• Thu
  • Jul 31, 2014
  • Updated: 1:24am

The crude consumer

PUBLISHED : Tuesday, 02 October, 2007, 12:00am
UPDATED : Tuesday, 02 October, 2007, 12:00am

Advisers on business practices in mainland China have built entire professions on helping investors avoid being cheated. Mainland Chinese have an international reputation for ripping off foreign businesspeople. Their rhetoric is always the same: mainlanders are poor, and have an inalienable right to cheat all other people and nations.

But most mainlanders do not realise that China is now one of the richest nations in the world, holding the largest amount of foreign exchange reserves in the history of mankind. At the end of July, its reserves had reached roughly US$1.4 trillion.

How things have changed. In 1980, China had a mere US$2.26 billion in foreign exchange reserves. By 1984, it was able to muster US$14.42 billion - enough to pay for seven months worth of imports, topping the International Monetary Fund's 'safe' standard of three months.

Foreign exchange controls were watertight: tourists had to declare every cent spent in the country or get shaken down by authorities. The government relaxed foreign exchange controls in 1984 and 1985, but that and other measures touched off a severe drain on foreign currency reserves, so controls were reimposed. In 1986, Beijing went so far as to ban consumer imports - unimaginable today.

By 1996, under the tight financial management of then premier Zhu Rongji and an aggressive programme promoting inbound investment, China's reserves broke the US$100 billion mark - a once unthinkable achievement. As China prepared to enter the World Trade Organisation, foreign capital flooded in on the smell of opportunity. The reserves doubled to US$200 billion by the end of 2001, and soared to US$818.9 billion in 2005.

Last year, China finally surpassed Japan as the nation with the largest foreign exchange reserves - US$853.6 billion.

Two decades after carefully guarding every cent in its foreign-exchange piggy bank, Beijing's fear now is not capital flight but rather inbound, speculative capital. The nation has been a continuous recipient of 'hot money' inflows speculating on the eventual appreciation of the yuan. Meanwhile, the mainland's residents and enterprises - who once jumped at any chance to buy foreign currency or put funds offshore - have begun dumping their accumulated foreign exchange funds in favour of the yuan. In the minds of many foreigners, mainlanders can no longer be considered poor. Instead they are the spoiled rich, replacing the Japanese as the top international consumers. Chinese tourists are welcomed throughout the world. From Turkey to the bazaars of Egypt and many other countries, merchants speak fluent 'business' Chinese - enough to entice tour groups into their shops and to make a sale. Anywhere in the world, mainland tourists can be found overstuffing their suitcases with every type of consumer-brand product to lug home, knowing that most of the luxury brands available in their own country are fake.

At home, local governments construct buildings that are bigger and more wasteful than in any other nation. Sometimes it seems as if they have poured more concrete than any other country in the history of mankind. They have spent vast sums in preparation for the narcissistic party of the 2008 Beijing Olympics, while disregarding the shambles of a health care system and a national educational programme that creates zombies out of children.

Massive consumption of cognac and a rush for the most expensive cars; building houses bigger than hospitals and golf courses that defy the looming water scarcity crisis - these things characterise China's new rich. Their contribution to the world is to completely redefine the notion of vulgarity.

Is class struggle a thing of the past?

China's massive foreign exchange reserve fund is a national achievement, which should be lauded. It gives the nation unprecedented power to handle international payment pressures; its people's vast supply of ready cash makes them the world's new top consumers.

Businesspeople throughout the world should feel no guilt about charging them a premium.

Laurence Brahm is a political economist, author, filmmaker and founder of Shambhala Foundation

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