Wednesday, June 29, 2011

The Problem of China's Local Governments

"I don't mean to be immodest," he says, looking down and smiling. "But I've done rather well for myself."  His face shoots up to lock her eyes in. She averts his gaze, staring past a plush couch arm at the bottle of prime Australian pinot grigio, which sits in an elaborate cooler braced by the flexing arm of a 3/4 scale Michelangelo's David.  He's added 7 Up to the wine.  She hates Western wine doctored with 7 Up. If she could afford good wine, she'd drink it straight.  

He sits down and abruptly throws an arm around her.  She shyly turns toward him.  Their heads hover close like asteroids dancing, about to collide. 

"I'm your assistant." She says.

"Yes,you are my assistant."

"You're very direct." 

"Yijia, when I am dealing with peasants, workers, taxpayers, auditors, every word I utter must be a lie.  But after hours, when the sun is setting and my only remaining staff are my most loyal, I try to adhere to a strict policy of complete candor and honesty.  Let me pour you more wine."  She and the couch arm are in the way. He reaches further, almost climbing behind her.  Laughing, she playfully bats at his arm and chest with the back of her hand.  He returns, bottle in hand, and fills two jade cups on the glass table before them with uncommonly fizzy wine.  

He is just so...attractive, so in his element.  Who cares about the wine? No more games, she decides.  Asteroids collide. When the long kiss is broken, she looks back down at her glass.  "I like these jade cups."

"Anything Ms. Zhen desires, she can have." Her smile broadens.  She has some jade, but nothing that approaches the whitish-green translucency of Mayor Du's two cups, with the reliefs of the Eight Immortals made sharp by the setting sun.

Mayor Du isn't looking at the cups.  He is looking out the massive bay windows onto the vast plateau of yellow Shaanxi earth beyond, his gaze undeterred by a dying red sun.  He can see the brick factory(which the locals call the Demon Fortress) on the hill in the distance, its kilns still billowing with smoke.  The incomplete bridge that will span the gorge in a year's time. The apartment towers and the office complex rising like mushrooms.  And the lot - recently set aside and paid for by Beijing - meant for solar cells or wind turbines.  Three photovoltaic panels sit covered in fine yellow dust, overshadowed by a new kazoo factory.  

Not exactly in line with the latest rules.  But the next inspection is six months from now.  





Today I remembered an old Chinese saying: 天高皇帝远 / heaven is high, and the emperor is far away.   Truth be told, I could only remember and the emperor is far away.  I looked up the latter half of the saying on Google, and found this old Time Magazine article from 2002, of which I will provide a snippet:

After more than two decades of economic reform, China's centralized system has given way to clusters of fiefdoms operating outside Beijing's shrinking sphere of influence. Absolute power, once exemplified by the personality cult of the Great Helmsman [Mao Zedong], has devolved to regional party bosses who now hold sway over citizens' everyday lives.
Why bring up such an old article?  Everyone who knows anything about blogging (among whose ranks I cannot count myself) will tell you ya hafta stay current!  It's either five minutes old or it's irrelevant.  Irrrrrrelevant!  But the danger of a world where things change so quickly is the tendency for its inhabitants to assume that everything changes quickly.  Some things simply don't.  Failure to adapt to a thing's inability to change is as bad as not adapting to change.  Think about how much more awesome the internet would be if a lot of people didn't still use Internet Explorer 6.  

Anyway, just yesterday I referenced an article conveying fears of a Chinese debt crisis.  The central government in Beijing has managed its finances well, and has invested heavily in massive infrastructure projects.  But most of the Middle Country's warp-speed real estate development has been financed by local governments at the town, city and provincial levels.  There is enormous pressure to increase revenue within local governments, but as far as I know, revenue in the form of sales, business and value-added taxes mostly goes to the central government (more on revenue sharing here).    Point is, local power brokers afford big real-estate projects through foreign direct investment and heavy borrowing.  Local governments own all of the land, but are free to sell it to anyone at artificially low prices.*  People are routinely kicked off of plots they've inhabited for generations to make way for new factories, fancy sub-divisions and offices.  

And so, they must borrow enormously to afford the real estate development needed to increase their riches, prestige, and favor with the central government.  Meanwhile, foreign investors in real estate and industry all expect increasingly enormous returns.  And with the amount of corner-cutting that goes on in the local Chinese construction industry, the possible worthlessness of some over-priced buildings could become evident if ever an economic slow-down prompted closer scrutiny of what could be a real estate bubble. 

I haven't been to China since 2006.  I desperately want to go again soon.  Until then, I observe from far away.  But I am no longer in college, and so I have little privileged access to "up-to-date" scholarly literature.  All of the "out-of-date" scholarly literature I have within reach more or less consistently says that the unmitigated power of local party bosses is a serious problem, and defines the gulf between Beijing's  well-meaning solutions to economic or environmental issues on the one hand, and the reality of their implementation on the other.  And I see little evidence in the recent stories about a possible Chinese debt crisis that the situation has changed.

I'm not an economist, but I can only imagine that any economist or professional China Watcher aware of this issue would be pre-disposed to worry about the finances of local governments.


*Shen, Jianfa. Space, Scale and the State: Reorganizing Urban Space in China pp 39-58. In,
 Restructuring the Chinese City Changing Society, Economy and Space. (Ma and Wu eds).
 Routledge, London, 2005.


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