[Marxism] Kenneth Pomeranz: China’s Capitalism

Louis Proyect lnp3 at panix.com
Thu Feb 11 15:17:55 MST 2016


LRB, Vol. 38 No. 4 · 18 February 2016
Nightwork in Chengdu
Kenneth Pomeranz

China’s Growth: The Making of an Economic Superpower by Linda Yueh
Oxford, 349 pp, £29.99, April 2013, ISBN 978 0 19 920578 3
The Rise of the People’s Bank of China: The Politics of Institutional 
Change by Stephen Bell and Hui Feng
Harvard, 374 pp, £40.95, June 2013, ISBN 978 0 674 07249 7
The Great Urban Transformation: Politics of Land and Property in China 
by You-tien Hsing
Oxford, 272 pp, £27.50, March 2012, ISBN 978 0 19 964459 9
Constructing China’s Capitalism: Shanghai and the Nexus of Urban-Rural 
Industries by Daniel Buck
Macmillan, 267 pp, £55.00, July 2012, ISBN 978 0 230 34095 4
Anxious Wealth: Money and Morality among China’s New Rich by John Osburg
Stanford, 248 pp, £15.99, April 2013, ISBN 978 0 8047 8354 5

The reasons for China’s economic boom remain disputed. Chinese economic 
policy has changed repeatedly while high growth rates have continued. 
Commentators are clearer on what hasn’t happened than on what has: there 
has been only limited privatisation (as there was in 1990s Russia), no 
full embrace of factor markets (land can’t be privately owned; labour 
mobility is restricted by an internal passport system; capital markets 
are anything but transparent), and much less political liberalisation 
than some predicted. Despite the current slowdown – which has slashed 
stock market and real estate values that had long been suspiciously 
high, and is causing a cascade of debt problems in over-leveraged firms 
and local government development agencies – there is still a reasonable 
chance of China experiencing several more years of growth that would be 
high by almost any other country’s standards. So the basic questions 
remain: how long can the boom go on, and should we expect the durable 
institutions that emerge from it, if there are any, to resemble Western 
ones?

Linda Yueh’s China’s Growth: The Making of an Economic Superpower begins 
with a lengthy exercise in growth accounting. She looks at how five 
factors have contributed to Chinese growth: institutional change, 
particularly the clarification of property rights and contract 
enforcement; the increasing dominance of private profit-seeking firms; 
labour market changes that make it easier to match workers with jobs and 
reward investment in training; ‘catch-up growth’ from importing superior 
technologies and business practices; and the development of social norms 
and networks that encourage entrepreneurship. She uses statistical 
regression to estimate how much of China’s post-Mao growth each of these 
factors might explain.

Yueh estimates that about 45 per cent of China’s growth since 1979 can 
be attributed to capital accumulation, another 10-20 per cent to the 
growth of the labour force, and a further 11-15 per cent to improvement 
in ‘human capital’ (i.e. healthier and, more important, better educated 
workers). This leaves around 30 per cent of growth to be explained by 
what economists call Total Factor Productivity (TFP): gains resulting 
from making institutions more efficient, discovering better ways of 
doing things and various intangibles. Yueh estimates that a bit less 
than a third of China’s TFP gains – 8 per cent of growth overall – is 
explained by the reallocation of both labour and capital from 
state-owned enterprises to the private sector. This leaves about 20 per 
cent of growth to be explained by other institutional changes – easing 
migration restrictions, liberalising financial rules, providing more 
patent protection and so on. This is a relatively modest share, but Yueh 
estimates that it has been increasing recently, and must increase at a 
faster pace if China is to continue rapid growth while allowing its 
people to enjoy more of growth’s benefits, since more consumption would 
moderate its very high rates of investment and capital accumulation. She 
then turns to what she sees as the two greatest challenges ahead: legal 
reform to make businesses more secure and better able to expand, and 
rebalancing the economy so that it depends more on domestic consumer demand.

Her discussion of institutions begins from what she and many others call 
‘the China paradox’: that China’s legal system seems too unreliable to 
have supported such robust growth. She argues that the paradox 
essentially disappears if we compare China not to other ‘post-socialist’ 
economies, which have tended to copy their institutions from developed 
countries, or to former European colonies, which have also used imported 
models, but to another large developing economy that gradually evolved 
its own institutions: the United States in the 19th and early 20th 
centuries. China adopted sophisticated patent law and corporate law 
before it reached the level of GDP per capita at which the US had done 
so: US growth wasn’t much inhibited by the pace at which its legal 
system evolved, and perhaps China hasn’t been held back either. Such a 
comparison can only be suggestive, as Yueh admits, and most historians 
would question whether similar levels of GDP a century apart really show 
that two societies were at a common ‘stage’ with similar institutional 
‘needs’. Yueh is certain that China’s growth will suffer if it doesn’t 
adopt a more Western-style legal system. She cites the increasing 
importance of new technologies in driving growth – and thus the need to 
protect intellectual property in particular – but one may have doubts 
about whether that’s sufficient reason to claim that after the present 
moment adequate institutions (economically speaking) can no longer be 
expected to develop internally. She goes on to argue that China’s 
approach may appeal to other developing countries precisely because it’s 
been characterised by gradual evolution in response to economic 
development, rather than by the sudden adoption of supposedly better 
institutions in the hope that they’ll jumpstart growth. This is an 
important challenge to much of today’s conventional wisdom.

Yueh also points out that moving huge numbers of workers from 
state-owned or collective firms to the private sector in the 1990s led 
to millions of lay-offs, but didn’t produce large gains in labour 
productivity. Much bigger gains came from ‘corporatisation’ – converting 
state-owned enterprises (SOEs) into shareholder-owned corporations – 
even when the state retained a controlling interest. But the gains from 
corporatisation were small compared to those created by new technology, 
healthier and better educated workers, and labour market reforms that 
increased incentives for further training. Workers who have an urban 
hukou (a residence permit giving them access to a city’s public 
services) rarely change employers. This is true even of those who 
started working after the ‘smashing of the iron rice bowl’ – the 
abolition of lifetime job security, widespread benefit cuts and tens of 
millions of lay-offs – at state firms in the mid and late 1990s. 
Migrants, who tend to lack hukou and so are more likely to leave their 
children behind, move and change jobs frequently, and firms are 
reluctant to train them. They are also often excluded from jobs at SOEs. 
Those who do have an urban hukou get most of the SOE jobs, and rarely 
consider working in the private sector. Yueh finds some signs of change 
– one survey suggests that those with urban hukou increasingly perceive 
migrants as both potential co-workers and competitors for their own jobs 
– but the labour market remains highly segmented.

Addressing this problem will require reform of the hukou system, but 
other measures will also be necessary. China’s financial system puts 
private firms at a disadvantage: a number of the laws enacted in the 
2000s exempt SOEs from restrictions on borrowing, making an already 
un-level playing field even more unfair. Making it easier for migrants 
to get SOE jobs would help, but Yueh would prefer to see SOEs continue 
to shrink. In her analysis financial reform is crucial. Currently, most 
households have few places to invest their money, so they put it in 
state banks, even though interest is capped at low levels. Under state 
pressure the banks lend far too much to inefficient SOEs; knowing 
they’ll have a hard time getting loans, private firms save to finance 
their future expansion. Breaking this cycle, Yueh argues, would stop 
people saving so much and help rebalance China’s economy in favour of 
domestic consumption. It would also help to make growth sustainable: the 
country can’t continue to rely so heavily on exports and the growth of 
domestic investment can’t outpace consumer demand for ever.

Yueh wants the government to pull out of manufacturing and finance, but 
she doesn’t expect it to do so rapidly, nor does she think it essential. 
She believes there are areas where the government should play a more 
prominent role: more social welfare provisions would be good in 
themselves, good for the labour market and would give households the 
confidence to save less and spend more. This adjustment, she suggests, 
could give China another thirty years of growth, though not at 10 per 
cent per year. But she doesn’t ask whether China’s rulers are likely to 
make these changes or what their consequences might be beyond sustaining 
growth. She argues – correctly, I think – that most institutional change 
has been internally driven, but doesn’t include the politics behind it 
in her story.

The Rise of the People’s Bank of China, by the political scientists 
Stephen Bell and Hui Feng, looks at how institutional change happens in 
a society with no place for overt political competition. It also conveys 
far greater anxiety than Yueh’s book about the urgent need for rapid 
change. At the end of their book, Bell and Feng quote an official of the 
People’s Bank of China (PBC) describing the challenges of institutional 
change: ‘China is very much like a giant leaking ship. We cannot stop 
and repair the ship, otherwise it is bound to sink. We have to mend it 
while it sails until reaching the shore.’ He doesn’t say what the shore 
represents. Is it a certain per capita income? A particular set of 
economic institutions, such as a truly independent central bank? The 
authors have their own interpretation:

So far, the political regime has defied a number of doomsday predictions 
of a sinking ship and has managed to keep the leaking ship afloat with 
significant institutional changes. But ultimately, the political 
deficiencies of authoritarian rule may have to be addressed to further 
secure the institutional achievements of the reforms. As part of this 
broader process, the extent and pace of institutionalisation of the 
central bank’s authority, and ultimately perhaps its institutional 
independence, hinge on further economic liberalisation, but perhaps also 
more importantly on political democratisation.

This is a curious end to a book which argues that over the last 35 years 
the PBC has been remarkably good at solving policy problems, and has 
made itself indispensable to China’s political leaders and gained power 
within the party state instead of achieving independence from it. Like 
Yueh, Bell and Feng believe that ‘final institutional reforms’ to make 
the state ‘more similar to that found in Western economies’ will be 
necessary. But they invoke a much broader set of reforms than she does, 
and believe they’ll be needed sooner than in the ‘next three decades’.

Bell and Feng point out that gradual change has worked much better until 
now than the abrupt adoption of supposed ‘best practice’ from abroad 
would have. In the planned economy of the early post-Mao years, the PBC 
was little more than a clearing house for payments between units. The 
economy was powered by physical commodities (raw materials, labour, 
products) and policy was dictated by those who needed or made them. The 
idea that central banks should be insulated from politics – an article 
of faith in the West after the macro-economic fluctuations of the 1970s 
– had little if any support in China. The regulatory tools used by most 
central banks to raise or lower the cost of credit were unlikely to work 
in a country where most firms’ funds came directly from their 
supervising ministries.

Bit by bit, the PBC consolidated its authority by being better at 
solving problems than its bureaucratic and ideological rivals. First 
came periods of high inflation, mostly in the 1980s. Then came asset 
bubbles; recessions; big banks with bad loans; and a huge inflow of 
foreign exchange that put China under pressure to revalue its currency. 
The PBC’s strategies for dealing with these problems included measures 
not available to Western central banks: it slowed the economy in 2003, 
for example, by tightening the money supply and introducing a flurry of 
new regulations that restricted the conversion of farmland to more 
profitable uses. (The memory of these successes is part of the backdrop 
to the government’s recent heavy-handed interventions in the stock 
market in an attempt to prop up prices. These moves have almost 
certainly been counter-productive.) Bell and Feng reject the idea that 
superior institutions can simply be identified and adopted wholesale, 
but they do believe that the optimal institutional arrangement for any 
modern society is, roughly speaking, a neoliberal one. The challenge 
facing China, as they see it, is to figure out a route to that 
destination. But the PBC’s story isn’t one of the inevitable victory of 
market-based thinking. Bell and Feng report that direct interventions in 
the economy were often part of its strategy, and the PBC still hasn’t 
and can’t become politically independent. The performance of ‘true’ 
central banks before and since the 2008 financial crisis also suggests 
they may not be optimal institutions in any case. Is the failed 
austerity of the European Central Bank over the past few years a 
consequence of too much independence from political pressures or too 
little? Doesn’t the fact that the Federal Reserve, the Bank of Japan and 
the ECB have taken such different approaches show either that economics 
doesn’t yield a clear answer in the absence of political pressures, or 
that there are plenty of ‘advanced’ economies in which such pressures 
remain crucial?

*

You-tien Hsing’s The Great Urban Transformation focuses on an area in 
which change has been very rapid, but which hasn’t seen a move towards 
Western-style institutions. Urban land in China still belongs to the 
state, and rural land to ‘collectives’ that are effectively parts of 
village or township government. It can, however, be leased for very long 
periods. Money that governments get from developing land themselves or 
leasing it to developers has become a fiscal lifeline, exceeding tax 
revenues in many places.​1 It has also meant that people are frequently 
displaced by building booms that ‘upgrade’ their neighbourhoods but do 
nothing for them.

The Chinese government is far from monolithic, and it’s central to 
Hsing’s story that particular land development rights are vested in 
specific government units. These include national ministries, 
provincial, municipal and county governments, and a variety of 
sub-county entities. Competition for land development opportunities is 
intense: for local governments it can be desperate. Many matters of 
day-to-day governance are decentralised in China, but the setting of tax 
rates and revenue-sharing formulae aren’t: the rules make it hard for 
local governments to survive off taxes on agriculture or industry 
despite a huge manufacturing sector, and personal taxes are widely 
evaded. Most provinces and municipalities still control some 
profit-making industrial units, but increasing competition has reduced 
their returns. Money sent from the centre helps some local governments, 
especially in poorer regions far inland, but it’s rarely enough. 
However, most Chinese cities have jurisdiction over their surrounding 
agricultural areas – the largest municipality, Chongqing, is roughly the 
size of Austria – and a law formally authorising and setting rules for 
long-term leases on urban land was passed in 1988. Within a few years 
profits from such deals became central to local strategies for capital 
accumulation – a shift that once seemed to have been largely 
improvisational, but now seems less so.​2

In the period before Hsing’s story takes place, there was a huge but 
geographically uneven boom in rural industry. Rural counties, townships 
and villages, most of which had entered the post-Mao era with 
overwhelmingly agricultural economies, faced serious challenges, and 
their initial responses to these challenges still affect those who live 
there. With tiny tax bases and no longer possessing the ability to 
commandeer labour, rural administrators in the 1980s often struggled to 
maintain basic infrastructure, let alone stimulate rapid growth. A 
number of rural governments, most of them near the coast, found a 
solution in the creation of township and village enterprises (TVEs) – 
collectively owned small-scale industries that absorbed vast amounts of 
rural labour, creating more than a hundred million jobs before the TVE 
boom stalled in the mid-1990s. The TVEs solved fiscal problems, made 
many communities wealthy and helped create some of the distinctive 
features of China’s post-Mao development: an unusually large amount of 
rural industry and a low rate of urbanisation; the continuation of 
collective property rights in an increasingly market-driven economy; and 
the enormous importance of one’s place of residence in determining 
household wealth. But many of these firms depended on subcontracting 
work from urban-based SOEs, which retained control of brand names, 
government funding and contracts with foreign firms. The SOEs were 
restructured in the late 1990s, which put severe pressure on the prices 
their subcontractors could charge, and many TVEs were privatised or closed.

Hsing shows, however, that their legacy is crucial. TVEs kept together 
land and assets which in other villages were leased to individual 
households and used for farming. Legal residents received a share of the 
profits: every household benefited, not just those in which someone 
worked for a TVE. Some villagers became wealthy enough not to have to 
farm or work in factories and these jobs went instead to migrant workers 
from poorer parts of the country who didn’t become legal residents. The 
village leadership controlled a consolidated block of land, which they 
were able to offer to development offices when nearby cities expanded, 
and they could present a united front in negotiations. Because the land 
was already being used for non-agricultural purposes, municipal 
authorities didn’t need special permission to turn it into a residential 
or commercial zone. By contrast, the central government sets a limit on 
the amount of farmland that can be converted to other uses each year, 
and localities have to compete for a share of that quota: the further 
down the hierarchy a unit is, the poorer its prospects.

For people in villages that once had TVEs the effects of being swallowed 
up by cities have often been positive. In return for ceding control of 
most of its land, the village often gets to keep a small portion for 
housing and another to develop. The village corporation replaces small 
houses with multi-storey buildings, parts of which are rented out as 
shops, offices and as housing for new migrants. (Hsing estimates that 80 
per cent of the migrants to Shanghai and Guangzhou live in these 
‘villages in the city’.) These developments often violate zoning rules 
and are badly overcrowded: Shenzhen’s villages in the city had 589,000 
residents per square mile in 2004, while the densest of New York’s 59 
community districts has 109,000. Migrants might get a better deal on 
housing if villagers had been completely excluded from developing their 
land; but villagers clearly benefit, continuing to live together, and 
enjoying ample incomes.

Villages that leased their farmland to individual households in the 
1980s and failed to build any collectively held enterprises haven’t done 
so well. They’ve tended to receive little for the rights to their 
scattered, agriculturally zoned plots, and have been rehoused wherever 
the municipality chooses to put them. They have little chance of 
mounting effective collective action if the job or housing they’re 
allotted proves unsatisfactory. Communities that backed collective and 
not individual entrepreneurship have been among the biggest 
beneficiaries of the boom, even though many of those collective 
businesses have now disappeared. It’s no accident that unlike Yueh, Bell 
and Feng, whose books focus on macro-economics and national 
policy-making, and insist on the need for more economic liberalism, 
Hsing bemoans policies that have weakened ‘peasants’ collective 
organisation and identity’, and asks whether pockets of collective 
ownership can survive.

Some commentators have recommended privatising rural land and letting 
individual farmers bargain for themselves. But even if this were 
politically feasible – rural cadres as well as peasants would surely 
object – it’s unclear whether property rights alone could protect 
farmers’ interests. Without the power to accumulate parcels of land and 
have them rezoned, rural land is worth only a fraction of what it would 
be with rezoning, and getting that power requires social and political 
capital. Recent reforms ordered by Beijing that were supposed to empower 
individual farmers to bargain more effectively seem to have done more to 
undermine collective action than to improve outcomes for affected 
households. The limited survey data available indicates that the rural 
poor support keeping land inalienable and giving village collectives the 
right to reallocate it in response to demographic change. The World Bank 
has recommended privatisation but gradually, through a system that 
strengthens regulations and makes it easier for collectively held rural 
construction land to be leased for urban uses.

The process of creative destruction, which shuttered so many TVEs, is 
described in Daniel Buck’s Constructing China’s Capitalism. Buck focuses 
on Shanghai and the surrounding ‘rural’ areas, which are now highly 
developed. This region, along with the Pearl River Delta studied by 
Hsing, is one of the most successful development stories in post-Mao 
China: a Human Development Index for the region would be about even with 
Portugal’s. For some time, it appeared to offer China’s best example of 
development that combined a low level of rapid growth with public 
ownership, relatively limited inequality and a workable system of 
property rights.​3 The ‘southern Jiangsu (Sunan) model’ was also 
distinctive for having a much smaller role for foreign investment than 
other boom areas, and more success at high value-added production, such 
as machine-building, telecommunications equipment and sophisticated 
electronics.

But the model depended on the TVEs, and when they began to fail in the 
late 1990s it lost much of its lustre. Some observers felt this 
confirmed that there was no viable alternative to neoliberalism; some 
argued that even if the TVEs were only a transitional phenomenon, they 
had had lasting consequences; others contended that the newly privatised 
rural firms retained features of their earlier, publicly owned 
incarnations. In Shanghai itself, SOEs became more, not less, central to 
the economy, though they behaved more like privately owned firms than 
they used to. All this led people to ask whether Chinese development 
really remained distinctive, and if so, why and how.

Buck arrives at an original interpretation of these phenomena by 
considering the urban and rural stories together. This is something few 
have done, though it’s long been known that a great deal of what the 
TVEs in the Lower Yangzi did was subcontracted by urban SOEs. One reason 
for this neglect is that urban and rural enterprises were placed in 
different administrative categories by the Chinese government; another 
is that it’s difficult to follow the web of connections between 
contractors and subcontractors, to compare costs across firms with 
different legal structures, tax and reporting systems, and to figure out 
where profits are being accumulated. Buck puts the pieces together, 
which allows him to make some interesting claims.

He argues that from roughly 1980 until the late 1990s, a combination of 
the exploding demand for goods within China and the fact that only a 
limited number of firms – many of them near Shanghai – were able to 
produce those goods meant that SOEs earned large profits and didn’t have 
to worry too much about costs. Much of the subcontracting they did was 
geared towards increasing their output capacity quickly to meet demand 
rather than aimed at finding the cheapest way to produce goods – the 
same was true of the subcontractors who outsourced some of their own 
work. It wasn’t until well into the boom that many firms got in contact 
with more than one subcontractor when they needed a given part, and even 
then, it was usually a political or social gesture aimed at spreading 
the wealth rather than an attempt at gaining leverage in price negotiations.

By the mid-1990s new firms elsewhere in China entered these profitable 
markets, leading to increased competition. At the same time, the 
so-called Asian financial crisis of 1997-98 caused a sharp, albeit 
temporary, contraction of demand. The SOEs began cutting back 
significantly, Buck argues, driving harder bargains with their TVE 
subcontractors and thereby forcing down wages. Desperate to hold onto 
their contracts (not least because the local governments that owned them 
couldn’t shed responsibility for their workers the way a private firm 
could), TVEs accepted much lower margins – in some cases no margins at 
all – as well as late payment and other unfavourable terms. Many TVEs 
folded and were sold off (to their managers or to outsiders) at low 
prices. As Buck sees it, the wave of foreign investment that hit the 
Shanghai area in the early 2000s wasn’t a response to the area’s robust 
long-term growth, but to the fire sale of industrial assets.

This story has important implications. It undermines some of the popular 
explanations for the decline of TVEs – inefficiency caused by unclear 
property rights, for instance – as well as the theory that they were 
responsible for the crisis that befell the SOEs. Rather, TVEs and SOEs 
prospered symbiotically when demand for their products outstripped 
supply, and suffered together when markets became glutted. Buck thinks 
this is important enough to be built into models of post-socialist 
economies generally. He believes that analysts of post-socialist 
transitions have focused too narrowly on the move from government to 
market allocation of resources and ignored the fact that because 
socialist economies usually had shortages of consumer goods which 
weren’t resolved instantly, the transition could be cushioned (and made 
politically palatable) by a phase of artificially inflated incomes for 
well-placed producers. In the Chinese case, the striking redistribution 
of income from labour to capital during the years of privatisation can’t 
be understood through careful studies of a single firm or by looking at 
a firm’s links to government, or at state labour and regulatory 
policies. Buck argues that the changes have been determined by the way 
networks of firms are embedded within the larger economy. He emphasises 
the importance of guanxi, or personal connections, but also shows that 
guanxi tends to function differently during periods of rapid growth and 
periods of retrenchment.

Anxious Wealth, John Osburg’s ethnography of ‘business entertaining’ in 
Chengdu, complements Buck’s book by showing how the social connections 
Buck says are so important come about and are maintained, and how they 
aid or hinder market transactions. His informants are acutely aware of 
the extent to which success in Chengdu depends on the relationships that 
men develop through entertaining. That’s why the most successful put so 
much time into it, even if they don’t enjoy it because it takes a toll 
on other parts of their lives. The men claim they have no choice but to 
engage in this ‘nightwork’.

Many of them believe that the importance of connections will wane, and 
that the business world will eventually become a pure meritocracy in 
which competition is solely a matter of the quality and price of one’s 
products; that’s the way it is, they believe, in countries already on 
‘the global track’. It’s not clear whether they’re aware of the 
counter-evidence they could easily find in any Western newspaper, and 
how they might explain this away, or what they would say about the 
long-standing importance of connections in Chinese business and society.

Many entrepreneurs who sent their own children abroad said they did so 
because it would give their children an opportunity they never had to 
make it on talent and ability, rather than connections. Few of those 
Osburg spoke to saw even the most successful businessmen as examples of 
the ‘high quality’ (suzhi) people China needs if it’s to become truly 
modern. This contradicts the frequent claims made by journalists, 
scholars and others that financial success has become the only measure 
of worth. The mistresses, models, club hostesses and other women accused 
of becoming rich by prostituting themselves to whom Osburg spoke did 
tell him that money was the prime signifier of worth. They defended 
their choice to sell their bodies: everything is a commodity, they 
maintained, seeing themselves as the vanguard of a more ‘modern’ China. 
Their critics, however – especially female entrepreneurs and 
professionals – also claim to represent true market-based modernity: the 
meritocracy of the future, as opposed to the ‘grey economy’ of immoral 
women, who embody a guanxi-dependent stage of development.

These ‘native’ voices agree that the only future for China is one in 
which its institutions resemble those of the West and hold this view 
despite China’s recent successes, and despite the loose correspondence 
between idealised ‘Western’ institutions and Western reality, or the 
direction in which many Westerners, especially since 2008, want their 
own societies to move. But there are also many Chinese people who are 
uneasy about liberalisation as a solution to the country’s current 
problems, and not only party members or other privileged figures who 
hope to protect themselves from fairer competition. Osburg tells a 
striking anecdote about a winter storm that hit southern and central 
China in 2008, leaving millions without water and power for days. 
Afterwards,

the residents of Kaili in central Guizhou noticed a peculiar phenomenon. 
Of the more than ten thousand electrical poles downed by the storm, 90 
per cent of them were poles put up during the late 1990s; the majority 
of the poles from the 1950s and 1960s remained standing. This discovery 
contradicted the national narrative of technological progress. As one 
commentator put it, ‘Under normal circumstances, one would expect the 
old poles to break first, particularly since newer poles are built using 
more advanced technology.’ Investigators discovered that the new poles 
were reinforced with inexpensive iron wire instead of standard rebar.

The story was quickly deleted by censors, but similar ones appear 
regularly, encouraging the widespread nostalgia for Maoism.

Some of the entrepreneurs in Osburg’s book fantasise about a future of 
perfect market-based competition, but this dream is more common among 
those whose careers have been hampered by the strong personal networks 
between the state and ‘private’ firms. A number of successful Chengdu 
businessmen, Osburg reports, are converting to Tibetan Buddhism, and a 
smaller but non-trivial number to Christianity; others are becoming more 
interested in philanthropy. The newly rich are searching for models of 
‘high quality’ behaviour and often become taken with foreign ones, since 
they lack an indigenous ‘old rich’ to emulate. For them, 
business-related socialising is also a way of showing their good taste, 
loyalty and other attributes that distinguish them from ‘vulgar’ 
competitors who can only offer bribes.

Many in Osburg’s Chengdu feel that the status quo isn’t a meritocracy, 
and that it’s unstable as well as undesirable, but far fewer believe 
that more marketisation is the answer. Even among those who clearly 
profit from the current system, there’s no consensus on what merit or 
fair competition means, or on what the inevitable end of 9 per cent 
annual growth might look like. But Osburg’s book also suggests ways in 
which post-boom institutions might build on reform-era trends, though 
his informants are not very specific: they mention philanthropy, 
religion, Confucian ethics, an education system less oriented towards 
tests and rote learning, and the need for ‘a new public morality’. This 
is hardly ‘socialism with Chinese characteristics’, but neither is it a 
desire simply to replace Chinese economic practices with Western ones. 
And interestingly, though a number of Osburg’s wealthy informants 
mention the possibility of moving abroad (as many affluent Chinese also 
do in opinion polls), the only person in this circle who actually did 
emigrate (to Canada) soon returned.

Many features of the current system are undeniably unjust and have 
already incited protests, but whether or not this discontent threatens 
the system is less clear. Parts of the system are inefficient, but it 
remains stunningly dynamic. If China grows at 7 per cent annually for 
the next decade, its per capita GDP will surpass the current levels in 
Hungary and Kazakhstan; and, like it or not, this is demonstrably 
attainable without complete economic transparency, much less a fully 
democratic polity. We need to stop thinking that in China the only 
possibilities are spectacular success or catastrophic failure: China, 
too, can muddle through for long periods. And with so many Chinese still 
poor – and the advanced economies failing to produce either dynamism or 
increasing justice – now is an odd moment to insist that Chinese 
convergence towards Western liberalism is necessary, sufficient or 
particularly likely.



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