China’s new way to capitalism – The WTO-column

Microsoft's Bill Gates
(later also in Chinabiz)

When Bill Gates coined last week at the World Economic Forum the Chinese style of developing their economy as a “brand-new way to capitalism”, he probably did not have the tribulations of China Unicom in mind.
Since its start in 1994, the company did get its part of the erratic policies, that drives managers in this country, Chinese and foreigners alike, so often into despair. When it started off it was not meant to be a success, but was mainly ‘proof’ for the outside world that the de-facto monopolist China Telecom competition would be possible.
When then-premier Zhu Rongji at the end of the 1990s actually finished off China Telecom’s monopoly, he had another present for China Unicom. Next to its emerging GSM-network, Unicom was forced to deploy also a CDMA-network, a present of Zhu for his US-partners during a state visit.
So, when China Unicom lost senior managers to its competitors, earlier this year rumors emerged its might be split, not split and then partially merged with China Netcom, there was actually nothing really new happening.

So what did Bill Gates have in mind when he displayed his concept of this already heavily disputed road to a ‘brand-new capitalism’, with low wages, intelligent leadership, low medical and legal overhead, and huge surplus labor pool? Well, compared to Gates’ home country that might constitute a difference. But despite those low wages, and perhaps because of the low legal overhead, companies like his Microsoft find it anyway hard to make any money in this Chinese market.
He must also not have thought about the market for generating power. This beautiful example of the Chinese way of doing business shows also its overwhelming inefficiency. Trying to make use of the current shortage of electricity, local governments started to build illegally power generating unites that would have led to 30 times the current power capacity – if the central government had not stepped in after construction had already started.
Foreign industries have fled this battlefield of extreme irrational investments, since it was obvious that even because of the lack of coal it would be highly unlikely those power stations would ever be able to become operational.
This pattern of irrational investments into overcapacity is all too familiar. Putting a real figure on this kind of inefficiency is hard. For each dollar worth of product produced in China, it uses between four and eight times the energy the US needs, depending on what way of counting is being used.
In theory, in this brand-new way to capitalism, smart governance could make China even more competitive than it is already, when it could reduce its inefficient usage of resources. But in China the problem with smart policies is that they often do not survive in the chaotic and uncertain way China develops. Bill Gates still view China in the classical top-down way it should operate according to the outdated communist handbooks on how to operate a country.
In real life China is extremely hard to administer. That is a pity in the case of smart policies, but a blessing for the less smarter ideas. In this gigantic experiment with the chaos theory often the most ideal solution surfaces. But certainly not always.

Fons Tuinstra