In the past decade, China has invested $4-trillion in housing. But 65 million homes are vacant. Behold history's biggest ever property bubble...
Rosemary Righter-Published: 20 June 2012
Jonathan Fenby
TIGER HEAD, SNAKE TAILS
China today, how it got there and where it is heading
418pp. Simon and Schuster. £20.
Dwarfing even the $2 trillion borrowed for the Railway Ministry’s high-speed networks since 2008, and the thousands of kilometres of 4–6 lane toll roads with barely a vehicle on them, China’s building binge is the most striking example of what Prime Minister Wen Jiabao famously, but impotently, denounced in 2007 as the country’s “unbalanced, unstable, uncoordinated and unsustainable” model of economic development. Now, with house prices and sales sagging in response to government restrictions aimed at deflating history’s biggest ever property bubble, and with local governments as deep in bad debt as the developers, I asked the businessman what was to prevent the bubble actually bursting, in a spectacular financial explosion?
His answer was that it wouldn’t happen. A lot of these empty apartments, he said, had been bought by Chinese families as investments, and they would patiently hang on to these speculative purchases because interest on savings was derisory. Secondly, although some developers would go to the wall, the bubble would simply not be allowed to burst for fear of public anger as well as economic chaos. China had massive reserves if need arose, he said, and would not hesitate to bundle nonperforming loans off into a state “bad bank”. Its plans to build 36 million “affordable” homes by 2015 would also help to offset faltering private sector demand. When in a hole, in other words, the Party keeps digging.
Then the businessman added: “Look, I don’t lose too much sleep over China’s economic troubles; but I do worry, tremendously, about a political explosion tearing the place apart”. The dramatic political destruction in March of Bo Xilai, one of China’s most thrustingly ambitious and charismatic regional Communist Party bosses, has set off that explosion. The shockwaves are convulsing China at a crucial political juncture.
In October, the quinquennial Party Congress is due to approve a carefully contrived transfer of power, over party, government and the military, to a new generation of leaders – the first for a decade, and only the fourth since the Communist revolution in 1949. Bo had been expected to secure one of the nine seats on the Politburo Standing Committee, which along with the Central Military Committee exercises supreme power – thus putting him in a strong position to push his neo-Maoist agenda of reinforcing the state’s powers. Ever since Deng Xiaoping set out to transform China after Mao Zedong’s death in 1976, these handovers have been meticulously choreographed to reinforce a myth of political continuity and, above all, the façade of party unity. However tense the factional jostling may be, rivalries have been kept out of sight: President Hu Jintao’s “harmonious society” reserves back-stabbing for moonless nights.
This obsession with a seamless changing of the guard is rooted in China’s bitter history of abrupt and violent change
This obsession with a seamless changing of the guard is rooted in China’s bitter history of abrupt and violent change, and most immediately in the chaos, suffering and abject fear the great mass of Chinese endured under Mao Zedong. Whether or not the people are fooled by the parade of unity – and more and more Chinese know how to read between the lines – the Party Congress also serves to emphasize that the exercise of power in China is not for mere mortals. But now, with the purging of Bo, a ferocious ideological battle has very publicly been joined by those who hold power. It goes far beyond personalities. Its outcome will determine China’s future direction – whether it reverts to a more statist path, or buttresses the market with political and legal reforms.
This is one of the climacterics to which China is historically prone, comparable in intensity and importance to the ideological confrontations that Mao Zedong suppressed by launching the Great Proletarian Cultural Revolution in 1966, and the ferment after his death. It brings to a head a long-simmering conflict between two opposing visions of China, artificially yoked together in Deng Xiaoping’s formula of opening up the economy while continuing to suppress political and intellectual freedoms. The more China modernizes, the less tenable that balancing act becomes between the Maoist past and the demands of governing an increasingly sophisticated, irreverent and politically literate society.
“Opening up” without accountability and the rule of law has produced the worst excesses of crony capitalism, rampant corruption, gross misallocation of resources, outrageous inequality, with corresponding public anger, distrust and contempt. Within the Party, there is a crisis of legitimacy, reflected in an obsession with “stability” that sees a threat in every dissenting voice, a risk in every reform. China’s internal security budget is now bigger even than its military expenditure, as the Party wrestles with the upsurge of what it euphemistically terms “mass incidents”. Nearly 200,000 protests against injustice and abuses of power, some large-scale and violent, are expected this year. The Chinese air is fouled, literally by pollution and figuratively by the Party’s moral and intellectual decay.
Jonathan Fenby’s latest book, a formidably industrious compilation of facts and figures that tells us a great deal about modern China without quite managing to illuminate the landscape, is packed with information about the country’s turbulent past, and about the multiple weaknesses that are obscured by its extraordinary growth story. Yet Fenby takes it as read that a post-Deng “consensus” is deeply embedded in the collective leadership, with operating rules that produce “policies on which everyone can agree”. Because all share the “fundamental” aim of preserving the Party’s monopoly of power, despite “shades of difference” nothing will seriously undermine Party unity. “Nobody has any interest in being seen to rock the boat, to champion liberalizing reforms or to bring the regime into question in any way.”
Besides, he writes, there is “literally no alternative” to Party supremacy because “there is no opposition ready to take over”. True, but then again, that was also the received view of quite a number of Communist countries back in the 1980s. Suppose rocking the boat were to be seen as the only way to salvage a regime that is beset by policy drift and, beyond that, its deepest crisis of identity since the Cultural Revolution? Fenby’s unsteady yet steady-as-she-goes conclusion makes rational assumptions about an increasingly irrational state of affairs. These assumptions may be about to face some tough tests.
Bo Xilai’s enemies pounced when he made the mistake of antagonizing a powerful subordinate. On February 6, the US consulate in Chengdu, the capital of Sichuan, had an unexpected visitor: Wang Lijun, vice mayor and, until four days earlier, police chief of Chongqing. Wang was no ordinary official. He was China’s telegenic super-cop, Bo’s strong right arm in Chongqing and in Liaoning before that, famous for an uncompromising campaign against organized crime. But when Bo fired him on February 2 – reportedly after Wang told him that evidence implicated Bo’s wife, Gu Kailai, in the poisoning of the British businessman Neil Heywood – Wang took the desperate step of fleeing to the Americans for protection. It was a wise precaution: he was pursued by seventy carloads of Chongqing police who surrounded the consulate, in flagrant breach of Chinese rules about police not crossing provincial boundaries, until they were angrily ordered home by Beijing. The Americans refused Wang asylum – for the good reason that he was known to be brutal, and the very bad reason that to do so might disturb the imminent trips to China by Vice President Joseph Biden and to Washington by Chinese Vice President Xi Jinping, Hu Jintao’s heir presumptive. After a night at the consulate, Wang chose the least worst option available to him: surrender to the central authority. Beijing dispatched a vice minister at the Chinese State Security Ministry to fly Wang to the capital first class (as an enterprising Chinese blogger discovered by hacking into the plane’s passenger manifest) – where he has since, presumably, had much to say about his ungrateful former boss. The Party’s narrative of a flawlessly smooth leadership transition had been abruptly shredded.
Bo was bigger even than his big job as Party Secretary of the 32-million-strong megalopolis of Chongqing in Southwest China. As the “princeling” son of the revered revolutionary Bo Yibo, one of the eight “immortals” of the 1949 revolution, Bo could exploit inherited prestige to position himself as the standard-bearer for political hardliners and the neo-Maoist Left in China. His vaunted “Chongqing model” of government claimed to marry Marxist egalitarianism and strong party control over each individual’s life with economic efficiency. With huge contracts awarded to state-owned corporations, Bo broke growth records in the city while spreading some of that wealth to workers in public housing, education and health programmes. Bo’s slogan “Sing Red and Strike Black” involved a populist revival of Maoist “Red Culture”, complete with massed musical spectacles that recalled the propagandistic operas of Chairman Mao’s Gang of Four wife Jiang Jing – and an adulatory hymn to Bo Xilai himself, akin to the personality cult surrounding the Great Helmsman.
“Strike Black” refers to a clamp-down on Chongqing’s entrenched mafia (“black societies”) – but also on any businessman who got in Bo’s way. He flamboyantly invoked “socialist values” against the implied moral decline of a get-rich society scarred by endemic corruption and rampant inequality. At a Beijing press conference days before his fall, when he knew his career was on the slide, he defiantly observed, in a thinly veiled sneer at Deng Xiaoping’s observation that as China took off, some people would get rich ahead of others, that “If only a few people are rich, then we’re capitalists, we’ve failed”.
In a country where social safety nets and pensions barely exist, and nostalgia persists for old certainties as memories fade of how miserable people’s lives were in the Mao era, Bo’s rhetoric unquestionably struck a chord. Beijing had been closing in on Bo for almost a year, monitoring his many contacts with leading members of the military and also ordering an investigation into the “Strike Black” campaign by Professor Tong Zhiwei of Jiaotong University in Shanghai, China’s leading authority on law, administration and constitution. Tong reported back that its main target was not in fact the Chongqing mafia, but the “elimination” of private enterprise and confiscation of business assets, “thereby strengthening state-owned enterprises or local government finances”. He found such legal “irregularities” as torture and secret prisons, and the hounding of defence lawyers.
But attacking the wealthy is not exactly unpopular in China: Wang’s disclosures, about the alleged murder as well as the $160 million fortune amassed by the Bo family and its involvement in money-laundering, were far deadlier ammunition. It is a measure of the popular appeal of Bo’s ideological challenge that the leadership felt compelled to make the case against him to the entire nation, put by no less a figure than Prime Minister Wen Jiabao.
Using the televised press conference he gives each year at the close of the March National People’s Congress, Wen couched the conflict in the bluntest terms. Conjuring up the “tragedy” of the Cultural Revolution (and for good measure declaring the Arabs’ desire for democracy, as displayed in the Arab Spring, to be an undeniable force) he challenged the Chinese to see that without “urgent political reform” – and in particular, “reform in the leadership system of our party and country” – the dark days of Mao “may happen again”. The message: China’s modernizers were fighting back, against a dangerous man. He pledged that an answer would be given to the people on the Chongqing affair “and the result of the investigation should be able to stand the test of law and history”.
What is certain is that, in order to destroy his following on the Left, Bo must now be comprehensively discredited. A conviction for murder, or systematic use of torture, would do the job. Corruption charges, by contrast, would be met with a cynical shrug. All the censors in China – where in addition to tight controls on traditional media, 30,000 cyber-police work round the clock zapping “harmful information” – cannot suppress the chatter about endemic Party corruption. More than 2,300 years ago the Warring States period philosopher Zhuangzi observed that “if some men ride in chariots with gold wheel-hubs, many men will walk”. Today’s “socialism with Chinese characteristics” has turned out quite traditional. A recent investigation by the New York Times details the extent to which the Red Nobility – the families of senior current and former officials – have carved up the pie in every key economic sector, from power generation to telecommunications, finance to entertainment and, of course, construction. The credentials even of Wen Jiabao, China’s most personable and persistent official advocate of political and legal reforms, are weakened by the well-known facts of his wife’s grip on the gems trade and his son Wen Yunsong’s chairmanship of the state-owned giant China Satellite Communications. The Party has, formally, moved to appease public disgust at such institutionalized conflicts of interest by requiring all officials to disclose not only their own incomes, but the jobs and investments held by their wives and children. But it refuses to make these disclosures public.
Wen Jiabao has thus taken a risk in pledging a full public accounting of the Wang Lijun affair, and implicitly also of the reasons for Bo Xilai’s fall. President Hu Jintao has now reportedly ordered the Party to play down the Bo affair and return to the “unity” narrative. It is small wonder that the President has cold feet. Just as the Party was holding up Bo’s disgrace as proof that no one in China is above the law, the arrival last month of another fugitive, Chen Guangcheng, this time at the American embassy in Beijing, made embarrassingly public how many Chinese citizens are below the law, victims of a system in which the law offers no protection to the powerless.
Chen Guangcheng, a blind self-taught lawyer, is no dissident: he landed in trouble for trying to get the government to enforce its own laws, notably by organizing a class legal action on behalf of thousands of women unlawfully subjected to forced sterilizations or abortions under China’s one-child policy in his native Shandong province. For this he was jailed on trumped-up charges and then, after serving out his four-year sentence, forcibly and illegally imprisoned in his own house by thuggish Shandong security police. His dramatic escape to the US embassy awkwardly coincided with the arrival in China of Hillary Clinton. The government exploded in anger at American “interference” in China’s internal affairs, while saying not a word about Chen and strenuously blocking all internet references to the “blind man” – a presentational absurdity resolved only by allowing Chen to take up residence in New York as a “visiting scholar”. Just as Bo Xilai typifies the arrogance of the Party elite, so Chen at the other end of the spectrum represents the evils of a system in which the law is explicitly at the service of the Party, a form of control to be used, and abused, as needed, to keep the lid on the social cauldron.
The myth of Party unity will not easily be restoredThe myth of Party unity will not easily be restored. Two hundred million users of microblog sites cannot be totally silenced. More than that: to make his case against Bo, Wen invoked the demons of China’s Maoist past, urging the Chinese to remember the Cultural Revolution for what it really was – a disaster. That move was absolutely deliberate, and the signal has been recognized. Caixin, a mainstream Beijing publication, carried an article by Lei Yi, a fellow of the Chinese Academy of Social Sciences, charging that the “collective memory has been twisted”, allowing Mao’s reputation to benefit from “cultural amnesia” and desensitizing citizens to the dangers of personality cults and slogans. “Without democracy, the rule of law or constitutional governing”, it concluded, “corruption will continue and social problems will become more acute, laying the groundwork for another Cultural Revolution.” Still more remarkably, Guangdong’s Southern People Weekly magazine published an eighteen-page cover story last month, searingly illustrated, on the terrible famine caused by Mao’s disastrous Great Leap Forward that resulted in the deaths of an estimated 40 million people. In China, its editorial observed, “history is divided into two parts: history itself, and ‘admitted history’. The famine . . . has neither an official record nor a reasonable explanation”. Now that “we are able to pursue the truth of this disaster”, the editorial continued, China must absorb “the painful warning: never to go back to that system”. Not only did the magazine reach every subscriber intact, but there was no serious effort to block the impassioned internet debate and the flood of bitter memories that followed publication.
This magazine belongs to a publishing stable noted for its courage, but its editors must have been given at least an amber light to venture into such dangerous terrain. The explanation is not that the Party has developed a passion for historical truth, but that history is being used as a weapon. At Tiananmen in 1989, where Bo Xilai’s father sided with the hardliners, Wen Jiabao was an aide to Zhao Zhiyang, the Party Secretary who sought and failed to prevent the crackdown and ended his life under house arrest. Xi Zhongxun, the father of today’s heir presumptive Xi Jinping, opposed the use of armed force. Just as Mao launched the Cultural Revolution with a polemic about a mandarin long dead, so today’s leaders are refighting old ideological wars in the current battle for power.
Is any of them a reformer? It is, as Zhou Enlai famously observed in 1972 of the French Revolution, “much too early to tell”. You do not, however, need to be a liberal in China to fear the consequences of ignoring rising discontent. As Fenby observes, the “enforced passivity” of the masses under Mao has given way to a new assertiveness, and there is much to be assertive about. The list includes: environmental vandalism that has dried out a third of China’s lakes and poisoned rivers, land and air; the marketing of contaminated baby formula, infected blood plasma and counterfeit medicines; children crushed in the Sichuan earthquake because their schools were so shoddily built; train crashes caused by defective equipment; even the belated public admission that China’s much vaunted engineering triumph, the Three Gorges Dam on the Yangtze, is a catastrophe waiting to happen. Local cadres amass fortunes by “developing” around 400,000 hectares of land a year, almost never giving uprooted farmers fair compensation. Those who migrate to the cities are denied access to social services, as are their children. Linking all these grievances is corruption – and a wealth gap even more glaring than is admitted, since, according to Fenby (in a statistic crying out to be sourced) undeclared income may amount to 30 per cent of GDP, putting China on a par with Italy. There are lies, damn lies and Chinese statistics: Fenby quotes Li Keqiang, the man picked to succeed Wen Jiabao as prime minister, dismissing them as “manmade” – a better translation would be “manufactured” – and “only for reference”.
Tiger Head, Snake Tails, for all its breathless superlatives about the mighty Chinese engine of modernization, is more persuasive when documenting the rot within. Jonathan Fenby notes the symptoms of dynastic senility, of court intrigues and the “trust deficit” created by scandal after scandal. He quotes the great China scholar Roderick Macfarquhar’s characterization of a regime “sitting on a political and economic San Andreas fault that must someday open”. Yet he shrinks from predicting triumph or disaster in China, and even from fulfilling the promise of his subtitle to tell us “where it is heading”. Over the next few months, the Chinese themselves may provide a more decisive conclusion.
Rosemary Righter is an Associate Editor of The Times and a commentator for Newsweek.
@ TLS Decision time for China
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