Wednesday, 22 February 2012

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.

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