. This is big business. Overhearing conversations on the street and in restaurants, housing seems to be the hot topic of the day- everybody needs it but most seem to be struggling to pay for it. We looked at a number of flats and studio apartments to little avail as our rough budget of 4,000 kuai (about 400 pounds) would only cover decaying flats with broken toilets or a tiny studio. Eventually we received a phone-call from an unknown number offering us help to find a flat. We assumed he was from one of the companies we had consulted but we eventually discovered he was actually a middle man to the middle men at the estate agents. He provided clients to the firms who make money finding clients for the under-rich landlords. We eventually met with him and spent the best part of a day or two chatting with him as we looked for accommodation. He offered us a reasonable deal, he said, because we were British. This was an offer he wouldn’t extend to Greeks and Italians in the Eurozone who renege on their debts! As most young men in Beijing, his life revolved around making as much money as he could to pay for housing, keep his family afloat, and save for the future. He claimed his wage for acting as a middle man to the middle men was about 10,000 kuai per month – light years ahead of the national average and equivalent to our individual incomes in the UK. When we discussed tax, he mocked the UK tax system for taking money away from people (China’s income tax is a rate of about 20% for those making more than a very healthy 5,000 kuai a month). He audibly scoffed at our suggested notion that this money could be used to help society. Socialism remains comedic and kitsch amongst China’s youth. In fact, he described life and business in China, in the same way as many here, as “people-eat-people” (ren chi ren; 人吃人). Competition is so fierce here that people believe it demands that one pursues wealth and self-interest without responsibility to others outside one’s family, let alone any socialist commitment to aiding the poorest rungs of society.

After looking at a half a dozen flats with him, we eventually had to lower our standards. We accepted a reasonably sized but decaying and concreted floored flat with a bathroom I could barely stand in. It seemed quite pleasant compared to others we could afford. When we arrived to sign the contract, a problem emerged. Every foreign national in China has to register themselves and their address with the local police station. However, the landlord insisted we register with a fake address at a different station because it would be “more convenient”. This was a way for them to avoid taxes on the rental income as well as the fee associated with this registration. They either had relationships (guanxi; 关系) with police or a landlord in another part of town. Knowing that if anything went wrong we would be the ones in trouble and would probably be sent home, we opted to find somewhere else despite having spent the better part of a week looking at houses. The only way we could both afford to live in Beijing would be in a small and relatively old studio flat. We found such a studio flat in the xiaoxitian area thanks to our anti-Euro middleman to the middlemen in a relatively nice apartment block. We were quite satisfied.

At this stage we still thought our man was just an ordinary middle man but on settling to sign the contract, we realised that this wasn’t the case. An employee of an estate firmed arrived with the contract, refused to say a word, drew up the details, pointed and said ‘sign’. We insisted we read what we were signing up to. He was clearly annoyed but would tolerate this. Our man told him “don’t worry, foreigners are all like this, they just take contracts seriously”. Relationships may be more important than law in China but as travelling foreigners without any networks we opted to stick to the law. On perusal of the contract it turned out they were adding 9 days onto the 6 month lease we agreed. The company man repeatedly urged us to sign as it was “much the same” and would only grin when I said if it is much the same, then change it! After much to-ing and fro-ing I told the company man that I didn’t want to give 1,000 kuai for nothing to a rich landlord. This he found amusing. He agreed to reduce the additional time to 7 days, even though he had claimed it was impossible due to the contract he had with the company who had a contract with the landlord! We both realised this was how these cowboys make lots of money. He, along with hundreds of other agents, was travelling round town all day. If they made a free thousand kuai off every customer they were raking it in without even considering the profit from their legitimate business. After much consternation and urging us to sign, the agreement was made that the original middle man would take the additional cost out of his ‘finder’s fee’. He had of course told us that this would be reduced earlier but now there was no chance- we had to pay him a full month’s rent in cash with no tax paid just for the sake of a few phone calls. No wonder he makes a good wage. The pair of us were then hurled onto the back of a small motorbike and driven to the company office bouncing off a taxi on the way. The company man, who had seemed so aloof and high status from our first meeting, refusing to even engage with our middle man, was suddenly in a different social position. He was being shouted at by his boss and providing us with a place to sit and a drink in this bustling office where multiple deals were being negotiated all round us. The boss grilled him on how much he had got for the flat. He seemed pleased with the 3,500 kuai per month we agreed to pay. All of a sudden, the rate seemed like it had been negotiable and we guessed that the company weren’t just making money as a set fee from the landlord but were probably creaming extra cash off by charging us a higher rate than what they were telling him. I would doubt the taxes are being paid.

The inconvenience of all this was tiresome but quite amusing and a good learning experience. The real story is that so much money is slushing around, tax-free and destined for landlords’ pockets, that multiple middle men can still make a healthy, largely tax-free living by knowing the market but doing very little. This opportunity would not be available to the additional illiterate 30 million adults who merely happened to be born in a poorer hukou (household registration area). Adam Smith and Karl Marx both agreed that under capitalism, the arduousness of labour is inversely proportional to the profit made from it. When we think back to those having to live in their shop-stalls to survive or living in dormitories and basements selling their bodies, this is clearly the case in contemporary China. National television (CCTV) devotes hours to heart-warming stories of peasants, who have to work endlessly without complaint to pay healthcare bills or send their kids to school, as examples to be admired. Perhaps regulating the cowboy capitalists and using taxes to pay for schools and hospitals, instead of mega-pr events like the Olympics or indeed a nuclear arsenal, would mean the poorest wouldn’t have to be admired for the hardship they endure.

Cowboy Capitalism with Chinese Characteristics, Part 1: The Big Picture

The end of the cold war and in particular, the effects of the global financial crisis, has led to a convergence of interests between the Chinese Communist Party (CCP) and the US, the world’s declining hyper-power. It suits both the neo-conservatives in Washington and authoritarian leaders in Beijing to represent the new China as an economic powerhouse. US foreign policy hawks portray China as a threat to the prevailing hegemony justifying military spending and protectionism while the CCP domestically celebrates itself as the only way to prosperity (see the slogan: 只有共产党才能建设好新中国; “Only with the communist party, can we build a new, great China”). Since the onset of Deng Xiaoping’s reforms in 1978, China has indeed enjoyed spectacular double-digit economic growth figures. The glitz and glamour image of the ‘new’ China exemplified by Shanghai’s pudong skyline is mesmerising for foreign investors and travellers alike. As important as these images and representations are in recreating an attraction towards the new China or what Joseph Nye called China’s ‘soft power’, there is indeed a lot more happening behind these images and on the streets of China’s ever-expanding cities let alone the hugely impoverished countryside.

The World Bank’s 2011 data tell us average global income (GNI per capita) is just over 9,000 US dollars. According to the same stats, income in China ranks at 121 of 215 in the world at $4,260. This does not diminish the impressive growth China has enjoyed over the last 40 years but it does put it in context; average income in Kazakhstan is $7,440. With economic growth, China has become one of the most unequal countries in the world- ranking at 36, ahead of the US at 44^th and the UK at 92nd. This should make us take a step back and ask who are the 99%? The neoliberal, capitalist United States is actually more egalitarian than the supposedly socialist China and indeed enjoys an average income of more than 10 times that of the purported threat to its global hegemony. The World Bank celebrates its own achievements and the seemingly inevitable logic of the ‘free-market’ by claiming 200 million have been pulled out of poverty across the globe since the 1980s. Chinese people constitute the majority of these yet all is not what it seems. These figures are extrapolated from a handful of booming eastern and southern coastal cities, which are not representative of China as a whole and which present an even greater problem considering the level of inequality across the nation.

The Oxford Poverty and Human Development Initiative produced a spectacularly detailed set of statistics on multi-dimensional poverty (eg income, education, health, etc) which breaks down different types and levels of poverty across different regions within nations. China is one of the only countries in the world which did not submit regional figures, so we can’t even adequately capture regional inequality in China in ways which we can for supposedly “failed states” in Sub-Saharan Africa such as Liberia, Sierra Leone, and Democratic Republic of Congo. We know that regional inequality is a huge problem and that since the 1990s it has grown. For example, the GDP per capita of Yunnan province is about 10-15% of that of Shanghai, the image of Chinese modernity. We also know that when the World Bank revised its definition of poverty upwards to an underwhelming $1.25 a day, the number of people living in “extreme poverty” in China jumped from 130 million people to 207 million, about a sixth of the total population. This means one sixth of the population of China are neither sharing in the statistically pleasing double digit growth nor the mesmerising hi-tech appearance of the new China. Despite double-digit national growth throughout the 1990s, Shanghai as one of the fastest growing regions saw no relative income growth and the poorest lost income in absolute terms (see Huang, Yasheng (2008) Capitalism with Chinese Characteristics, Cambridge: Cambridge University Press).

The global financial crisis of 2008 laid bare the lack of regulation of capitalism had opened the most vulnerable in society to the vagaries of financial markets despite their lack of participation in them. In the UK, David Cameron calls for a “responsible capitalism” and in the US, Barrack Obama was initially lauded by many for his goals of extending access to healthcare to all. ‘Responsibility’ to others and the pursuit of self-interest above all else under capitalism may be oxymoronic. However, the political need to attempt to reconcile them in public discourse at least indicates a broader accountability to a wider range of social interests. In China, Deng Xiaoping’s mantra, “to get rich is glorious”, sums up the attitudes of Chinese youth today who see communism as a kitsch yet backward social irrelevance and money as a cure to all ills. Of course, the great leap forward in which 30 million people died of famine, the chaos of the Cultural Revolution, and the gloominess of communist uniformity remain as reminders of the failures of anything but the pursuit of wealth in the self-imagination of contemporary Chinese youth. The cyclical crises of capitalism throughout twentieth century Europe and the US offer very different storehouses of imagination to that of China. Today, the Chinese government, official media, and popular discourse frequently refer to the global financial crisis as the “western financial crisis”. It is often explained it in cultural terms as a failure of “westerners” to save money and pay off their own mortgages in contrast to the Asian traditions of savings and austerity.

What is less said in popular media, both in China and abroad, is that the housing market in China today bears many of the hallmarks of the economic conditions which led to the sub-prime mortgage crisis in the US, which ultimately triggered the global financial crisis. The IMF has warned of the economic crash that could result from soft loans with little hope of return, unregulated lending, concentrated housing ownership, and rising property prices. Like the US at the turn of the 21^st century, this resembles capitalism at its most irresponsible and most unstable. The difference is China has even less of a social safety net than the US, let alone Europe; going to school and visiting a hospital almost universally require payment up front. Those in the most financially vulnerable positions can expect to pay for any crisis as they have in the US and Europe through tax-funded bailouts for failing financial institutions and increasingly squeezed funding for social services upon which the poorest rely. Those raised on the dogma of the pursuit of wealth are unlikely to be willing to give much of it up when push comes to shove. Given the poorest in China are considerably worse off than the poorest in the US or Europe and already lack access to basic social services, any major economic downturn would not just threaten their means of home-ownership but would jeopardize the means of subsistence for millions of people.

Yasheng Huang’s Capitalism with Chinese Characteristics effectively shows us that both the growth of income for the poorest and private access to credit enjoyed during the 1980s has been reversed since the 1990s. The system has now re-directed tax incentives, subsidies, and favourable terms of credit away from small private enterprise and towards large-scale foreign direct investment and businesses closely aligned or partly owned by government. This is reflected in news headlines of large-scale corruption and corporate land-grabs converting farms and poorer housing areas into property developments with little compensation and no hope of being affordable. The result has been stagnation in incomes in rural areas, a decrease in spending on social services, and growth in illiteracy (30 million more people between 2000 and 2005) since the 1990s. China appears to be maintaining the authoritarian political apparatus of ‘communism’ whilst promoting the business interests of large-scale state-owned enterprises. This is becoming the worst of both worlds as freedom for the nouveau rich in urban centres can be bought and the voices of the lowest rung go unheard. Given the lack of regulation of big business and the lack of social responsibility shown in the system, it seems fair to call this cowboy capitalism. The US and Europe pay lip-service to human rights but they say little about the poorest rungs of Chinese society. In the end, the poor are the losers in the geopolitical game, which produces images of an inevitably rising China.