China's Issues

Every country faces challenges and China is no exception. But by global yardsticks, China's issues are less critical than what most other countries face.  It is after all the one country in the world which does not face a serious growth challenge (at least as of now).  China is however such a large country that even a seemingly minor issue is of gigantic scale and one that will affect the whole world. This is why everybody in the world ought to take a much greater interest in this country.

This post is a compendium of social, political, economic and moral issues that China faces at this point of time, in no particular order

Maintaining GDP Growth : The "contract" between the Communist Party and the people is a simple one - Economic growth for political control. When economic growth falters, this contract will be put under strain. There are a number of challenges to maintaining economic growth and some of them are articulated below. You can't grow endlessly at 8%+. The inflexion point has come.

Quantum of Debt  : China's debt to GDP ratio is galloping and is now above 300%. Much of the growth over the last decade has been debt fuelled. Growth will seriously falter if debt is cut. That's why the elusive "soft landing" is proving so difficult for China. Just for comparison, India's debt to GDP %, which I often cry about is "only" 130%. The United States, of course is a leader at 350% !

Income inequality : Every country faces this problem, but China faces it as bad as the US. The Gini coefficient, a measure of income inequality is 0.42 (higher the number, greater the inequality). The US is 0.46. India is 0.35. China is starting to have first world problems

Ageing population : Because of the one child policy that was rigidly enforced until recently, China is rapidly ageing. It will be the first country in history to have an ageing problem before it got rich (remember, on a per capita basis, China is still middling). With a poor social security network, who is going to pay for the aged and take care of them in a decade or two. China has the peculiar problem of one grandchild for four grandparents.

Corruption : We have spoken of it in previous posts. It is a serious problem.

Environment : China faces an acute environmental problem. The government is actively tackling it, but the problem is a huge one and one that was allowed to build up to crisis levels over decades. China also faces an acute water problem (worse than India's). There aren't easy solutions. Much of the north is virtually a desert, but with teeming populations.

Restive provinces : The one thing China is absolutely terrible at is integrating people who are culturally different. 93% of China is a homogeneous Han (those who talk about diversity in China have no clue what diversity really means - come to India).  The two largest provinces Tibet and Xinjiang are restive and brutally suppressed

Rising nationalism : Very few Chinese would recognise this as an issue, but it really is. Anti foreigner sentiment is high - its easy for a large number of Chinese to be fanatically against a nation if whipped into a frenzy of perceived slights. The Chinese government is increasingly bullying in its approach - Japan (Senkaku), entire East Asia (Nine dash line), India (Doklam and Arunachal). The average citizen who only has access to government propaganda gets whipped into dangerous nationalism. The Chinese would do well to ponder over this - why do they have so few friends ?

A moral vacuum : To an outsider, this might seem to be a strange issue, but many Chinese would immediately relate to it. Firstly during the Cultural Revolution and then in the breakneck speed of economic growth, its ancient culture, beliefs and traditions have gone. Today money is the predominant (only) religion.  In other countries, religious and  social organisations provide a balance to the materialism. In China they do not exist, or if they rise, are brutally exterminated by the government (see what happened to Falun Gong). So many Chinese wonder - after money what? And they may then turn their attention to demanding a level of freedom not in consonance with what the party is comfortable with.

And so this is the real major issue that China has faced since the mid 1980s and continues to face now. What is the balance between economic freedom and growth and political and other freedoms. The first flare up came when Zhou Enlai died in 1976. The second major flare up came during the Tiananmen incident in 1989. Since then there has been an uneasy truce, but one which has never gone away. Some day it will rear its head again. How China confronts it, and who is in power in China to confront it, will have tremendous consequences for the world. 

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Politics and the average Chinese

The man in the street simply does not care ! At least politically !!

In a country of 1.2 billion, such a sweeping  statement is an outrageous generalisation. But it is broadly true. The average Chinese does not care because (a) what is the real choice (b) she has very little access to information that is even remotely political in nature and (c) she doesn't seem to be hugely interested anyway

And this is despite a startling fact; the country with the maximum number of protests from citizens is actually China ! On any given day, there are probably 800 odd protests happening throughout China. If there is such vigorous activity, how come the assertion that the average Joe (Mrs Li) doesn't care ?

Two sweeping statements can be made about the average Chinese's views (a) she believes (and it does not matter where or who she is) that the local government is utterly corrupt and inefficient

and (b) she believes that the central leaders in Beijing are extremely efficient, working hard for the country, are the best humans on earth and if only they knew of their specific problem, it would be instantly fixed.

All the protests are predominantly on local issues, and mostly against land grabs by local officials. It is therefore mainly economic in nature, not political. There are simply no political protests of any sort.

A major issue in China is that public opinion is greatly hampered because of virtually no access to true political information. The following is the information environment in which the average Chinese lives

- There are no independent newspapers at all. Foreign newspapers are mostly not available.

- There is only government TV . No foreign channels, except in top end hotels. Even those are censored - can you believe that CNN's broadcast to China is routed through a Chinese government controlled satellite !

- All films are subject to censorship. Foreign films are severely limited in number and if you have anything remotely political in your film, fat chance of being cleared. Ditto books. Ditto music. Pirated DVDs are freely available but then the market is mostly for sexually explicit stuff rather than political content.

- The Great Firewall of China, behind which the internet sits in a parallel universe, is one of the most remarkable operations of all. The Hall of Fame of sites that are completely banned and inaccessible from China includes Facebook, Twitter, YouTube, Google plus, Maps, Docs, Picasa, Dropbox, Flickr, ..... I can keep going. Every one of these have local equivalents which are of course severely censored by the authorities

- The Chinese are avid users of social media, but only on domestic providers. These are hugely monitored by armies of machines, men and software. Every offending post is deleted . If you realise that there are half a billion internet users in China and they are as active as anybody in online activities, you can imagine the scale at which censorship takes place.

Consequently, the average Chinese is poorly informed on political matters and therefore has limited and not fully informed views. In any social gathering in the West (even more so in India), the conversation will turn political. Not so in China.  Mao has been glorified as "70% right" - very few of the younger generation know anything about the horrors of the Great Leap Forward and the Cultural Revolution. The Tiananmen incidents of 1989 have been airbrushed from history - when I lived in China I was amazed that my colleagues knew virtually nothing about what happened.

The sum total of all this is that public opinion in China is less intense and formed than in virtually any other country. Therefore the Party and the government are under less pressure than anywhere else. You see, the true check on any government in any country is not judiciary , or the constitutional checks and balances - it is really public opinion  represented by the media. In China, that check does not exist. The Chinese have made a pact with the Party - give us continuous economic advancement and we won't care about the politics. Thus far, that pact has held good.

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Who's who in Chinese politics

Xi Jinping, the current Chinese leader is easily the most powerful leader that China has had ever since Deng Xiaoping faded away in the early 90s. But in order to understand his power, we have to go back a bit in time in modern Chinese history.

Mao was a tyrant and supremely powerful in China and until his death, he was simply the sole power centre. But that degree of concentration of power resulted in chaos in China - the Great Leap Forward and the Cultural Revolution being two big disasters. When he died, the elders decided that no single person should ever be allowed to accumulate such power. Deng Xiaoping became the preeminent leader, but there was a rival power centre in Chen Yun and to a lesser extent in Li Xiannian. Multiple purges later,  Jiang Zemin was appointed the Secretary of the Communist Party immediately after the infamous Tiananmen incident in 1989.

Jiang accumulated a fair degree of power, but was never all powerful. He led the party out of the post Tiananmen crisis and then earned his own notoriety by the brutal suppression, and virtual extermination, of  Falun Gong - a cult loosely based on mysticism, but which was feared by the Party as a political movement. By the norms set by Deng, which he followed and reinforced,  he stepped down after some 12 years as the Secretary of the Party and handed over to Hu Jintao, who was handpicked by Deng himself before his death. However, Jiang continued to remain the Chairman of the Central Military Commission and therefore in his first term Hu really did not have much power and had to constantly "handle" Jiang. Jiang continues to remain a power centre and is the leader of the Shanghai faction. However he is getting old (he's past 90) and his power is fading, helped along by Xi's efforts to undermine this faction.

Hu Jintao is a colourless and plodding leader, who even while he was the Secretary of the Party, was never a charismatic leader. His hold on power was weaker. When he handed over the reins to Xi Jinping, he quit all his formal roles. He leads the Youth League, another faction, but is not a powerful leader.

Xi Jinping comes from a group called the "princelings" - their fathers were revolutionary leaders in the Mao era and their positions, at least to some measure, is owed to their parentage. When Xi took over, he swiftly started to consolidate his power with a massive anti corruption drive, the likes of which China has never seen.

Ostensibly Xi was tackling one of the greatest scourges of China - corruption. The scale of corruption in China is simply unbelievable. Nowhere has mankind seen anything like this. It is all pervasive . I won't say anything more - I still wish to travel to China !! Let me just say that whatever you think is the level of corruption in China, the reality is probably tenfold worse. It is an existential threat to the Party.  Therefore tackling corruption was a popular thing to do.

But the anti corruption drive was also a big consolidation of power by Xi. It was positioned as catching "tigers and flies" - both the small fry as well as the really powerful.  Unsurprisingly, the people targeted the most were political opponents. More than 100,000 flies have been indicted, but more importantly so have nearly 200 tigers. This includes some 100 senior people in the military including two former Vice Chairmen of the Central Military Commission (the equivalent would be Defence Secretary and the Joint Chiefs of Staff in the US military being purged). The biggest tiger of all who was jailed is clearly Zhou Yongkang, a past member of the Standing Committee. Such a thing is simply not done in Chinese politics - the upper echelon of the Communist Party was thought untouchable.

Xi's main ally who has carried out the anti corruption drive is Wang Qishan, a current member of the Standing Committee and 6th in the formal order of seniority. But clearly the real no 2 in China is Wang Qishan. He is a star economic leader in China - having held a number of economic portfolios in the past. But for the last 5 years he has been Xi's enforcer in the anti corruption drive. Crucially he is 69 and by the tenets of the unofficial retirement policy, he should retire in October. All the rumours swirling around China are that Xi will keep him. 

The formal No 2 is the Premier Li Keqiang. His job is to run the economy and the general consensus is that he has not been successful. His power base is small and he belongs to the Youth League faction of Hu Jintao. In fact at the time of Xi's succession it was rumoured that Hu actually wanted Li to succeed him and not Xi. Li is only 62 and can continue as Premier for one more term.  This blogger has a view (wild guess) as to what might happen to both Wang Qishan and Li Keqiang and he will boldly articulate a prediction in a subsequent post !

Two other names need mention. When Xi and Li were appointed, there was also speculation as to who would succeed them in 10 years time (the next generation of leaders). Two names were mentioned - Hu Chunhua and Sun Zhengcai. Both were included in the politburo last time around and given important positions. Just two months ago, Sun Zhengcai was summarily replaced and an anti corruption investigation started against him. Clearly he lost out in a power struggle.

How do the Chinese themselves view all this ? You may be surprised ! Watch out for the next post.

PS - Chinese names are not easy to pronounce to Western tongues. Here is an approximation

Mao Zedong - Mao Tze Dhong

Deng Xiaoping - Dhung Hsiao Ping

Jiang Zemin - Jiang Tze Min

Hu Jintao - As written

Xi Jinping - Hsi Jin Ping

Li Keqiang - Li Khe Chiang

Wang Qishan - Waang Chi Shaan

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This blog turns to politics

On October 18th, or immediately thereafter, a small line of people will walk in  into the Great Hall of the People in Tiananmen Square. That will be the new Standing Committee headed by Xi Jinping. And at that time the world shall know what has happened to the "elections" in China. The stunning fact is that very few people in the world seem to even know about one of the most momentous events in world politics. Very little has been written about it in the world press and almost nothing has made it to TV. Not even the significant Beidaihe retreat that happened in August.

All this at a time when many people in the world seem addicted to the nonsense that a certain person spews sitting on his toilet seat.  The lack of interest in what is happening in China is, to this blogger, unbelievable. Perhaps unfamiliarity is the reason. And hence this blogger is breaking his vow to keep this blog completely apolitical and is launching into a series of posts on what is happening in China.

I begin with a small primer on the current Chinese political system. The Communist Party of China (CPC) is the apex body in China. The government is subservient to the Party. Even the People's Liberation Army is not the army of China; its the army of the Party. Therefore what happens in the Party is of prime (only) importance in the politics of China.

The apex decision making body in the CPC is the Politburo, currently consisting of 25 members. Consider it as the Cabinet. From amongst these, an elite group forms the Standing Committee of the Politburo. Currently it has 7 members. This is the all powerful body.

When Mao Zedong established the Party, and for as long as he ruled China, all these institutions were irrelevant. Mao was the sole power centre. But when he died and the dangers of concentrating so much power in one man became apparent, the party elders led by Deng Xiaoping, established some rules and norms  for the politics of the future. Thus far they have been adhered to. They are

The principle of retirement . The unofficial term is "qishang baxia" or "Seven up; Eight down". The unwritten rule is that if you reach 68 at the CPC Congress meeting  which is held once every five years (think of it as election year), you step down and retire. 5 of the 7 members of the Standing Committee  and 11 of the 25 members of the Politburo have crossed 68.

• The General Secretary and the Premier usually serve for two terms - 10 years - and then stand down. The current incumbents are finishing their first term and can therefore continue for one more term.

• An all powerful single power centre , a la Mao, was never allowed to happen post his death. Even Deng was not all powerful - he had an equivalent power centre in Chen Yun. Factions  abound ; the Shanghai faction, the Youth League, etc. These factions and their powerful overlords jockey for power behind closed doors. Retired leaders don't keep quiet - they exercise power by placing their underlings on these bodies.
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• The norm in China is for leadership changes to happen with great turmoil, purges and the like. Only two peaceful transitions have ever happened - the handover from Jiang Zemin to Hu Jintao and from Hu Jintao to Xi Jinping. Even the transition from Hu Jintao saw the dramatic fall and subsequent imprisonment of Bo Xilai.
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• There are three powerful positions in China - The President of China (a mere titular position), the Secretary of the Communist Party (the real powerful position) and the chairmanship of the Central Military Commission that governs the armed forces. Currently all these three positions are held by  Xi Jinping. That was the case with Jiang Zemin and Hu Jintao as well, but in the Deng era, he was simply the Chairman of the CMC and the other positions were held by his chosen people. A fourth, and less powerful position is that of the Premier - currently held by Li Keqiang and is the No 2 position in China.
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• Every year in the summer, the power brokers in China retire to a coastal town called Beidaihe , where all the skullduggery, bargaining and negotiations happen. Each faction tries to get its people on to the Politburo and the Standing Committee. Usually most of the big decisions are made here on the beach behind thick closed doors. This is the real "election" in China. The Beidaihe meeting happened last month and this blogger is mystified that not only have there been very little leaks, there has been scant reporting in the press as well. Next to the US elections, this is the most important political activity in the world. And we don't hear even a squeak.
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• In the last two peaceful transitions, at the end of the first of the two terms of the incumbent leaders, the top of the subsequent generation is usually nominated to the Standing Committee. This gives the clue as to who would subsequently take over as leaders. If the past 20 years is a guide, then this should happen in the current change and the successor to Xi Jinping who would take over 5 years from now, would at least be indicated. But as we would see in subsequent posts, there is a good chance that this won't happen.
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In the next post, we will assess the current political landscape and who are the power brokers in China.

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Letting go

When your child is born, it is probably the greatest moment of your life. It's your child. It is the creation of you and your partner. It's a new life created out of the blue. And only because of you.

You then slog your butt off to raise the child. You shower it with love and affection. In the first years of the child's life, you don't have a single night's sound sleep. You worry about your child every minute. You take joy in every smile and gurgle. You get terrified if the child were to as much sneeze.

As the child grows up, you continue to sweat over it. You work hard to earn money to provide for the child. You are willing to sacrifice anything to ensure a top quality education. You try and impart your values. You even discipline the child when she does something wrong. You have every possible aspiration for the child - she will be famous, she will be wealthy, she will excel; above all she will be happy. You even transfer your own aspirations, which you were not able to achieve, on to her.

All too soon, the child grows up. She is now a teenager. She has her own wishes. She does not want to ask your permission for everything. She perhaps listens to music that you cannot even understand how it could be called such. She wants to stay out late. You want to impose your will on her, because in your eyes, she's still the baby and you want to protect her. She rebels. You argue. 

And then, in the blink of an eye, she is an adult. She leaves home; first to study somewhere else and then to work and be independent. You have a lump in the throat. 

What do you do as a parent ? You have to let go.

What if she wants to marry somebody from a different world and the polar opposite of what you determine to be a "good man". You have to let her go and warmly and enthusiastically embrace both of them.

What if she takes up a profession (maybe singing in a night club). It's against all your values. But you have to let her go. Wish her every success.

What if she takes up something unpleasant. Like, say, smoking. You can certainly give her a hug and say quietly that this isn't good for her health. But is she going to listen ? No way. You have to let her be.  Yes, you can worry inside your heart. But that's all you should do.

You came from a very middle class family where you lived frugally and never bought anything for yourself. She decides to blow her first salary on 25 designer dresses. She flaunts bling. Yes, the neckline is too low. Do you chide her ? Of course not. You let her be.

The worst thing you can ever ever do, is to bitch about her to all and sundry and say what a disappointment she has turned out to be.  You will gain absolutely nothing from it. You will only demean yourself in the eyes of everybody else. And she is not going to be one inch different.

For you see, its her life. The values you tried to drill into her are all very much there. She just sees life very differently from you. That doesn't mean she doesn't love you. It doesn't mean that she is "bad". She is just she. The angel she always was, is, and will be. Let her be.

I know its not easy. But its a mark of your greatness, if you can let her go. It does not negate the immense effort and everything you have done for her.

Mr Murthy; I am talking to you.

For those readers who are not following Indian business news every day, this post was prompted by this news.

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Job losses in India too ?

My good friend who goes by the moniker of Vaingluory, at least on my travel blog, messaged me drawing attention to this story .  The opinion piece from a headhunter is titled 'Expect 100,000 to 200,000 Jobs to be Lost Every Year For The Next Three Years' .

There is a lot of hyperbole in this - I don't think India is going to lose jobs at that rate. Certainly not from the IT industry . But there is an undercurrent of truth , and there is a chill wind coming.

In the last 10-15 years, India, especially in the IT and BPO sectors has seen a pace of job creation that has been unmatched in its history. The impact this has had on people's lives is very visible in India's cities. In any other country, these job numbers would have been a spectacular miracle that would have transformed the country. India has a huge population and hence this is only a small wave in the ocean.

The young have come to believe that this scorching pace is the natural order of things and that anybody can get a job for the asking. Of course, this can't last for ever. The IT industry has matured and the rate of job growth has slowed down. That is only to be expected.  The days of "Tresspassers will be recruited" are long gone ! Companies are not recruiting in the same numbers. They are asking some underperformers to leave. Some have to cut their costs and so some layoffs have happened too. I do not see any evidence that there is going to be a large shrinkage of jobs ; there will be a much slower rate of growth and there will be some layoffs. But the overall numbers is not going to shrink in a short span of time.

But some global trends are inevitable and they will have a big impact. The most important of them is automation. This is an inexorable trend and will affect all industries including IT. This is going to be the single largest impact on jobs. It's a global problem without any easy answers.

The second problem in India, is agriculture. Agriculture has always been the sponge - the vast majority of the Indian population is employed (more accurately underemployed) here.  This sector is increasingly becoming financially strained, for reasons that are peculiar to India . Small land holdings, a major water crisis, inability to make significant profits, and the extent of risks for which there are no commensurate rewards. All these make agriculture likely to shed jobs on a scale that will be gargantuan. This has profound consequences for India. Manufacturing or services simply cannot absorb this load and even if they could, there is a massive skill gap for agricultural workers to migrate to other sectors.

India has one big advantage - an already strong services sector which will keep growing. This has the capacity to absorb skilled manpower. Touch any area and India has actually a huge potential for job creation. Judges, policemen, health care workers, retail industry workers, logistics industry workers, even professions like carpenters, plumbers, electricians - everywhere we have a shortage of qualified people even today.  Jobs will keep getting created in each of these trades. Many of them will be self employed . Many of them  may be in the government ; for example if we have to have a policemen to population ratio that is even remotely comparable to other countries, we will need to add millions of policemen. Ditto judges. Ditto nurses. 

The issue is skills. India has a young population that is extremely keen on education and willing to work hard. It lacks a real effective skill building initiative. The National Skills Development Corporation, if it really does its job, can transform India.

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Beggars in Nigeria will start paying tax !

So says the Finance Minister of Nigeria. Beggars will have to pay taxes. Apparently some beggars are earning millions in Nigeria. Perhaps its fair enough that Mrs Adeosun , the Finance Minster said “proceeds from begging are taxable. You are supposed to pay taxes even if your means of income is begging”.

Nigeria is a notoriously corrupt country and tax evasion is blatant and has been elevated to a fine art.  Hence the startling "fact" that beggars are earning millions. Nigeria should, by all rights, should be a very prosperous country. It has oil wealth and is a net oil exporter. It has a  young , bright and growing population.  It has a decent education system and some of the ablest people in the African continent. It is a large economy - second largest after South Africa.  And yet, it is a huge underperformer economically. 

Periodically the Nigerian government tries to tackle corruption and the also shore up the country's finances. Bolstering tax revenue by cracking down on rampant tax evasion keeps getting tried periodically, but with not much success. The latest is the Voluntary Assets and Income Declaration Scheme ( with the unfortunate acronym - VAIDS) . Good luck for the latest attempt.

India suffers from similar evasion, with its own home grown quirks. Agricultural income is not taxed , but much of what is claimed as agricultural income has nothing to do with farming. Similarly the tax entity called Hindu Undivided Family is nothing but an institutionalised way to manage taxes.  The irony that "Undivided" and "Family" cannot be put adjacent to each other when it comes to money matters is completely lost on Ramamritham !

The United States being the leader of the world in all matters offers a rich variety of such dodges in the law. Walt Disney in Florida and other big landowners collectively dodged $950 m in  taxes by renting a few cows to graze on their large land holdings and thereby qualified as agricultural land inviting lower taxes. And since two of my usual commenters are from the great state of Oregon, they may wish to declare that two of their limbs are useless and thereby earn a tax credit of $50 !

Back to begging. Actually no country exempts the proceeds of begging from taxation. If your earnings from begging exceed the minimum threshold, you have to pay tax on it anywhere in the world. Mrs Adeosun was only stating an universal truth ! Beggars of the world, beware !!

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