It is hard work being in the China-is-doomed camp.
Just a few weeks ago, the Communist party looked to be facing the sort of cataclysm that can sweep away authoritarian regimes. The economy has been so badly hit by the coronavirus epidemic that China is likely to record its worst quarterly result since the depths of the Cultural Revolution.
At the same time, an anxious public was beginning to realise that the authorities had covered up the early stages of the outbreak, paving the way for a much more aggressive spread of the disease.
The anti-party mood even found a martyr figure in the form of Li Wenliang. The 34-year-old Wuhan doctor was detained by police in early January for “spreading false rumours” after he had warned about a strange new pneumonia sweeping the city. When he died from the same virus in late February, the internet in China exploded. All of a sudden, everything seemed in play.
Fast forward to late March and the situation appears completely different. It is Donald Trump, not Xi Jinping, whose political survival appears threatened by the coronavirus crisis, as the US president flails in the wake of an impending healthcare disaster. China’s economy is showing new signs of life and Xi is sending medical supplies and messages of solidarity to Europe and Africa. The intended subtext of these gestures is clear: the Chinese model is superior to that of the west.
If nothing else, the last few weeks have been a warning to those authors predicting the “Coming Collapse” to take a very deep breath. But that does not mean that the system is invulnerable. If the Chinese economy ever does enter a prolonged slump, it need not be the result of some freak crisis. It could just as easily come from within and the steady accumulation of intractable problems that veteran China-watcher Dexter Roberts identifies.
There is the huge build-up of debt that is slowly clogging the financial system — a potential crisis a coronavirus-led recession could expose. There are the inexorable demographic forces of an ageing population, which means there are fewer cheap, young workers to operate its factories. And there are the grinding inequalities and social resentments which four decades of breakneck growth have created — “today’s unbalanced, deeply unequal society”, as Roberts puts it.
In The Myth of Chinese Capitalism, Roberts tries to answer the big question facing China before the coronavirus crisis hit. Can it forge ahead for another generation and become the first authoritarian regime to enter the exclusive club of high-income countries? Or will it succumb, like Brazil, Thailand and countless others, to the so-called “middle-income trap”, where it can no longer compete on cheap manufacturing but does not yet have the skills or technology to sustain more advanced industries?
Roberts approaches this task not through a careful parsing of bad debts or through looking at its prowess in artificial intelligence, but through tenacious reporting that seeks to expose the murky underside of the Chinese miracle. A former Bloomberg journalist, he has been following the main characters who people this book for nearly 20 years, which is a sort of perseverance that few other writers can match.
Two books on China and its economics
Journalist Dexter Roberts tenaciously reports on the grinding inequalities, social resentments and strict divide between the privileged urban middle class and underclass that four decades of growth have created
Urban planner Juan Du aims to break through the clichés that surround the glittering success of this southern Chinese city across from Hong Kong, which has come to symbolise the country’s economic success
For Roberts, many of the social tensions now threatening to explode can be traced to the hukou — a small red passbook that records where a family is officially registered as living and what benefits it is entitled to. The result is a strict divide between residents of prosperous cities and those from rural areas — or as Roberts sees it, between a privileged urban middle class and an underclass.
“Nothing defines the lives of China’s other half — the hundreds of millions of farmers, many now turned migrant workers — more than the hukou,” he writes.
This system has been abused to create a “pliable, low-cost labour supply”. Without the right to live in a city, factory workers fear being thrown into informal detention centres known as “black jails” if they outstay their temporary permits. It has also made them less likely to complain about their conditions.
The biggest impact has been in education. The Shanghai schools that win international prizes are for those with a city hukou: the kids of migrant workers have to go to expensive private schools or be sent home to extended families in their villages.
These “left-behind” children pay a heavy price. Research has shown they are 3cm shorter and weigh significantly less than their city peers. By 2015, there were 100,000 boarding schools to cater for them, many of them suffering from overcrowding. Roberts describes the bleak conditions at one school in Shaanxi province. After dinner, the students were “herded into classrooms, sometimes with the doors locked behind them, and ordered to read their textbooks and keep quiet until 10pm”. China, he concludes, is not educating the young workers it needs for a more advanced economy.
The cumulative effect of these pressures is to create an economy which is both running out of steam but where an exploited workforce is starting to demand more. China will “suffer an ever more anaemic economy” while at the same time the “disadvantaged become ever more aware of their meagre lot”.
Is Roberts right? His book focuses on a side of the Chinese story that has been downplayed in recent years amid the hype about a new technology superpower. But it is still only one side of the story, and risks ignoring the dynamism that still powers China’s economy.
Part of the answer might have come from The Shenzhen Experiment, by Juan Du. An architect and urban planner, she sets herself the task of telling the story from the ground up of Shenzhen, the southern city just across the border from Hong Kong that symbolises like no other China’s economic success.
Between 1980 and 2017, the city’s gross domestic product increased from Rmb150m to an extraordinary Rmb2.2 trillion — bigger than many EU member states, such as Finland and Greece, and the bulk of US states, including the likes of Connecticut and South Carolina.
With a glittering skyline adorned by several of the tallest buildings in the world, the city is now home to Huawei, the telecoms infrastructure company whose technological prowess has generated such anxiety in the west, and Tencent, the pioneering gaming and social media company. Even within the context of China’s extraordinary recent history, Shenzhen stands out.
Du aims to break through the clichés that have dominated so many accounts of Shenzhen, especially the idea that it was little more than a fishing village in the late 1970s when Deng Xiaoping’s economic reforms began and it was designated one of the crucial special economic zones. By rooting her story in the “countless individuals” who defined the city, she argues that Shenzhen is much more than a top-down exercise in building a modern metropolis. But while her research is painstaking, the book often gets bogged down in planning documents and zoning decisions, and loses sight of the city’s vitality.
The counterargument to Roberts is, instead, one that he inadvertently provides. One of his chapters is on the growing use of robots in factories desperate to remain competitive — a development he believes will exacerbate social tensions by limiting the number of new jobs. But the reason for the surge in robots is revealing: “After a decade in which manufacturing wages doubled, China’s workers are no longer cheap.” Indeed, salaries now match Brazil and exceed those in Mexico, Thailand and Malaysia.
This is important for two reasons. First, it suggests that for all modern China’s stark social divides, at least some of the benefits of economic growth have trickled down to workers.
It also hints at the major transformation that has quietly taken place in the Chinese economy. A decade ago, growth was driven by unsustainable investment in mega-projects. But now it is services and consumption that are the largest part of GDP. Even as the headline rate of growth slowed before the coronavirus crisis, real per capita disposable incomes have still been rising at more than 6 per cent a year — a figure that any other large economy would kill for.
Roberts is disparaging of those analysts who call China “the world’s greatest consumer story” because such descriptions sanitise the harsher realities of city life. Yet if China does manage to maintain a relatively high growth rate for another generation, this will be the reason — a steady, relentless rise in wages and a growing domestic market.
Coronavirus could yet prompt another slump in the Chinese economy if Beijing’s scramble to revive activity in the second quarter results in a new spike in infections — and another wave of lockdowns. The disease has already shown many of the failings in the Chinese system. But at the very least, it has also demonstrated the Communist party’s ability to withstand a torrent of criticism and then quickly shift the national narrative on to the flaws of other countries. That ability gives China’s leadership a resilience that is easy to underestimate.
The Myth of Chinese Capitalism: The Worker, The Factory, and the Future of the World, by Dexter Roberts, St Martin’s Press, RRP$28.99, 288 pages
The Shenzhen Experiment: The Story of China’s Instant City, by Juan Du, Harvard, RRP£28.95, 384 pages
Geoff Dyer is the FT’s analysis editor and a former Beijing bureau chief
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