The Chinese Communists are just such great capitalists

One more catch up post (we're in Mongolia as this was written)....

The title of this post was a quote from Jim Cramer, the loud, crazy guy on CNBC. But, its only funny because its true.

Shanghai

I visited Shanghai back in August 2000, for the wedding of my friends Misi and Don. Man, how things change...

Back then, I was amazed at how modern Shanghai was. Maybe it was the propaganda the media feeds us, but back then I expected China to be a very backwards country. Instead, Shanghai turned out to be a rapidly developing city which blended the best of old Chinese culture and new Western civilization. Examples:
- The ultra high-tech Pu Dong district was newly opened, with Oriental Pearl Radio tower, its crown jewel.
- The brand new Pu Dong airport was as beautiful and efficient as any in the world.
- The subway was new, clean, and uncrowded with ice-cold air-conditioning (a true gift in the 90 degree / 90% humidity weather).
- The newly constructed roads seemed comparable in quality to Europe and America's finest.
- The Shanghai Grand Theatre (where Don and Misi's wedding was) was a modern counterpart to Carnegie Hall.
- The temples and old town didn't lose any of their old charm.

A sample of the things that have changed:
- The reasonably new Shanghai Magnetic Levitation train (aka, MagLev) between the airport and downtown city area travels at over 430 km/hr (nearly 270 mph). I think Siemens of Germany had a lot to do with the technology, but am not sure. Regardless, its a remarkable feat of engineering.
- The Pu Dong district is now home to the Jin Mao tower (3rd tallest building in the world), practically all multi-national corporations, numerous high-end hotels, the "Super Brand Mall", as well as the aforementioned Oriental Pearl TV tower.
- In 2000, the roads were filled with countless numbers of bicycles and one model of Volkswagen; and taking the way too overcrowded buses resulted in numerous bruises from the elbows of your fellow passengers. Now, very few bicycles exist, the buses are bigger, modern, and more frequent, and already wonderful subway has been expanded to more areas.
- In terms of cleanliness, building quality and appeal of stores, the malls/shopping plazas/restaurants are equal to or exceed the finest in the US.
- Ferrari sells more cars in China than any other country save the United States.
- The city just has a "buzz/excitement" about it.

To summarize, back in 2000, I thought New Delhi was about 8-10 years behind Shanghai in terms of progress/development. Now, its more like 10-15 years. No doubt this acceleration is thanks to China getting its hands on Hong Kong in 1996. But regardless, New York, London and Paris should watch out.

Beijing
As Marie mentioned in a previous post, Beijing was the first city on this trip Marie and I both visited prior to meeting each other. In the November 2003, she visited her brother, who was studying at the Beijing Aeronautical University, while I went up there for a few days after Misi/Don's wedding. My conclusion from that trip was, for all the glitz and glamour of Shanghai, Beijing was a sleepy old government town that had a ways to go (think Albany, NY). Horrible pollution, terrible congestion, old factories, communist-era architecture (save the amazing Forbidden City, Great Wall and Tiananmen Square). My stomach losing the battle to street vendor "pork-on-a-stick" didn't help (won't go into any more details, but lets just say it wasn't pretty). Well, a ways it has come.

As everyone knows, Beijing is going to host the 2008 Olympic games, which has fueled rapid construction. Marie mentioned some of the things that have changed; so I won't go into much detail. Suffice to say, we barely recognized areas we previously visited, and never could have imagined how things changed so quickly. I guess when the government can say "hey, we're putting a building up where your house is. Here's $500, get a new place", things become a lot easier.

Goldman Sachs has predicted that in terms of economic size, China will surpass Germany in the next year or two (if it hasn't already), Japan by 2015 and the US by 2041. Considering their track record, its hard to bet against them, but...

Reality sets in:

...the rapid economic expansion of China's major cities has come at the cost of the common folk.

- Energy and the environment: All that construction needs energy; of which China's primary source is coal (not the cleanest thing). During our entire stay in the country, there was a very unnatural industrial gray haze in the sky (we didn't see the sun once). Many ex-pats in Hong Kong are worried about their family's health, and many companies are opening office in Singapore to address those concerns. China has chosen to go with the same "build first, clean up later", model that was successful in Europe (for example, the Rhine River was a dead river, but is now vibrant and healthy). It'll be interesting to see if they can "clean up" on a much larger scale. Beijing is spending $13 billion USD to clean up the air around Beijing in time for the Olympics -- we'll all watch to see if it works.

Also, much has been made of China's obtaining oil from non-humanitarian regimes such as Burma, Sudan, and others. The government's position is these are sovereign nations, and have the right to rule themselves as they see fit (those who cast stones...China executed the head of food and drugs for taking bribes!!!). We'll see if anything changes under the additional pressure that comes with being a global power.

- Health Care: Most of China's inhabitants are rural farmers that historically, those in power, such as Mao, always catered to. Nowadays, the farmers aren't so happy. Families from major cities receive drastically better benefits than the villagers that make up the overwhelming majority of the population. And in the current model, once a villager, always a villager. If a person moves from the village to the city, they are not given "city" benefits. Even a child born in a city to a family that migrated from the village is considered a villager. At some point, that's gotta change -- will it take a revolution?

- Corrpution: Another thing the farmer isn't happy about is corruption. They see the developments in the cities; meanwhile, they don't have access to clean water, schooling, and medical facilities, and their local politicians are skimming the little funds that were directed towards them. With the proliferation of media and communications, from satellite television to mobile phones (China Mobile is the largest mobile phone carrier in the world, and practically everyone here has one), the people are speaking. Demonstrations in villages and small cities are on the rise, and if the government expects its meteoric rise to continue, its going to have to address this.

- Population Control: As many of you know, to control population, the Chinese are only allowed to have 1 child. In the not-too distant future this could be a problem (not enough young people to support the elderly), but its probably manageable as as many other countries have overcome this issue. Just saying it'll have an impact on GS's 2039 prediction.

Not surprisingly, GS's prediction assumes China's growth will gradually slow from the current 8% to 3.9% by 2040. Presumably, that will account for hiccups along the way. The key will be to see how the Chinese government and the financial markets recover from those hiccups.