China's Growing Pains

Newsweek has an article on the rise of China that contains this interesting paragraph:

But whether this forward movement—economic and political—will continue has become the crucial question for China. It is a question that is being asked not just in the West but in China, and for practical reasons. The regime's main problem is not that it's incurably evil but that it is losing control over its own country. Growth has empowered localities and regions to the point that decentralization is now the defining reality of Chinese life. Central tax collection is lower than in most countries, a key indicator of Beijing's weakness. On almost every issue—slowing down lending, curbing greenhouse-gas emissions—the central government issues edicts that are ignored by the provinces. As China moves up the value chain, so the gap between rich and poor grows dramatically. Large sectors of the economy and society are simply outside the grip of the Communist Party, which has become an elite technocracy, sitting above the 1.3 billion people it leads.

So true. It is amazing how impotent Beijing is in parts of China. Watching Shanghai thumb its nose at the national government was quite surprising. I didn't understand for a long time that there are large swaths of the country that Beijing doesn't control.

Central tax collection is the source of many jokes here. Chinese companies don't pay taxes. The government's revenue comes from VAT taxes and western companies.

I think one of China's biggest challenges is that its citizens think and plan independently. Other than family, nothing and no one else factors in. There is no "how will this affect the neighborhood". It is "me and only me" and "today" vs "tomorrow". This thinking is magnified when it comes to cities and provinces. Each city operates as an island and city officials try to avoid major land mines randomly thrown out by Beijing.

An example. In December 2006, Beijing enacted a new law governing the sale of public land. All public land must be auctioned and sold to the highest bidder. A client was in the process of negotiating for a piece of property in a development zone and was concerned about what affect the law would have on negotiations. "Don't worry." said the official. "We'll arrange to have some bidders present and you'll get the land for the negotiated price."

This attitude explains why money for environmental cleanup never makes it down the line. Public officials each take a little for themselves so that there is never any money left to do that actual work.