Saving face with China

My wife and I met in China in 1984. Since that time, I’ve closely followed what goes on over there.

Meng Wanzhou

Recently, the arrest of Huawei’s chief financial officer, Meng Wanzhou, piqued my interest. She’s the chief financial officer of Huawei, the largest telecommunications-equipment manufacturer in the world and is now, the second largest manufacturer of smartphones ahead of Apple and just behind Samsung. Canadian officials arrested Ms. Wanzhou as part of an extradition treaty signed with the U.S. where Huawei’s CFO faces charges of fraud. Apparently, she didn’t reveal the identity of a sister company used to trade electronic products with Iran violating U.S. trade sanctions with that country.

Shanghai, 1984

Like those from many Oriental countries, the Chinese do not like to lose face. Travelling in that country, I’ve always been careful not to embarrass any Chinese official for fear of the answer that comes most easily to their lips when faced with a request, “No.” “Can I get a room for tonight?” “No.” “I’d like a soft seater ticket to Hangzhou.” “No.” My worst interaction was with a store clerk who mocked me for pointing at merchandise I wanted stored behind the glass counter. Instinct told me to leave but I really needed food for the long train ride to Mongolia.

A couple of years back, I’d shocked my friends after consuming a couple too many barley pops when I blurted out that I hate the Chinese. In point of fact, it’s not the Chinese I hate. It’s the Chinese state. Of course, a traveller’s interactions with government officials have diminished dramatically

Shanghai, 2018

since I first visited in 1984. Back then, practically every interaction with a Chinese citizen was with an official. Everyone worked for the government. Some I got to know because I was studying at the Shanghai Normal University. Others, I depended upon to order food, book a room or bed in a hotel, or change the date of an airline ticket. The Chinese professors, translators and coordinators at the university, I really, really liked. The others, not so much.

Me and my green bike

Back in 1984, two economies existed in China, one reserved for foreigners, another for the people. Foreigners used the Yuan for currency. Chinese citizens used the Renminbi. Prior to visiting, I’d discovered that bicycles were the primary means of transportation in Shanghai and I could purchase one with Yuan from the “Friendship Store.” Regular Chinese had to wait or even years to purchase a similar bicycle so I could sell mine to a Chinese national for Renminbi when I returned home. The Renminbi could then be used to purchase items in stores that were supposed to be reserved for the Chinese and not foreigners. Of course, a tremendous black market existed whereby Yuan could be exchanged for considerably more than their equivalent in Renminbi. 

Kunming, 2008

I didn’t think much about this dual economy and how it might work for me until I returned to that country with my wife in 1986. We were in the city of Kunming and had rented bikes to ride around the city. Mine suffered a flat and without being in possession of a patch kit, I sought out the services of one of the local bike mechanics situated along the side of the road in various locations. Communicating my problem without words was not difficult and the elderly man quickly proceeded to repair my tire. A few minutes later, I paid the man less than the value of a Yuan or a matter of cents. It was then I realized the power of the two economies for an emerging Chinese economy.

Highrises in Guangzhou

Kathmandu market, 1986

When China was opened up to the West, companies could come into “Special Economic Zones” and hire Chinese workers to work in factories producing Western products for a fraction of the wage of a Western worker. These workers could then use those wages to purchase products and services in the Chinese, communist economy. A half-litre of lager beer at the university where I studied cost the equivalent of 25 Canadian cents. I didn’t need to pay the bicycle repairman anywhere near the value that service may cost in the West because he didn’t have to pay the Western equivalent for the products and services he needed to survive. A beer for him would cost 25 cents (or even less because the cafeteria where I’d bought my beer was for foreign students, not the Chinese. We would naturally be forced to pay more.)

You might argue that many developing countries share an inexpensive cost of living. That may be true. In 1986, we also travelled to Kathmandu where I remember overhearing fellow travellers bragging about getting a haircut for 10 cents when the normal price was 25. The conversation angered me because it was ludicrous for these individuals to care about paying an extra 15 cents for a service that was already absurdly cheap. As well, that barber would have to go out and shop in the same marketplace where rich Westerners also shop. I’m sure the barber could never dream of being able to afford a beer.

This would not have been the case for my bicycle repairman. He lived within an economic system where the prices he paid had no relation to the ones I paid for the equivalent product. Foreign companies setting up factories in the Special Economic Zones at the time could pay their workers almost any amount they wanted. After all, when the workers went home that night, they would be existing within an economic reality completely different from that of the foreigners who owned the company. Of course, the economic realities have changed dramatically since 1984. In that year, China’s GDP was about $260 billion USD. That same statistic in 2017 was $12.24 trillion USD. The Chinese now purchase many of the products they manufacture for Western companies along with their own which can be of equivalent or superior quality. Which brings me back to Huawei and the arrest of Meng Wanzhou.

The two Michaels

For fear of losing face, the Chinese are not going to let this rest. At least, not in the near future. Authorities have arrested two Canadians, Michael Kovrig and Michael Spavor, on charges of endangering national security. Then, Robert Schellenberg had his fifteen-year prison sentence for drug smuggling changed to a death sentence. Besides the two Michaels, Sarah McIver was arrested and then released over a work permit misunderstanding, another ten Canadians have been detained. The Canadian government have released a warning to “exercise a high degree of caution in China due to the risk of arbitrary enforcement of local laws.” That is, the ‘risk of arbitrary enforcement of local laws.”

They’ve also threatened Canada with repercussions should it not allow Huawei to be used for its 5G

Winnie outlawed because of his resemblance to Premier Xi 

networks. The Chinese ambassador urged the federal government to make a “wise” decision when reviewing the use of Huawei technologies in Canada’s 5G telecommunications. Meanwhile, Japan, the U.S., Australia, New Zealand and the U.K. have all banned the use of Huawei networking equipment in their countries.

Prior to the phenomenal economic growth in China, Western scholars believed that a free market economy was not possible without a liberal democracy because economic freedom requires the protection of private property and the application of the rule of law. Francis Fukuyama theorizes that, although Chinese courts don’t strictly utilize the rule of law, the rule of law is administered just enough to make capitalism work.

That remains to be seen.