Session #2 - February 11

[Benjamin Schwarting]

The content of this week’s lectures has made me think about President Xi Jinping’s goals for China, especially how they have been reflected in the thirteenth five-year-plan.

As I understand it, Xi Jinping has stated that over the next thirty to fifty years he wants China to be 1) the indisputable economic power in the world, 2) the leader in emerging technologies (such as CRISPr research, AI, robotics, and 5G telecommunications networks) and 3) the dominant military power on the global theater.

Can you help me sift out the truth from the myths surrounding these goals?

In this shift from QUANTITY production to QUALITY production, what progress has China actually made on any of these emerging technologies, and what have they been doing to get there?

For instance, I heard that China has begun successful CRISPr treatments of throat cancer, but that much of this initial gene editting testing has been done on prisoners who have no say in the matter. This has also been amid rumors of forced organ harvesting of Chinese prisoners.

As far as 5G networks, I think that a lot of us are becoming more familiar with the company Huawei and the controversy surrounding their involvement in international telecommunications efforts. One recent example that comes to my mind is the US military banning the use of the social media platform Tik Tok because of its affiliations with Huawei.

So, amid so much fear-mongering and speculation, what is to be believed?

[clay dube]

As Gina notes, the change in China is dramatic and for some it has been difficult. There were some in the 1990s who were plunged into early retirement/unemployment and found life extremely challenging. There are many who have worked hard to simply keep up. Most people have a higher standard of material living than they or their parents did. Alienation, however, is a giant problem, especially for those who have migrated great distances and live on the margins of cities.

Kevin talks about the rural/urban gap, which has generally widened since 1984, but inequality is a also giant issue within cities. Here's an article that looks at some of the policy changes in the effort to address poverty: https://www.socsci.uci.edu/~dorjsoli/China%20Perspectives%20pub%20version%20May%202017.pdf
 

Here are two presentations about poverty alleviation from our Finding Solutions conference: https://china.usc.edu/watch-presentations-poverty-alleviation-panel-china-finding-solutions-conference

 

[Robert Parker]

I have always wondered how China's blending of a command economy with elements of a free market would impact their society, not just from an economic perpective, but a social one.  Some of the obvious ones are growing income gaps and a more wealth based socail stratification.  It did not surprise me that State Owned companies received preferential treatment from the banking system, but what will tat mean for the reliability of those institutions if the SOE's are not forced to repay their loans on time as private companies are.

[Kelly McKee]

• The two videos offer many great takeaways to use in the classroom with students!  I really appreciate the framework shared for unpacking the economic changes from Mao Zedong's era to Deng Xiaoping.   I've never heard of Iron Man Wang  -the model person of production in the 1960's.  Another big takeaway is the economic impact on China when they joined the WTO in 2001.  The video states how China's GDP rose from 6th (2001) to 2nd (2017).  The chart in video 2 shares economic data to support Xi's current initiative to be the dominant global  power.  Analyzing the % of China's global economic activity in 1750 at 32.8% compared to 1900 at 6.2% is quite shocking.  The narrative shared in the documentary film Morning Sun http://www.morningsun.org/film/ reinforces this data emphasizing how the economy of China was on a drastic downward spiral shifted after the arrival of  European trade demands in the 18th century.  It is interesting to see the relevance today as Xi believes China naturally should dominate in global trade...just as they had done in the past.
• The congressional research service article shares an informative backdrop about SOEs in China.  Knowing these companies are protected from competition by the government and many of the profits are used for domestic investment would indicate their status is necessary for economic growth within the country.  The article shares endless stats supporting the significance of SOEs and the role they play not just in China, but the world.  The Forbes 2016 top 500 companies identifies 103 of the top businesses are from China and 73 of the 103 are SOE's.  Unbelievable!
• Huawei, Tencent, Alibaba, Baidu are all big name companies from China. My students are definitely familiar with Huawei and Alibaba.  I am personally a big fan of WeChat and use it often here in the US.  I'm curious to know how much stock the Chinese government owns in Alibaba and other public companies in China?   It was unclear in the HSBC article how many CEOs of private companies are members of the CCP.  Interesting that Ren Zhengfei was an engineer in the PLA and I believe Jack Ma is also a party member but unsure about the position of Pony Ma and others.  It is interesting how Warren Buffett is an investor in BYD Auto and Accel Partners invested in DJI - how does this regulation with outside investment work in China?  Especially with US investors.  I just watched a news program the other day highlighting the use of drones in Wuhan and other areas in China telling people they must wear masks when outdoors to prevent the spread of the coronavirus.  I'm sure the drone showcased in the news program was made by DJI in Shenzen! 

[Alison Douglas]

I wonder too if President Trump's policy will have an impact on their economy or not.  Also, if the US will benefit from it.

[clay dube]

Alison - the trade war had relatively little national impact on either economy, but specific sectors were dramatically hit both in China and in the US. A big impact in the US was (and is -- most of the tariffs are still in place) increasing the costs on component parts for American manufacturers. Some US manufacturers, though, benefitted because they could raise their prices because those who bought from their competitors had to pay higher prices due to tariffs.

Within China, the impact on some exporters was significant. Their exports to the US suddenly became pricier. But that raises another question - many of the biggest importers from China are American companies! This is why Tim Cook of Apple lobbied the White House hard to keep tariffs away from his company's products. But if you look at the prices of American-branded goods from China (e.g., GE, RCA, Black and Decker and so on), you'll see that they probably went up. The pain of import tariffs is carried by the seller or importer in the short term, but eventually the consumer, in this case, Americans, paid the higher cost. This became a kind of consumption tax.

Some American producers may have lost some of their buyers in China. Wine and nuts from California, soybeans from Illinois, pork from Virginia and Missouri. BMWs (yes) from South Carolina.

We'll talk more about this the week after next.

[clay dube]

China's government has always wanted world-beating companies. It wants its SOEs to be top flight. And in terms of building out the telecommunications infrastructure, they have done that. But most of Chinese state owned companies are capital intensive (they don't employ that many people) and are not especially profitable. China's private sector has managed to grow rapidly and to reinvest profits productively. It employs far more people. This disappoints the party-state, but since they are able to control (though not really direct) private companies through regulations (e.g., Alibaba would have to shut down if the party-state lifted its licenses to do business) and by having key personnel within the party and having the party represented at the company. Nick Lardy's two recent books get at this dilemma: the first Markets over Mao is about the rise of the private sector, but his most recent book is The State Strikes Back. Xi Jinping wants greater control and has promoted the state at the expense of the private sector. China's private sector, however, isn't always efficient (e.g., real estate development, over capacity in autos and solar panels).

[clay dube]

Kelly's noted Iron Man Wang, a hard working hero who died of cancer in 1970. In many instances, the best heros for the purposes of propaganda are dead ones. Another selfless fellow made into a national hero is Lei Feng. Lei's star may have passed, however, two bio-pics about him died at the box office (2013). Even state media noticed: http://www.globaltimes.cn/content/766438.shtml.

It would take a lot more space to talk about the big companies that are mentioned here. The Chinese state doesn't own most of the big private sector internet companies (BAT - Baidu, Alibaba, Tencent), but the ownership of Huawei is murkier. ZTE is state owned. Here's an Education about Asia article on these companies: https://www.asianstudies.org/wp-content/uploads/chinas-national-champions-alibaba-tencent-and-huawei.pdf
 

[Alison Douglas]

That's interesting! I didn't realize that they were American companies that are mostly affected by this.  It does make sense that we will eventually be paying more for goods from China.  In the long run, is this a good thing for the U.S.?  

[Billie Johnson]

For answering my question about how opening up China opened them up to technology as well. I was thinking about what I hear in the news reports and in terms of how Trump is dealing with China and how he speaks in terms of the need for fair trade, manipulation of currency, and the theft of technology. Question: Is birth tourism funded or partially funded by the Chinese government?  This gives citizenship and the potential to move people easily to America for whatever reason.  

[Billie Johnson]

Hi Aleida,
I was also surprised about the similarities between the USA and China in regard to educational issues and deficit in skill sets. I wonder if universities need to be more regulated with what they teach. Perhaps share with the nation what we need, the kind of skills we need for the future, and this will better help guide people into one educational sector or another. We need to be more deliberate in what we offer in universities to actually prepare a better skilled workforce of the future.

[Billie Johnson]

Reading the breakdown of household expenses between the US and China made it clear to me why the trade war hurt farmers. The bulk of expenses for a household in China is spent on food and when you think of 1.3 billion people who need to eat, this is a huge sum of money lost to our farmers. I did not know that before and was shocked to see it.  I did not know that we spent less in terms of food per household, but for sure figured that our cost per dwelling would be substantially more expensive. I live in a crakerjack box and don't even want to think about what my mortgage is.

[Alison Douglas]

I wonder how China will change as their economic growth rises?  It seems like it has been very drastic over a short periop of time. Will the people tolerate the inequality that exsists(with people moving to the cities for work)?  I'm more curious about the Belt and Road initiative and will they most likely in time control that entire area because of it.  I find it fascinating that it follows the same silk road idea.  The government of China seems to know exactly how to grow and control the trade, but will it be able to keep their citizens content? 

[Aleida Rojas]

Hi Billie,

I guess what I do not understand about this Hokou system is how it hurts the Chinese Economy. I know that China wants to be a super power so that is what makes it very difficult to understand their approach toward their own citizens in the country side. If they want to continue to lead the way, China's officals must provide education for all of its citizes.

[Kevin Bailey]

Your students were frantic over the Tik Tok controversy that you stirred up. This was an amazing story and I think that the U.S. government’s ban on the use for military members was the only reason that this grabbed our attention. I think that most of us have an awareness of our lack of security on the web, but I don’t think most of us think that China is watching. But with that scare that you put in them, within a week, everyone was back on Tik Tok.

The CRISPr technology is pretty crazy too. 

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