China: The Great Wall of Hubris

AS THE UNITED STATES, Europe and Japan slipped into recession, their markets dealt a blow to China, which was heavily dependent on exports. Tens of thousands of small and medium-sized factories were forced to shut down, sending their workers scrambling for jobs or back to the countryside. In Wenzhou, according to an internal investigation by the People’s Bank of China, profits were slashed by 50 per cent in the last quarter of 2008. By March 2009 the figure stood at 60 per cent, forcing local enterprises to shed 10 per cent of their workforce. All along the coast, the railway stations, normally teeming with new arrivals, witnessed a great reversal, with surges in the number of passengers returning home. Some enterprise owners simply vanished, while others refused to pay back wages, leading to a rapid rise in protests and labour disputes. Local officials, under pressure to maintain social stability, alternated between shelling out cash and calling in the riot police.

Inflation disappeared with the financial crisis, but as commodity prices collapsed around the world, the country’s steel, cement and construction companies saw their profits evaporate. Building projects ground to a halt, blast furnaces stood idle.

The leadership, who had counted on an economic boom after the Games ended, was taken aback by the financial crisis. Panic set in, as the economy contracted and disgruntled workers took to the streets. Tax rebates for exported goods were introduced that, together with intervention in the currency markets to halt further appreciation of the yuan, made Chinese exports even more competitive abroad. Banks were directed to lend more to small enterprises at lower interest rates. In order to maintain the economic growth on which employment and stability rested, Wen Jiabao proposed a programme of domestic consumption that would wean the country off its reliance on exports. Since ordinary people were too poor to increase their consumption, he proposed a stimulus package worth 586 billion dollars (4 trillion yuan), to be spent mainly on new infrastructure projects, a sum equal to 14 per cent of the country’s economic production, compared to the 6 per cent of output represented by the stimulus plan pushed through in Washington. ‘They are going to spend like there’s no tomorrow,’ observed the chief economist at the Hong Kong and Shanghai Banking Corporation.

By the second quarter of 2009, the unprecedented level of credit began to have an impact. The growth rate began to move upward again, despite a decline of 22 per cent in the year-on-year value of exports. One hundred billion dollars was spent on new railways alone. In the spirit of the ‘Go West’ campaign, a 17.6-billion-dollar railway spanned the deserts of Xinjiang province. More than 80 billion was earmarked for intercity rail lines, including a bullet train from Beijing to Guangzhou. Since the spring of 2004, when the economy began to overheat, the regime had barred local and provincial governments from sinking more money into infrastructure. Once the credit spigot was turned on, massive construction projects appeared in every town and city across the country.

Unlike the United States, the country was not short of cash to fund the spending spree. For years, the central bank had prevented the market from bidding up the yuan by buying dollars. As dollar reserves accumulated, the regime was able to maintain the funding imbalance that fuelled its rapid growth. To prevent all the yuan used to buy the dollars from adding to the money supply, it had ordered banks to increase their reserves and buy central bank bonds, which were in effect sterilisation bonds. This huge reservoir of liquidity bottled up in the banking system was now unleashed.

By 2010 the country was absorbing 40 per cent of the world’s cement and steel. In the three years following the stimulus, China used more cement than the United States in the entire twentieth century. The country boasted 221 cities with a population of more than a million, each coveting all the accoutrements of modernity, with shopping malls, cinemas and luxury hotels, preferably wrapped in gleaming metal with glass elevators running up the outside. In 2011 alone, 390 new museums were opened, large, small, private or public. Skyscrapers mushroomed everywhere, often in clusters of one or two dozen. Cities rushed to outdo each other in building ever higher towers, with Pudong setting a record with its 127-floor Shanghai Tower. Financial gloom, meanwhile, derailed plans for new towers in Chicago, Moscow, Dubai and other cities around the world.

Destruction came knocking on the door before construction. Local governments cheerfully demolished anything and everything blocking their vision of the future. A familiar tale emerged: a community would wake up, find demolition notices affixed to their homes, reject a meagre compensation offer from the state, endure a campaign of harassment only to see bulldozers arrive in the dead of night, leaving them evicted and often dispossessed. Occasionally one could see a family huddled together around a meal in a partially demolished house, the façade torn down but a corner of the living room and a jagged wall around the kitchen still standing. Yet this story came with a twist, as the victims increasingly included the ranks of the privileged, whether doctors, financiers or retired party officials.
Sometimes buildings earmarked for the wrecking ball were no more than five years old. In one neighbourhood in Beijing, several families were evicted from homes only completed that same year. According to the estimate of one research firm, the country demolished 16 per cent of its housing stock between 2005 and 2010.

Listed buildings and other cultural landmarks that had managed to survive war and revolution were torn down. Eminent domain achieved what had eluded Chairman Mao at the height of the Cultural Revolution: the eradication of the last vestiges of the old society. Whether attacking ancient temples, imperial courtyard houses or Art Deco villas, jackhammers tirelessly demolished old architecture. According to Li Xiaojie, the head of the State Administration of Cultural Heritage, an agency with even fewer personnel than the State Environmental Protection Administration, roughly 44,000 of the country’s 766,000 registered heritage sites vanished. Developers cheerfully paid the maximum fine of 500,000 yuan.

Developers also cut corners, as hasty construction, shoddy materials and lack of adequate planning shortened the average lifespan of a commercial building to about 25 years, roughly one-third of what was expected in Japan, Europe or the United States. Every so often news came of a spectacular failure, whether the collapse of an eight-lane suspension bridge, a building that toppled like a house of cards or an opera house with glass panes falling from the windows. Poorly executed projects were called tofu buildings, as they crumbled when stressed like jiggled blocks of soft bean curd. When in 2008 an earthquake hit Sichuan and killed 87,000 people, a substantial proportion of more than 7,000 school buildings were later found to have collapsed due to substandard construction.

CHEAP CREDIT, AS always, came at the cost of lost efficiency. Fixed investment by state enterprises cost 20 to 30 per cent more than that of private firms and took about 50 per cent longer to complete. Since they had a firm grip on the overall economy, they could also charge extra fees and higher prices that acted as a tax on all consumers. Overcapacity reappeared in key industries, including steel, aluminium and, of course, wind turbines. Manufacturers were keen to unload excess production abroad, further stoking trade tensions. In the United States, President Barack Obama slapped punitive tariffs on imported tyres. Washington also began to investigate evidence of dumping of steel pipes imported from China.

Beijing retaliated by lodging a complaint against protectionism with the WTO. In 2009, after Brussels imposed anti-dumping tariffs on imports of iron and steel fasteners, for the first time it also dragged the European Union into a dispute. The language used by the regime sounded familiar: it mirrored the selfsame objections that officials in the United States and Europe had raised against China.

Hubris set in. The much-vaunted financial system in the United States had failed, while the 16 members of the eurozone seemed unable to work out a rescue plan for Greece, a country that threatened to default on its sovereign debt. It looked very much like Karl Marx’s prediction about the collapse of capitalism was finally coming true, as unemployment soared and growth rates fell in the West. Leading party officials lashed out at the United States, rebuking Washington for failing to properly regulate its markets and control its fiscal deficit. At a World Economic Forum held in Davos in January 2009, Wen Jiabao blamed capitalism for an unsustainable model of development based on the ‘blind pursuit of profit’ and lambasted the banks for their ‘failure of financial supervision’. Zhou Xiaochuan, governor of the central bank, went further in challenging the global order led by the United States, pronouncing in April 2009 that his country’s rapid response to the crisis had demonstrated the superiority of its political system. The leadership felt vindicated. Beijing began to mirror Washington, assuming the role of adviser to the world and offering lessons on how to run an economy. The capitalist model was unsustainable, Beijing explained, and now was the time to promote a new approach which would ultimately prove to be vastly superior, namely ‘socialism with Chinese characteristics’. Hu Jintao called it the ‘China way’.

On 18 December 2008, the leadership convened in the Great Hall of the People to celebrate the thirtieth anniversary of the open-door policy. Hu Jintao gave the keynote address, asking that the country uphold the Four Cardinal Principles, including the ‘absolutely correct’ leadership of the party and the ‘dictatorship of the proletariat’. Beijing, he warned, ‘would never copy the political system and the model of the West’, but ‘continue to hoist high the great flag of socialism’. Stability, he pointed out, was the party’s overriding task, ‘because nothing can be accomplished without stability’. The message, repeated incessantly by successive leaders, was prompted on this occasion by fear that the global crisis would increase social unrest.

Stability meant repression on the one hand, patriotic education on the other. Even before Hu Jintao delivered his speech, the bludgeon had fallen. Weeks earlier, Liu Xiaobo had been arrested for ‘inciting subversion of state power’.

This had consisted in contributing to a manifesto entitled Charter 08, inspired by the Charter 77 written by Václav Havel and other dissidents in Czechoslovakia more than thirty years earlier. Charter 08, initially signed by more than 300 people, garnered thousands of signatures once it was published on 10 December 2008, the anniversary of the Universal Declaration of Human Rights. Among other demands, the document called for the separation of powers, an independent judiciary, abolition of the household registration system and freedom of association, expression and religion as well as civic education. One year later, Liu was sentenced to 11 years in prison.

Next came a crackdown on the internet. China already had a sophisticated control mechanism, as all the cables linking the country to the outside world had to pass through one of three large computer centres, where government terminals intercepted all inbound data and checked it against an ever-growing list of banned addresses and forbidden keywords. This was the so-called Great Firewall. But millions of active domestic bloggers still existed. Some of them waged online campaigns against corrupt party officials, posting compromising material or incriminating evidence. Many went quiet, as thousands of websites were closed down in January 2009.

Still, both abroad and at home, social commentators were convinced that the internet would pave the way towards a more open and accountable society. One true believer was Ai Weiwei, a contemporary artist who had helped design the Bird’s Nest for the Olympics. Ai, a prominent activist who was openly critical of the government’s record on human rights, believed that harsh repression of the internet would only increase the appeal of democracy. His own blog was widely read. But in December 2009 came a second internet crackdown, as new measures were rolled out to limit the ability of an individual to set up a personal website. ‘The internet has become an important avenue through which anti-China forces infiltrate, sabotage and magnify their capabilities for destruction,’ gravely intoned Meng Jianzhu, the minister for public security. A year later, Google was squeezed out after it refused to censor its search results, while Facebook, YouTube and Twitter were blocked, replaced by clones in state hands. A small army of censors not only monitored the internet, but also flooded chatrooms with online comments supporting the government. They were found wherever there was an internet connection. Jiaozuo, a mining city of some three million people in Henan, deployed 35 internet monitors and 120 police officers to censor online messages. Beijing advertised for 10,000 internet censors in 2009.

Activists of every stripe faced increased surveillance or outright arrest.

(This is an edited excerpt from Frank Dikötter’s China after Mao: The Rise of a Superpower)

Ai WeiweiChinaCommunismfreedom of speechHu JintaoLiu Xiaobopolitical repressionsWen Jiabao