China's fantastic growth is revolutionary in all ways
By JAMES O'TOOLE
Pittsburgh Post-Gazette
November 05, 2003
SHENZHEN, China - Twenty-three years ago, Ronald Reagan was battling Jimmy Carter and Shenzhen was a fishing village of about 30,000.
Launching a bold economic experiment that continues today, the Chinese government sent cadres of the Peoples Liberation Army to this hamlet on the Pearl River Delta, just north of the then-British colony of Hong Kong. Some lived in bamboo huts as they began to stake out the first of China's Special Economic Zones, places where a nation still recovering from the chaos of the Cultural Revolution would begin a flirtation with capitalism.
Shenzhen hosted a reunion in September. Veterans of that PLA vanguard gathered again, but this time in a city with a population approaching 8 million. Instead of bamboo huts, they were surrounded by a miles-long skyline of towering buildings interspersed with palm trees and construction cranes.
The transformed Shenzhen, and the other special economic zones like it, are the engines of China's churning economy. Their accomplishments are dazzling. They have brought unprecedented growth, lifted millions from poverty, created the beginnings of a middle class and challenged the world with their trading prowess.
Dealing with foreign capitalists was a controversial experiment when the army first came to Shenzhen. But last year, China overtook the United States as the world's largest recipient of direct foreign investment.
As impressive as these accomplishments are, they co-exist with problems as towering as the new skylines.
China's new wealth is accompanied by growing income inequality, massive unemployment, fear that an overheated investment bubble could burst and a profound erosion of the nation's social safety net. The government is betting that the wealth generated by its headlong economic rush will give it the resources to cope with the powerful stresses of this overwhelming change.
"The leadership is riding the tiger," said Christopher McNally, a scholar at the East-West Center in Hawaii.
A tour around the Pearl River Delta, through Shenzhen and its similarly booming neighbors, Dongguan and Guangzhou, offers a glimpse of the strengths and strains competing for the future of China.
Liu Yingli, Shenzhen's vice mayor, boasts that the city's economy has grown by 1,000 percent over the last 23 years. Last year, despite the buffeting of the SARS outbreak, its economic output grew by more than 16 percent.
In neighboring Dongguan, the story is much the same. Including a floating pool of migrant workers, its population is nearly 7 million.
Mayor Li Guikang reports that its economic growth has averaged an astonishing 22 percent over the past two decades, which is remarkable even if, as some Western economists suspect, China's official growth figures often are somewhat exaggerated.
Dongguan exports furniture, textiles and high-tech goods. Li, the son of rice farmers, grew up in the region when it was largely agricultural. He worked on a rice farm himself during the Cultural Revolution, when the Red Guards sought to stamp out any evidence of the capitalist tendencies now so ardently embraced all around him.
"I have experienced and witnessed the great changes that have taken place in Dongguan," he said.
In his book, "The Chinese," veteran journalist Jasper Becker notes the irony that the special economic zones, with their tax breaks designed to lure foreign investment, largely overlap the nation's 19th-century treaty ports, the symbols of China's economic prostration before the West in the waning decades of the Manchu dynasty. The ports were sites of trading concessions extracted by Western countries after the two Opium Wars. Vestiges of that imposed Western presence can still be seen in the architecture of parts of old Guangzhou.
Now the economic tide is running in the other direction. These former treaty ports are the dynamos for China's powerful inroads in the markets of the same nations that once dictated those concessions.
In a showroom adjacent to the sprawling factory he supervises, Tong Zhicheng sits down at the keyboard of a highly polished piano. As he fills the room with notes of classical music, he's clearly delighted to show off both his self-taught playing, and the piano itself.
The Pearl River Piano Co. didn't make its first piano until the mid-1970s. And company officials will acknowledge, "The quality, at first, was not good."
Now, the Guangzhou firm is the largest manufacturer of pianos in the world. On one floor of this factory owned by the government of Guangzhou, piano skeletons stretch row upon row. Technicians, heads tilted, plink away at their tuning mechanisms. Much of the108 working hours needed to build a piano here is similarly labor-intensive. But the success of Pearl River Piano is more than a story of cheap skilled labor.
Through the 1980s and 1990s, Tong and other executives addressed quality issues by investing in better equipment, air conditioning their factory to shield their instruments' wooden bodies from humidity and picking the brains of European manufacturers. In 1995, they formed a joint venture with Yamaha to produce some of the Japanese company's components.
This factory expects to turn out 20,000 instruments this year. About 75 percent are intended for the domestic market; the rest, for export.
"Now the Pearl River is expanding to the whole world," says Tong.
One star offspring of the Shenzhen economic zone is the Huawei Group, a manufacturer of high-tech telecommunications equipment. It began as a marketing company in 1988 but is now a worldwide competitor of firms such as Cisco and 3COM. Its office campus outside Shenzhen could be a Southern California community college, with graceful lawns and palm trees surrounding a complex of white stone and glass buildings.
Some of the lower-end chips that go into the telecommunication switching equipment they make are produced in China. Huawei still relies on American firms, including Texas Instruments and Intel, to manufacture some of the more sophisticated chips they design.
"This will change," an executive assures a group of Western visitors.
From its start as a domestic marketing organization, Huawei now has offices in 33 countries outside China, including an American subsidiary.
Another of the high-tech success stories in the delta is SAE Magnetic Ltd, a wholly owned subsidiary of a Japanese firm. SAE manufactures disk drive recording heads. With about a third of the world market for these sophisticated devices, its revenue last year was approximately $1 billion.
Behind glass walls, white-suited and masked operators test and assemble SAE products. The hygienic atmosphere begins at the door where every visitor and employee passes through a thermo-scanner designed to identify the telltale high temperature of SARS victims.
An executive reports that basic operators are paid between $150 and $200 a month. Engineers start at $500 a month and can earn as much as $1,000 a month. That's paltry by Silicon Valley standards but a solid income in China.
Glimpses at places like Huawei and SAE certainly do not tell the whole story of manufacturing conditions in China's export arsenal. According to Becker and many other journalists, ill-lit, poorly ventilated factories where employees labor in Dickensian conditions remain widespread. Factories with such abusive conditions are regularly cited by opponents of freer trade. But the greater challenge to high-end American manufacturing comes not from sweatshops but from the burgeoning number of Chinese companies that treat workers relatively well.
In a vast assembly facility at Guangzhou, soon-to-be Hondas suspended from giant arms move down the line at the pace of a slow walk. Workers in white overalls and gray Honda ball caps swarm around them, bolting, screwing and testing.
Every 103 seconds, another completed Camry rolls to the adjacent test track. For the United Auto Workers, that's a quickly recurring nightmare. The workers who scurry around the spotless assembly area make about $325 a month, along with basic medical and pension benefits.
These cars are intended for the rapidly growing domestic Chinese market. Within a year, however, Honda is opening a separate joint venture in Guangzhou where cars will be made for export.
Despite rising wages and the recent availability of bank loans, only a tiny percentage of the Chinese population can think about buying an automobile. The average worker in the Guangzhou Honda plant couldn't easily afford the car he or she helped build, with a price tag of close to $30,000. But in a potential market of 1.2 billion, even a tiny relative slice is substantial.
Chinese consumers bought 1.2 million autos last year. The market grew by an estimated 80 percent through the first half of this year. In Beijing alone, it's estimated that 1,000 new cars hit the streets every day. That's a startling statistic but one lent credibility by the capital's growing traffic jams. One government official noted that the rush to buy automobiles by the new middle class was accelerated by the SARS scare, which made crowded public transportation less attractive.
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