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Another hole in the Great Wall
Richard Delevan



SINCE around February 2004, manhole covers from around the world have gone missing. In the dead of night thieves pry them up from the street. They were sold on to scrap metal dealers, chopped up and were then pulled towards China by the magnetic pull of its raging industrial capacity. It began in neighbouring Taiwan, off the coast of southeastern China.

Then Mongolia. More than 150 manhole covers disappeared from Chicago's streets in a single month. Scotland. Montreal. Kuala Lumpur.

Scrap metal trade groups in the US and Britain have in recent months warned against theft of copper pipes from building sites, roadworks and even houses under construction.

China's economy is now nine times as big as it was in 1978.

The recent skyrocketing worldwide oil price, hovering for ages near $80, was more attributable to skyrocketing Chinese demand than to any other factor, some analysts have argued. The US is racking up enormous trade deficits. The Bank of China is the biggest buyer of US government debt that finances its budget deficit.

We were in a commodities 'super-cycle' as Chinese firms scoured the Earth looking to secure supplies of minerals and natural resources from Australia to Venezuela to Darfur, where the presence of Chinese military advisors and the increasing dependence of the West upon China has been sufficient even to nullify the power of the word 'genocide'.

China is coming. Or is it?

Author and journalist Will Hutton began writing his new book, The Writing on the Wall - China and the West in the 21st Century, with just that notion, he explained when we met last week in Dublin's Merrion Hotel.

"The opening chapter still has traces of my original idea - China is big and is coming to get us - but by the end I'd completely changed my thinking. I saw China as a much more vulnerable economy and society than has been presented in the West.

And I saw globalisation much more positively than when I began and saw China as less of a threat."

"China is a subcontractor to the West. Whoa - they haven't changed the rules of the game of globalisation - they still favour the West.

The book was a voyage of discovery."

There can be no denying that China is a big thing, Hutton says. And Western business and media have become almost obsessive on the subject. He argues, however, that China is in an unsustainable position. Its economy cannot continue to grow at this pace while it lacks the institutional software that was the Enlightenment legacy of the West: property rights and contracts protected by an independent judiciary; a free media that can hold corporate power to account; indepdendent academic institutions and free trade unions that can help protect workers.

On this last point he reveals a surprising statistic for a country that once wanted to be a worker's paradise. When Mao died in 1976 90% of the rural population had access to healthcare. In 2006 the figure was less than 5%.

As evidence that China is stuck as a subcontractor to the West, Hutton points to the fact that 30 years into China's historic recovery, it has yet to produce a worldbeating homegrown brand.

The acquisition of IBM's laptop business, now trading as Lenovo, is not a mark of strength, he says.

"Thirty years into Japan's [postwar] development we had multiple brands - Toyota, Sony. . .30 years into China's recovery and there's nothing.

The degree of reliance on foreigners to produce their export growth is double that of nations like the Phillippines, Malaysia, Indonesia."

"Patents in the US patent office - yes they're fifth in the world league table, but strip out the foreign companies and they're 17th. Peer references in scientific journals - they're 124th."

"This is an economy where you cut a deal with a corrupt official, not where you innovate. Innovation systems require pools of risk capital - there are none. It requires entrepreneurship free from political control - but you can't do that because at any time the Communist Party might take it off you."

Entrepreneurs in China, Hutton argues, have only been permitted to flourish outside of the 56 sectors the Communist Party has deemed 'strategic'. Enterprises with more than eight employees are required to have a Party cell - a rule to which Wal-Mart, which fights worldwide to keep unions out of its shops, recently bowed.

Small business owners might find at any time that their investments could suddenly gain a new partner if the Party decides it - as happened to Mark Kitto, a Welsh Guardsmen who set up three magazine titles in Chinese cities only to be forced into a joint venture with a party apparatchik. But it's not only small businesses. eBay, the internet auction site that vowed to take China by storm, in recent weeks meekly agreed to become the junior partner in a joint venture with Chinese internet company Tom. And anyone who needs reminding that Western businesses of whatever size must do business on Chinese terms need look no further than Google.

"When you're a multinational when you're JVing with somebody you're doing it with the party. Banks, provincial party bosses. If you offend the party bosses they'll instruct the courts not to find for you in a contractural dispute."

The omnipresent corruption in the Chinese system threatens to compromise those who do business with it.

"China is a minefield and I think that a lot of Western reputations are riding for a fall. The only way you get there in the end is by sweeting palms. Bribery is absolutely rife. The notion that all these Western companies that are doing well in China are not actually part of the general corruption is risible."

"I advise our auditing firms to be very wary about signing off accounts for quoted companies [doing business in China] as being true and fair.

They don't know what they're auditing really. My advice to people considering getting into China is that you have to be in areas that are nonstrategic. Don't JV because you'll be partnering with someone under party influence, you'll eventually get sucked into corruption and it'll be very damaging to your reputation."

In the end, the dodgy dealings, environmental despoilment and fantastic waste that are the foundations of Chinese economic success will combine with a political crisis that Hutton predicts will hit around 2012 when current president Hu Jintao leaves the scene and a new generation of leaders take power without any of the lingering legitimacy of the revolutionary generation.

In the book he outlines a number of doomsday scenarios around this, and though he puts the probability of any one of them at around 10% or less, the potential disaster is so huge that anyone who could be affected by a China crisis - which at this point is all of us - needs to be mindful. The only solution, Hutton argues with a tone that sounds quite different from some of his earlier work, is the spread of Enlightenment values to undergird China's economic success. But the signs are not promising, Hutton says.

"Talk to businessmen about China and they'll say, 'it's moving in the right direction and they'll get there eventually.'" "Actually they won't, " he says emphatically. "China's going backwards."




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