What’s next for state capitalism? Still more investment than consumption.

The Economist just hosted a timely debate on state capitalism. I notice that even those who believe state capitalism is a legitimate alternative of liberal capitalism mostly agree that countries of state capitalism tend to have worse problems of cronyism and injustice. The Chinese government has been relying on economic growth to sustain its legitimacy after the Mao era, but now many people are starting to ask why their living standard does not seem to rise with our miraculous GDP numbers. So I believe the government will have to invest more in social programs that help to manufacture public consent. But the innate mechanism of state capitalism determines that these social programs will still end up boosting government-run investment rather than domestic consumption.

China’s Ministry of Finance has just released some data of 2011. In 2011, the total tax income of the Chinese government reached a new record of RMB 10.37 trillion, that’s RMB 9000 tax burden on every Chinese citizen; meanwhile, the average income of Chinese people in 2011 is only RMB 24000 (around USD 4,000).

People on the Bund

The government spent most of its money on fixed asset investment rather than social welfare. This is what has been driving the GDP miracle of Chinese economy. A lot of these fixed asset projects became a way that public money is privatized.  The corruption cases happened in the construction of high-speed railway are prime examples. The wife of the former head of the Ministry of Railway became a billionaire simply by supplying all the toilets for all the bullet trains.  No wonder some people say that, in state capitalism, public property is just the private property of power-holders.

It’s hard to imagine that the ruling elites are willing to give back the power and wealth concentrated in their hands, but they do have to protect its legitimacy and appease public discontent. One example of what they plan to do next is the ambitious Welfare Housing Project. The central government announced that from 2011 to 2015  it will build a total of 36 million welfare apartment for low income families. Continue reading

RedPad, a Pad Tailor-Made for Chinese Officials


RedPad, technology innovation from state capitalism

Can innovative entrepreneurship prosper in state capitalism? A Beijing company called Red Technology (红派科技) said “Yes” and announced its new product that aims to rival the influential iPad: the RedPad, a pad tailor-made for the Chinese government officials. The innovation of this RedPad does not lie in its hardware or software, it looks no different from other pads and runs on the Android system. What makes it stand out, according to Red Technology, is that it offers a unique information service that helps government officials to read the minds of top leaders of the central government and stay informed about public discussions online, also, it guarantees complete online privacy of its users. 

The RedPad sells at 9999 RMB each, twice as much as the price of iPad in China, though it offers a wholesale discounted price of 7100RMB to government institutions. Why would Red Technology think officials will pay such a hefty price for a copycat product? I think we should not under-estimate Red Technology’s ingenuity, at least, it has the profound insight that Chinese government officials live in a completely different world from common people, so of course the Internet means something completely different to them than to common people. The RedPad’s selling points indeed meet the specific demands of officials: to know what their superiors are thinking, and to control what their inferiors know and say about them. And high price is not an issue for people who are spending other people’s money. In RedPad, we see the kind of innovation that truly matters in China: Creative Ass-kissing, and the perfection of an established business model of state capitalism: privatization of public money.  Continue reading

Whose Chef Built this Railway We are Traveling On?

By Jin Ge

In October, another scandal about the high-speed train network in China broke out. In Jilin Province in Northern China, a section of the railway between the city of Jinyu and the city of Songjiang was founded to be built with trash and loosely glued together. Corruption was at the bottom of the quality problems, the official investigation team discovered that the construction project was outsourced to a group of workers with little construction experience, leaded by a person who is trained as a chef rather than an engineer.

At the end, this section of the railway had to be demolished completely by targeted explosion, all that solid melt into air. One can not help wondering, how many more corruption and quality problems there are remaining unknown in this high-speed train project that cost billions of taxpayer money.

Entering the Age of High-Speed Train@Jin Ge

The high-speed train network was a powerful symbol of the massive stimulus program launched in 2009. When the Ministry of Railway unveiled its ambitious plan in 2009 to invest one trillion yuan in a project that will connect the whole country with trains traveling at over 300 kilometers per hour, it was celebrated as a testament of China’s technological progress and the efficiency of government-driven investment.  On July 7 this year, after completing half of this monumental train network, the official speaker of the Ministry of Railway, Wang Yong Ping, proudly proclaimed that China’s high-speed trains are both safer and more advanced than those of Japan or Europe. But only two weeks after his speech, on July 23rd, two trains crashed in Wenzhou, which killed at least 39 passengers and injured hundreds. Continue reading