Back from China
October 23, 2018
I'm back from my two-week trip to China. I fell a bit behind on blogging in the past two weeks, but I'll catch up over the coming month or two.
I offered a few observations on my time in Beijing a few days ago; after visitng a few more cities, and had some time to reflect, I've noticed some larger themes emerging.
I'd read that China's economy was very investment-oriented (lots of capital formation, not much consumption) before we left. I saw a bunch of real estate and roads getting built everywhere, but particularly in Xi'an and Yangshuo, cities with less development than the other two we visited (Beijing and Hong Kong).
Investment puts people and capital to work, so its immediate effects are usually considered positive. The long run is trickier. I noticed a lot of ground-floor retail sitting empty, 出租 (for rent) signs scribbed in red or black marker, taped conspicuously to the front windows. That's a bad omen given the economy is already running pretty hot, but it's even worse considering global trends in retail.
A lot of loans underneath all this will get written down over the coming decade, a double-whammy given the volume of debt used to build it. I'm not sure anyone knows who's really holding the bag on all this, either: private investors, banks, municipal governments, or national-level taxpayers through implicit guarantees. It's all pretty opaque.
On a more positive note, I was impressed with the level of pride and optimism I saw. A French couple in Yangshuo I met told me how they lost their glasses on a multi-city tour bus, but they got them back from the driver, after several days and hundreds of kilometers traveled. They called the bus company, who made it their problem to locate the driver, eventually tracking him down, asking him to relay the glasses back through a series of driver hand-offs. "That wouldn't happen in France", they explained, "the dispatcher would just tell you it's not possible, and hang up". From people flying flags in the countryside to transit employees helping kids, you can tell they feel they're part of something bigger, something on the way up.
Whereas here in Oakland, I've been off the plane less than 24 hours and it's back to farejumping, graffiti, littering, reckless driving, and "Fuck the cops" from bike riders blowing down the sidewalk.
I think democracy curtails the worst abuses of power: China recently detained the head of Interpol, denying him the most basic elements of due process, including habeas corpus, knowing the charges against him, or access to an attorney. That's just how it works with criminal law in China. And yet, I'm not convinced ordinary people in China have it worse; here in Oakland, we have 1-2 murders, 60 robberies, and over 100 smash-and-grabs every week. And there's really no political will to change it; people hate law enforcement so much, coffeeshops like Hasta Muerte have refused to serve on-duty officers for years.
China has more severe miscarriages of justice, and it's almost certainly worse if you're any kind of minority (political, ethic, religious) but if you're an average, law-abiding Han citizen, the lack of violent crime, drugs, and petty disorderliness probably makes the US seem like a chaotic warzone. And compared to China, to some extent, it is.
Everyone is on WeChat all the time. I'm not kidding: I saw people messaging each other while eating, riding their bikes, walking into people in subway tunnels, even while driving. It's more dominant than facebook; there's really nothing like it in the US. And it's deeply integrated: vending machines, tolls, even street vendors take Alipay or WeChat pay. I was thinking about how petty we can be, reading an article about a boy short 40 cents: would it have been different if he could get 40 cents from his friend on WeChat pay, and use that? I have to wonder.
I also wonder whether the US will get such intense messaging as Asia? I'm not sure whether the US will be more like China in that regard, or it will go its own way.
Mobile phone etiquette is terrible. I saw so many couples ignoring each other while eating, phones in hand, it made me wonder how we've managed to survive so long, as a species.
Low taxes, but extremely expensive real estate. A mid-range 600 square foot place in a high-rise will run you about $2 million (14-15 Hong Kong Dollars).
This place made me realize the Bay Area can go a long way before it's truly "unaffordable". On the other hand, the city is so vertical, it puts even Manhattan to shame (a far cry from "don't shade my cucumbers" Berkeley).
I'm not optimistic for HK long-term; real estate is totally unaffordable and annexation by China after the "two systems, one country" pact expires in 2047 seems inevitable. Also, there's not a lot that makes it special anymore; Shanghai is starting to have a home-grown international financial services industry, and many cities on the mainland now have huge ports. For a growing number of firms, the expense just isn't worth it, especially given the proximity of much cheaper, and equally capable (in some respects, better) Shenzhen.
There's a lot more to say, but overall, the trip made me very optimistic about the future of the United States.
China's cost advantage is disappearing. A 1.5-hour boat ride with a bit of transportation on both ends was almost $100 (US), and that was after we'd haggled them down. At those prices, cost advantages aren't a slam-dunk, and the distance (both geographic and cultural) start to weigh more heavily.
Add in the trade difficulties, not just the tariffs but the "local partnership" requirements, ongoing government interference in the market, and lax attitude toward IP protection, and I don't think China is such a great deal anymore. I don't think Trump's dream of a huge US manufacturing industry will come to pass, but for high-skilled stuff, the case for staying in the US is stronger than ever, especially considering our great infrastructure, well-educated populace, and sustainable environmental practices.
In sum, I think China is currently at its best, while the US is at its worst. They're coming off a long cycle of growth, while the US is eating itself alive with budget deficits, partisan conflict, and labor strikes. But as with people, the true test is how something does when at its worst, not when everything is smooth sailing.