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Snowy Times in China – Spring Festival Freeze
February 4, 2008 - China is heading into the Spring Festival holiday, China's traditional Lunar New Year celebration, which begins with a New Year's Eve dinner on February 6 and ends with the traditional Lantern Festival on the 21st. Officially, of course, China allows seven days off, but as many as two hundred million people are already on the move, joining family and friends for the biggest holiday of the year.
China is in the midst of a deep freeze, with heavy snowfall blanketing the east and central portions of the country, and even China's three ovens (Nanjing, Changsha and Chongqing) are knee deep in snow. Millions are stranded in train stations, airports are closed in the major cities, and China's Prime Minister Wen Jiabao recently apologized to stranded migrants in Chairman Mao's old province of Hunan, in Guangdong and other provinces for the massive power and transportation failures that plague major parts of the country. For its part, Beijing is a blissful 8 degrees below zero, with Chicago-style winds, but the skies are clear!
A winter wonderland. Snow has shut down much of central and south China for the past several weeks, causing upwards of $4 billion in economic damage, according to Chinese assessments. During this spring festival period, when more than 178 million people crowded the trains to return home and celebrate China's premier holiday, the train system buckled under the pressure, electricity shut down in major inland provinces, airports remained closed for days, and hundreds of thousands of men, women and children waited in train stations for days at a time, waiting for trains that were stranded in other parts of the country. In these areas, all south of the Yangtze River, there is no heat, making the cold conditions particularly miserable. Ironically, the normally frigid northern areas of China, including Beijing, remained primarily arid and dry, with little or no precipitation, but warm interiors.
While ebbing now, the snow crisis demonstrates the continuing fragility of China's infrastructure and the tremendous pressures that 25 years of rapid economic growth and social dislocation have brought. Most of the 178 million travelers are migrant workers who travel from the impoverished inland to work in the factories, shops, and entertainment districts of the rapidly developing cities along the coast. Poorly educated and living in conditions that contrast sharply with their wealthy countrymen – in Beijing, they can be seen working on the 9,000 construction sites that are changing the face of the city – they are a potential source of social unrest and indicative of the enormous challenges the government faces as China's emerges as one of the world's great countries in this century.
The rhythm of the year. While the hotels in Shanghai and Beijing are still jammed with business people struggling to do deals, most of official China is meeting to review their achievements and failures in 2007 and to prepare for 2008. All of the major functional groupings of the State Council and the Party have been meeting over the past two weeks, finance, the economy, propaganda, environment -- a plethora of bureaucrats examining budgets and next year's agendas. At the same time, as the central government prepares for implementation of the policy and personnel changes that were decided at last fall's 17th Party Congress, provincial and municipal legislatures are meeting to set their agendas and make personnel changes. In Shanghai, the Shanghai People's Congress and the Shanghai People's Political Consultative Conference (the "two meetings") convened for a week long session last week, working through the snowy weekend, and broadcasting speeches by the leaders of the city and meetings of the various working committees. As part of China's effort to create a "harmonious" society, Shanghai Party Secretary Yu Zhengsheng held a televised meeting with local residents seeking improved local services.
In China's 29 mainland provinces and provincial-level municipalities, the Spring Festival marks the conclusion of the year's activities. The political year, at the national level, begins in March with the commencement of the National People's Congress (NPC) and its sister organization, the Chinese People's Political Consultative Congress (CPPCC), established by Chairman Mao in 1947 to bring together intellectuals and non-communist influentials and give them a voice. The CPPCC generally begins on March 3 in Beijing, and the National People's Congress on March 5 – both conclude in mid-March. This year's NPC is particularly important because it begins a new five year cycle, and will announce major government leadership changes (already decided and sanctioned by the 17th Party Congress last October). The re-appointed Prime Minister Wen Jiabao will deliver the central government's Work Report, the Chinese equivalent of the State of the Union Address. And, at least two new Vice Premiers and several State Councilors will be announced, along with new ministerial appointments. This year, in a change from previous years, the Hu-Wen administration announced dozens of senior provincial government appointments and several new ministers before the Congress, a clear sign of their firm grip on the controls in Beijing.
Following the "two meeting" in Beijing, the year's work begins in earnest, with only a few moments of leisure highlighted by the Olympics in Beijing and National Day in October. The Beijing 2008 Olympic Games will be held in Beijing, Qingdao, Shanghai and Hong Kong, beginning August 8 and continuing for 16 days until the final ceremony on August 24. The Beijing Games will create a momentum and a mini-boom of their own, as work in Beijing on the Olympics accelerates over the course of the next six months. We expect consumer spending in Beijing to boom, particularly in the run-up to the Games, when skyrocketing hotel rates and major advertising and Olympics-related expenditures will give the local economy a major boost. After the Games are finished, we do not expect a significant letdown in economic activity, although all participants in the Games may drop from exhaustion after August 24. Rather, we expect the Games in China to mirror the 1988 Games in Seoul, with investment and economic growth accelerating.
Major holidays for the rest of the year include the now 3-day Labor Day holiday, beginning on May 1 and the week-long National Daily holiday beginning on October 1. China has instituted new formal holidays this year for such traditional events as Qingming jie on April 5, the day in which Chinese sweep the graves of their ancestors, Duanwu jie, the Dragon Boat festival that celebrates the death of the poet Chu Yuan who committed suicide after his ruler failed to consider his remonstrances over bad conduct at court, and Zhongqiu jie, the mid-autumn festival on the 15th day of the 8th lunar month that celebrates the beginning of fall and the harvest season.
Government restructuring. One of the highlights of this year's NPC will be announcement of a new plan to restructure the central government, including likely reducing the number of ministries from 28 to 22, creating a series of super-ministries that will reduce bureaucratic red-tape and duplication of functions within the government. While formal details have not yet been released, it is clear that at least some of the following possibilities are under consideration, including creation of a:
- Super Ministry of Culture, which could combine all or parts of the Radio and Television Bureau, the Press and Publications Administration, the Intellectual Property Rights Bureau, and other government adjuncts of the party's propaganda department. If that re-organization takes place, it will make liberalization of the media and entertainment sector simpler and easier by reducing powerful bastions of authority over the sector;
- Super Ministry of Transportation, which would combine the regulatory bodies in charge of airline, highway and presumably train travel;
- Super Ministry of Agriculture. The new ministry would add agencies involved with irrigation, forestry and related industries.
Perhaps the most startling change now under debate is the elimination of the Ministry of Information Industries, created ten years ago to bring the Ministry of Posts and Telecommunications (MPT) and the Ministry of Electronics Industry together and eliminate bureaucratic power struggles over control of China's telecommunications sector. One proposal on the table now would move the old Ministry of Electronics Industry into an expanded Ministry of Commerce and the MPT into the National Development and Reform Commission.
On the surface, at least, the demolition of the Ministry of Information Industries would defang the telecommunications sector and make dominance of the emerging new media sector by the propaganda department much more likely. It would also make further liberalization of the telecommunications industry in China much more susceptible to central control and permitting more rapid adoption of 3 and 4G technologies. While the debate over new media standards appears arcane, the "propaganda" side of the system – dominated by the central propaganda department of the communist party – and the telecom authorities have been engaged in heated battles over the past year over control of new media content and of standards. The telecom authorities argue, correctly in the eyes of technical experts, that new media is not "broadcast" but "transmitted" over the internet through China's telecommunications infrastructure. Propaganda counters that content is content, and the party controls content. In the end, like all such contests, the real battle is over money and power. More important, though, an entire industry in China awaits the decisions of the central authorities over standards for IPTV and for dissemination of music, television, radio and video programs over cellular telephone – as do legions of foreign investors.
Stock market craters. After a year of frenetic growth, in which the value of stocks traded on the Shanghai Stock Exchange doubled, stocks have dropped precipitously over the past two weeks, although they have risen slightly in the past two or three days. The market's drop undoubtedly reflects, in part, the excessive valuations of Chinese stocks, driven by the massive influx of capital into the market. Today, Chinese wake up in the morning, check their stocks, call their brokers, and then go to work. Many Chinese in Shanghai have seen their net worth double, and possibly triple recently. While westerners are accustomed to market corrections, in China's "wild, wild east," the stock market appears to be a "sure thing" – and a violent drop in the markets could have significant social consequences.
New World Bank Economist – "Justin" Lin Yifu. On January 19, "Justin" Lin Yifu was appointed Chief Economist of the World Bank after World Bank President, Robert Zoellick, asked the Chinese Government to recommend potential candidates. Clearly, the appointment of Lin Yifu strengthens the bank's credibility, particularly among major third world clients such as China. Lin Yifu, however, is no ordinary economist. Born in Taiwan in 1952 as Lin Zhengyi, Lin was a Captain in the Republic of China (Taiwan)'s army before defecting to China in early 1979. Lin swam, while on assignment in the islands off of Xiamen, to China. Lin then studied Marxism at China's premier Beijing University, receiving a degree in 1982 before entering the University of Chicago and receiving a PhD in economics in 1986. I met Lin when he returned to China, just as he joined now deceased Prime Minister Zhao Ziyang's brain trust as an economist and for several years played an important role in developing China's economic reforms and in introducing Milton Friedman's market-oriented economics to China.
While remaining influential, Lin Yifu retreated from government after 1989, when Milton Friedman's economic policies were bitterly criticized by the post-Tiananmen government and focused on economic research at China's elite Beijing University. In 1995, Lin founded the China Center for Economic Studies at Beijing University and set up one of the first MBA programs in China in conjunction with Fordham University. Lin Yifu is not only one of China's finest economists; he is also a remarkable man.