Friday, 27 September 2013

One small step for Shanghai ......

........  Will it be one big leap for China ? This is the Shanghai Pilot Free Trade Zone, which is opening in Shanghai this weekend. Already it is being compared to the launch of the famous Shenzhen Special Economic Zone in the eighties that heralded the economic revolution in China. Is it economic reform 2.0 in China ? Only time will tell.

China is a strange country when it comes to economic freedom. At one level, it resembles the Wild West economically. Anything goes. You can open a business, do whatever you wish , and make tons of money (and hush hush, ignore most laws regulating business). At another level it is more akin to the Soviet Union. In industries like telecommunications or insurance or banking, you can do virtually nothing. Foreign firms are not welcome, Even Chinese firms are regulated with an iron hand. 

Conventional wisdom says China is at a major fork in its economic journey. Growth rates are slowing down. Relative to the past, that is - even though every other country in the world will give an arm and a leg to be where China is presently. The  investment and export led boom seem to be coming to  a "difficult to sustain" phase. Consumption led growth is the prescription from the economists. A second wave of reforms is prescribed - always difficult in China where politically there is always opposition to economic reforms (even Deng Xiaoping faced bitter opposition when he launched the first wave of reforms). There is also the mortal fear that more economic reforms will inevitably lead to political reforms and nothing terrifies the Communist Party of China more than that.

So a low key testing of the next phase of reform is a sensible move. And that's what the Shanghai Free Trade Zone is rumoured to be. Although there is precious little detail in the government announcement, it is widely expected that inside the zone, the financial sector will be deregulated, the yuan will be convertible and industries such as telecom will be open to foreign investment.  If that indeed proves to be the case, then this is really a big move with potentially global ramifications.

Even more tantalising is the rumour that there will be other types of freedom too inside the zone , not available in the rest of China. The Great Firewall of China will be lifted it is speculated. Currently inside China, Facebook, Twitter, You Tube, Blogger, Word Press and a host of sites we take for granted in our everyday life are all blocked. The Great Firewall also censors every social website inside China. If you post something that the censors don't like, it will be taken down. If you do it repeatedly, there will be a midnight knock on your door. The wilder speculation is that inside the Zone , censorship would be lifted. If this does come true, it would be an earth shattering development in China.

The world is watching. It could prove to be nothing more than a false hope. Or it could be epoch making. I suspect even the bosses in the Party don't know what it will be.  We shall see.

At least China is attempting something. What can I say about India ? Alas.


  1. That's a beginning. Even if it didn't happen at least talking about it, so it's just matter of time. In India you don't even see the path we are on. :(

  2. ha ha i was wondering when you will write a post on this :)
    One of my prof, exactly quoted you on the China's growth rate ;)

  3. Hopfrog28/9/13

    I'm amazed how I found out about this. Not from a direct news article, but from a bunch of announcements from websites and even video game console makers all announcing they are now available in China due to the new SH free trade zone.

    I don't think in anyone's wildest dreams could the Shenzhen success have been predicted so I wouldn't doubt this will have some impact. Though, Shanghai already seems like a free trade western economy, this loosening of the grips will probably, much as in Shenzhen, surprise people with its impact.

    I keep waiting for news on the Indian economy doing... something. Alas, the only international economic news flashes we seem to get here in the states are from the BRIC countries.

  4. At least some marks for attempting... as they say you get zero for not attempting :)

  5. @Deepa - Yes; they will motor along economic reforms. What is far more difficult is if anything smells of political change.

    @Zeno - Great minds, think alike :):):):)

    @Hopfrog - Great to have you in this forum again. Amazed where you heard that from. No India will not move anywhere at the pace China will ; we will plod along.

    @Vishal - More than trying. If it was just economic change, they will move very fast. The trouble is political change. There they wouldn't move an inch if they can help it, but unfortunately for them, they can't help it. So kicking and screaming, they have to move.

  6. @Ramesh: Though I did a China stint like you did (albeit many years before you) and I thought I knew the country, I have recently finished a set of books by Frank Dikotter (Prof of History, Hong Kong University). What it tells you about the suffering the Chinese have undergone in the 20th century is mind-boggling: warlords, the KMT, the Japanese, the CCP, then the Chinese Communist State. I just finished Rana Mitter's magnificent "China's War With Japan 1937-1945" and all this was brought home to me.

    They deserve all the prosperity they can get and they have earned the right to a good life. I don't think India has ever suffered like this. If we had, I wonder if we would have turned out any different as a State?

    Unfortunately the very same people who liberated them economically were the ones that brutally oppressed them right until the 1970s. Shame on them.

  7. @Ravi - Oh; I am absolutely sure that you need to spend a lifetime there to understand China. Its a complex country and as you say, recent history has been awful. But the misery of the Mao ear, was all due to one megalomaniac. After he went, its been mostly good; again due to one man - Deng Xiaoping. The current dispensation where there isn't a one strong man, goes against centuries of Chinese history . Wonder how it will play out.

    Meanwhile Amen to your thought that the Chinese deserve every bit of a good life.

  8. Yes to Ravi's comments on the irony of a Communist Party, whose actions led to the death of millions, now being the savior as well.

    Am never, ever, a fan of economic growth by itself and, therefore, the Shanghai FTZ doesn't get me all pumped up, unlike how Ramesh always gets excited with that kind of news--I blame his business school brainwashing ;)
    I hope to be alive to see freedom of expression reach the Chinese too. It could happen--after all, even a year, heck even six months, prior to the Berlin Wall tumbling down, there was very little speculation even of the dramatic end to Soviet Bloc. Why not the Chinese Great (fire)Wall, eh!

  9. @Sriram/Ramesh: Here is my $0.02 worth: if the Chinese people sense that all this perestroika will lead to the kind of anarchy we have in India, for example, they will consent to giving up most of their rights to self-expression in return for preservation of the civic order. China is evolving backwards to what it was before turn of the 19th century. It was not a decadent society - actually a very orderly one imbued with the Confucian ethos. If there is a playbook by which you want to analyse the Chinese, it is what the old man from Qu Fu said all those years ago - Bo Xi Lai's neo-Maoism notwithstanding. Do not expect to see a Jack Anderson or a Bob Woodward magic out of the Forbidden City. A few noises here and there, some local demos against corruption, some high profile executions. I am sure that the party examinations to induct talent into the cadre now consist of the "eight-legged essay" that was necessary to qualify as a civil servant 200 years ago. Except that now it is on Socialist THought!

  10. @Sriram - Guilty as charged. I've always valued a full stomach higher than the ability to yell from the rooftop that Obama is a nut case. Of course, I would like to do both, but if I had to choose ......

    @Ravi - You are absolutely right - they are trading off their personal rights for civic order and economic well being. We must remember that China is a society that has seen untold economic hardship till about 30 years ago. If the Germans can be so paranoid about inflation after their experience post the World War; why not the Chinese.

    As for evolving backwards, not so sure. Confucius is gone now, replaced by money. Still an interesting hypothesis.

  11. @Ramesh: They are going to look across the Pacific at the bastion of democracy and say, if this is what the democratic process can do to the national interest, then to hell with the trappings of democracy.

    Also - Confucianism never frowned on money, quite the contrary. It emphasized that rich people should do good works and placed order in society above all things - so that people can make money and be happy. Approximately what Deng Xiao Ping said..

  12. Ah, such juicy comments that tempt me to pontificate--it is not my fault that I am commenting, but Ravi's and Ramesh's ;)

    Now, even if I were to subscribe to Ramesh's logic that freedoms are worth compromising in order to feed the hungry stomachs, in some kind of a Maslow hierarchy, hey, the proposed FTZ is not about the hungry stomachs of China. The country is way past those days and years. We do have to recognize the contemporary context of food and prosperity that is completely unlike the China of 1958. While it is, of course, for the Chinese to figure out their own politics, there is no way one can justify the physical and cyber controls on freedoms via any hungry-stomach argument.

    As for anything Confucian as a bottom-line for who the Chinese are, well, money-making is nothing Confucian. In an essay I forwarded to Ramesh a few weeks ago, the author points out the irony that both the ideas that have 'transformed" China over the past seventy years are European--Communism from Karl Marx, and free market from Adam Smith. To bring in Confucius as a way to explain the Chinese set up is like using hungry stomachs to explain whatever that goes on there.

  13. @ Ravi - Never studied Confucianism and it must be as you say. However I thought it frowned upon mercenary behaviour - seen now in ample measure in Chinese society. Note that our good friend Sriram didn't comment on your barb of looking across the Pacific :)

  14. @sriram - A nice juicy debate. Of course I value the freedom of expression as much as you - remember I lived behind the Great Firewall and it was absolutely awful. They are scoring a spectacular own goal by doing this, but that is another story.

    But I don't buy the argument that the right to call Obama a carrot top is some form of divine absolute right. Yes, the Chinese don't starve now, but for millions, the basic levels of shelter and medical care is still way behind world acceptable standards. So economic growth has to be a number one goal for sometime to come. Having said that, it doesn't have to be mutually exclusive with personal freedoms. Actually if they loosen the reins on freedom of speech, it would actually benefit them - safety valve and also a great way of an orderly transition to a freer society which has to inevitably come. The operative word is "orderly". If there is a precipitous move like what happened in Soviet Union, there is little doubt that hungry stomachs will come back again.

  15. ahem ... we will have to agree to disagree, I suppose ...
    I shall leave you with this graphic detail from the Economist ;)

  16. @Ramesh: I never tire of watching Ben Kingsley do Gandhi. There is a scene where Gandhi tells Margaret Bourke-White " Poverty is the worst form of violence". How true!

  17. @Sriram - Oh; you'll always win if you quote the Economist to me :):)

    Yes there are some stinkingly rich people in China

    @Ravi - Did he say that ??? Intriguing comment.

  18. The Chinese have got to you. Your blog does not allow more than 4096 characters to be posted.

  19. Where do you get your news from? Twitter? this news appeared in the Hindu with the same photo 3 days after it was published here.

  20. @Ravi - Of course the great Chinese censors have been after me for years :):):)

    @Asha - Maybe The Hindu copied from me :):):). Seriously, no Twitter - I hate that medium. I just write about random stuff that I pick up from the news feeds. China is of course of special interest to me.


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