The Top Producer of Goods in the World Is Also Becoming the Top Consumer
There are a lot of people in China. This fact can seem like a bit of local color, a background association like France and cheese or Thailand and beaches. For people who live here, though, and especially for people who work here, population is a force like gravity, affecting almost everything else. Once you leave the well-trodden but narrow groove that exists to move tourists over the Great Wall and past the Terracotta Warriors, the country runs on its own logic, not because of any deep Chinese “essence” but simply because they’ve had to adapt to being populous, poor (on average), and increasingly urban.
If you rank the world’s countries by population, you get a gentle upward slope from Vatican City to the United States, unbroken by sudden jumps, and then, at the edge of the graph, there is a sudden discontinuity, a quadrupling of country size from the 350 million souls in the U.S. to the massive populations of India and China. The idea of a billion and a third citizens of any one place is such an abstract number it’s hard to grasp—to get to the population of the U.S., take China’s and subtract a billion. Like most places in the world, China is urbanizing, but, like most comparisons involving China, it is doing so at an intensity that makes ordinary description inadequate. The most populous parts of the country—the big cities of the east and south, plus a couple of inland empires—simply dwarf anything in the U.S. In urban China (an increasingly good approximation of the Chinese population as a whole) this means that any system that works well works under crushing load. China hosts the largest and second largest subway systems in the world, four of the top ten busiest, and is building out mass transit rail in twenty-five cities simultaneously. (Contrast the United States, where we can’t even get our high-speed trains to operate at high speed.)
And as quickly as the Chinese are creating new infrastructure, they are still falling behind, because urban growth and density are increasing more quickly. When I started spending time in Shanghai and tried to describe it to friends back home, I’d start with, “Imagine New York, but busy and crowded.” Even that, though, understates the case—China has between half a dozen to two dozen cities bigger than the Big Apple, depending on the urban area measured. Three of those—the municipalities of Shanghai, Beijing, and Chongqing—have populations larger than or roughly the same as New York state’s. The multi-city sprawl in Guangzhou—the Pearl River Delta megacity just north of Hong Kong—holds 44 million people, larger than the population of California, in just a tenth the area.
When national holidays synchronize movement, it makes for what the Chinese call ren shan, ren hai—people mountain, people sea—moving along in a crush of your fellow humans that approaches geographic scale. The long New Year’s celebration carries the same “to grandmother’s house we go” imperative that Americans associate with Thanksgiving, except with 700 million people trying to get to grandmother’s at the same time, making it the largest human migration on the planet.
This enormous demographic denominator can fry Western sensibilities about wealth and poverty. China is now, by some measures, the world’s largest economy, and will be so by all measures soon. Divide this wealth by the population, however, and China lags. Its GDP per capita is 20 percent below the world average, putting it on par with Tunisia and the Dominican Republic. Its neighbor South Korea has nearly triple the per-capita annual national income, while Japan, the U.S., and most of northwestern Europe have quadruple. China is rich, but the Chinese are poor.
Or at least poor on average. The fateful moment for the Chinese economy, crippled by central planning and collectivized production, was when Deng Xiaoping, China’s long-term leader after Mao’s death, announced that the country would pursue “Socialism with Chinese characteristics,” which is to say a market economy under an authoritarian technocracy. This was in 1977, as good a year as any for marking the birth of modern China. Deng and his associates undertook a job akin to that of a political bomb squad, laboriously dismantling most of the economic ideology installed by Mao without blowing up political continuity at the same time. That they succeeded is in many ways the single most important political fact of contemporary China.
It was also Deng who said, “It is OK for some people to get rich first.” Communist orthodoxy had made general advancement of the rural population their stated goal since the revolution. For Deng to say otherwise was a near-total break with previous economic theory. Since then, and especially in recent years, some people have indeed gotten rich first. China’s growth has been accompanied by the creation of such vast, concentrated fortunes that its income inequality now tops that of even the U.S. China’s previous two periods of rising inequality were both brief, and the result of collapses in the incomes of the poor, during the Great Leap Forward and the Cultural Revolution. Today is different—the incomes of the poor, even the rural poor, have been rising, but the incomes of the urban rich have been rising far faster.
Income inequality and the urban-rural divide are also mutually reinforcing. The big cities are increasingly where the money is. When WeChat, a Chinese messaging app like WhatsApp, added advertisements to its service, its parent company Tencent charged advertisers 40 yuan (about $6.50) per thousand users an ad reached. Tencent also gave advertisers the opportunity to specify that their ads would only reach people in Shanghai and Beijing, at more than triple the price. Simply being a WeChat user in one of those cities is a good proxy for wealth and splashy spending habits.
This disparity creates huge migrant classes in China, where men leave their villages or towns to work on construction projects in the big cities, and women leave to work as domestic help or factory workers, but they do so without being able to access a range of official government services—including, critically, the ability to enroll their children in city schools. Whole families have a hard time moving, because China’s internal passport system, the hukou, ties benefits (including schooling) to your birthplace. China was recently riveted and appalled by the suicide of four children in Guizhou province, who were living alone after their parents left to find work. Just as America outsourced its working class to China, China has created a worker class that can’t rely on state services either, using the same sort of displacement. Beijing recently relaxed the hukou system, but it is still enforced for the so-called Tier-1 cities like Shanghai, Beijing, and Shenzhen because the economic activity there is such a magnet that unrestricted immigration with the expectation of benefits could swamp those centers.
China calls its system of government socialist, but it has never been a welfare state, mostly because the scale of the population would shred any universal safety net. The last few years have seen an increased public emphasis on family ties. The news is filled with stories of sons who leave for the cities and don’t return, while daughters who don’t marry and have children before age twenty-seven are labeled “leftover women.” The state wants to rescue young people from poverty, then have them rescue their families, because the government simply can’t help everyone. If children don’t take care of their parents, there isn’t much in the way of Plan B, and with the one-child policy having produced millions of single-child families, it only takes one son or daughter shaking off filial piety to leave the older generations stranded. The interaction of the market economy and family expectations is the safety net for a majority of citizens.
For the first generation of modern China, opening up to the world meant becoming the world’s workshop, where outsiders supplied demand, manufacturing instructions, and raw materials. China’s only great advantage, an enormous pool of cheap labor, made the price attractive. Building a market economy that could lift hundreds of millions of people out of poverty couldn’t happen all at once, though. In the 1970s, the country was too vast, too poor, and too inexperienced. The first of the trial businesses set up north of Hong Kong at the beginning of the opening-up period was employed to dismantle ships for scrap, since there were not enough trained workers (or machinery, management, or investment capital) to building anything foreigners would be willing to pay for. From that rough beginning, China has taken on a larger amount of the world’s increasingly complex manufacturing.
The arc of the Chinese economy has bent from dismantling ships to assembling simple items for foreign firms to taking on increasingly sophisticated manufacturing jobs, and all the while building a domestic market for the growing number of citizens with at least some disposable income. All of this has happened at dizzying scale and speed. In the forty years since Deng kicked off China’s opening up and reform, hundreds of millions of people have been lifted out of poverty, and this in turn has made China not just the world’s number one producer, but its number one consumer for an increasing range of products as well.
The Chinese government is delighted to have most locally made products find a Chinese market. As the U.S. discovered in the 1800s, having robust local demand provides a degree of ballast in an otherwise export-driven economy, and rising local prices and rising local salaries can reinforce one another for a time.
The U.S., with its armies of manicurists and knowledge workers, may have become a post-industrial economy, but we don’t live in a post-industrial world. America simply shifted the business of making things five thousand miles to the left. Like every other bit of the world’s electronics, mobile phones have long been assembled in China, and like every other bit of electronics, the Chinese have become better at assembling those electronics than any other country in the world. If you want to understand hardware in China, you have to understand how intimate that country’s relationship is with the machines that run our lives.
Excerpted in Re/code. Little Rice: Smartphones, Xiaomi, and the Chinese Dream is out today.