Huang Yasheng: China’s Strength Begins at Home

From The Financial Times: (Subscription required)

Even China’s beleaguered banks have their fans in the west. In a new report, McKinsey, the management consultants, tout the superiority of China’s financial system over India’s. This is a remarkable judgment. Chinese analysts have long pronounced China’s banking system “technically insolvent” and, in implicit agreement, the Chinese government has injected more than $60bn to recapitalise the banking system. Every year for the past five years, India’s stock market has outperformed China’s, and China’s non-performing loan (NPL) ratio is several multiples of India’s. India has also consistently outperformed China in corporate governance rankings.

I experienced this split perspective in a previous job, researching China’s institutions. In the equivalent of a performance review in the corporate world, a senior professor who had visited China only once and spoke no Chinese declared that I (Chinese born and raised) did not understand China.

Is there such a systematic difference in perspective between Chinese and westerners? Part of it is ignorance. China’s achievements are visible and telegenic – the easily available and compressed GDP data, the skyscrapers, impressive highways, ultra-modern airports and so on. But few ask how the building boom is financed. A huge portion of China’s urban boom has been financed by massive yet indirect taxation on peasantry including fees for education in rural areas; possible future reductions in pension payouts for China’s rapidly ageing population; curbing of bank credit to millions of small domestic private entrepreneurs. To truly understand this dynamic, one must either know the country beyond the impression of a casual tourist or experience the burdens of the system first hand.

Another reason for the rosy foreign perspective is that the Chinese government has historically favoured foreign business over domestic. Foreign companies operating in China often find it a better place to do business compared with their domestic private counterparts. In a recent world business environment survey administered by the World Bank, more domestic private companies said they saw China’s business environment as constraining than foreign companies did in seven out of 10 areas, ranging from labour laws to corruption.

June 4, 2005 11:02 PM
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Categories: CDT Highlights, Economy