Making sense of what is happening in China

March 3, 2020

How do we make sense of what is happening in China? Last week was privileged to listen to four wise people talking about China, its past and its future.

The occasion was a seminar organised by Oxford University’s Faculty of History as part of its Lessons from History series, hosted by Sarasin & Partners.

From Professor Craig Clunas, I learned about the success of Chinese soap operas celebrating and promoting the country’s glorious past. Six years ago, President Xi talked of ‘5,000 years of continuous Chinese Culture.’ How odd that comment seems now, suggested Professor Clunas, when only a few decades ago Mao’s Cultural Revolution was throwing so much of the country’s heritage out of the window.

Professor Rana Mitter echoed these remarks. China now boasts about having been the first signatory of the UN Charter. It was, but in the days of the Kuomintang before the Chinese Communist Party took power.

Professor Clunas reported on the huge success of the 59-episode historical drama Zheng He Xia Xiyang. This is based on the voyages of Zheng He, the explorer who led seven expeditions to Southeast Asia and beyond to Africa.

In the age of the Belt and Road initiative the message is clear. China has a long tradition of global greatness which it is now rediscovering.

Globalisation was one of the four elements in what Professor Mitter described as China’s DNA. The others are Authoritarianism, Consumerism and Technology.

All have long historical roots. It is their combination which gives China its strength. Russia is weaker especially because it cannot offer its people the fruits of consumerism. Contrast that with China where Tencent and Alibaba put on consumer events that make Black Friday look like a jumble sale.

To understand China, said Professor Mitter, you have to understand the reasons for its authoritarianism. Throughout the last 150 years it has been a country savaged by wars. Between 10m and 14m people were killed between 1937, when Japan invaded China, and the end of World War Two.

And by and large we don’t understand China. Professor Clunas commented that the Chinese have a far greater understanding of our history than we have of theirs.

Professor Catherine Schenk spoke about Hong Kong and its historic role. She refuted many myths about Hong Kong. People think of it having been an exemplar of free markets. (Milton Friedman, in particular, tried to present Hong Kong as a free market paradise and, along with many other subjects outside of his narrow area of expertise, got that completely wrong). Under colonial rule, the ownership of land was controlled by the state, which subsidised intensive industry to keep Hong Kong labour employed in manufacturing. Housing was heavily subsidised so that wage demands were tempered. Professor Schenk explained that 30% of people lived in public housing. Banking competition was restricted. Only one new bank licence was issued between 1965 and 1981 and foreign banks were restricted to one office until 1999 and 3 offices until 2001.

The integration between Hong Kong and mainland China happened way before the political handover of Hong Kong. Sterling was a big source of integration. American sanctions before the Nixon-inspired thaw in relations restricted Chinese access to the dollar, but not to sterling.

 

Niloofar Rafiei , a global economist at Sarasin & Partners, took a look at the impact of the coronavirus. The consequences for car production sounded particularly dramatic. The so-called resumption rate of activity in China so far appears to be around 80% for state owned enterprises, but car production is only just over 20-30%. Nissan was forced to temporarily close one of its Asian car production plants and Fiat Chrysler has warned that it may need to close one of its European plants. She also pointed out that China was following the pattern of Korea and Japan in experiencing a slowing growth rate as the economy converges to high income status. Particularly noticeable is the substantial rise in the dependency ratio – the ratio between those too young or too old to work and those of working age. In just one decade, this ratio is expected to increase from 37% currently to 48% by 2030.

My reflections at the end of a fascinating evening? I don’t for one moment suggest that we should neglect global awareness; it is regrettable that we understand the Chinese so much less than they understand us. Yet, in an age of growing volatility, heightened by the impact of rampant nationalism, increasing security threats and uncontrollable viruses I wonder if the inexorable drive to ever more global and just-in-time supply chains may be coming to an end. Perhaps there is a different model that will emerge from the current turbulence – one which does increasingly lean towards local sourcing, reduced airmiles, and regional self-reliance. Naively I would ask if that seems such a bad idea!

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