A trip to the countryside

One morning in Xi'an, I wanted to go to the countryside. So I went to a nearby shop and rented a bicycle:

   

The best way to get to the countryside seemed to keep straight South, so I just started cycling. Traffic in central Xi'an was dense and interesting, with heavy loads being transported by simple means.

Eventually, the tall skyscrapers were replaced by lower buildings, and the road started to climb slightly. Behind, one could see the city center and the television tower disappearing in the mist.

Slowly, the roads became dustier, the traffic less dense, until the landscape had all of a sudden no longer an urban but a rural feel. 

After some time, I passed through a sleepy village:

 

Along the road, there were some nice old bridges. One of them was bordered by willow trees, and an old man with a straw hat was just crossing. It all looked very Chinese.

Then I met these guys. They told me that the mountain in the background was called "Wutai Shan", just like the famous "Wutai Shan" in Shanxi province.

In the next village, I stopped to have an ice cream. Some children from a nearby school also passed by to buy some sweets.

Soon, we were taking funny pictures:

Eventually, most of the school must have come out, and there was a lot of commotion on the tiny village street that had been so quiet just a few minutes earlier. 

Then I was again alone one a small road. From the large wheat fields, one could easily see that the main staple food of the region was bread and noodles. 

In a village on my way back, I bought some water in a shop and had a chat with the friendly owners.

Later in the afternoon, back in Xi'an, I took some zig-zag routes and lost my way. The subburbs of big Chinese cities all look somewhat similar, and are sometimes not easy to navigate.

But then, like an old friend, the TV tower peered round a corner, and I knew that I was on the right track.

Mushtaq Khan

The economist who inspired me to start a PhD was Mushtaq Khan, professor of economics at the School of Oriental and African Studies (SOAS) in London, where I studied for an MSc in development economics a couple of years ago.

SOAS has a couple of inspiring economists, and Mushtaq is one of the best. After each lecture, we went home enthusiastically discussing new ideas.

It was the big questions we were discussing. How, as a policy maker and economist, can you help a poor country to grow?  Why are some countries so much more successful in promoting growth than others? Why did catch-up work in South Korea, but much less in India, and not at all in so many African countries?

Apparently, the policies advocated by the big international institutions were not really the solution. I still remember a couple of graphs from Mushtaq's lectures:

Aggregate property rights and growth 1980-90 (source: Khan (2006))

Aggregate property rights and growth 1990-2003 (source: Khan (2006))

Rule of law and growth 1990-2003 (source: Khan (2006))

Corruption and growth 1990-2003 (source: Khan (2006))

What these graphs show is that different indicators for good governance such as secure property rights, rule of law and low corruption are not preconditions but outcomes of successful economic development.

The blue group are rich countries with good institutions. The red group are poor countries with bad institutions and low growth rates. So far, so good. But the green group are poor countries with bad institutions and high growth rates. Apparently, they are growing fast not because of good institutions, but because of something else.

Of course they would probably grow even faster if they had also good institutions, but putting into place decent institutions before reaching a certain level of prosperity is almost impossible in many poor countries. So finding this something else becomes the crucial question.

China is a good place to start searching. The country still has huge problems with corruption, insecure property rights and poor rule of law, but has been growing at almost 10% for the last 30 years. There seem to be a couple of key conditions in place that keep growth going.

One key condition are the incentives faced by Chinese government officials. The overarching incentive they face is to assure high growth rates. Although many are apparently still happily taking bribes, they would never ask for sums that could cause the failure of a business project, as a successful growth record is the decisive criteria determining a possible promotion. Now, how to put such pro-growth incentives into place is the real question.

Here the man who led China out of its Mao era troubles, Deng Xiaoping, played a key role - see a later post on this, with a couple of links to nice quantitative papers on China's incentive system. 

If you are interested more in detail in Mushtaq Khan's research, one of his lectures is available on youtube:

Selling Super-Soap in Xi'an

The old Muslim quarter in Xi'an was once point of departure of the Silk Road in China. The saying goes that the Hui people living there today are direct descendants of the Arab traders who travelled the Silk Road in ancient times.







Even today, walking through the streets of the Muslim quarter gives you a distinctive Silk Road feeling.

 

  

 All generations are actively involved in trading, and everything has its price:

Some people though just sit by the street and enjoy watching funny strangers.

At night, the streets are illuminated by light bulbs, the trading goes on, and in many places food is offered:

 

One afternoon, I came upon a merchant who was loudly advertising the benefits of the soap he was selling:

 

If you happen to dirty your shirt on the chain of a motorcycle, this is no issue. Super-Soap will solve your problem in no time: 

 

Sometimes you might spill a few drops of ink on your shirt while practicing calligraphy. Nothing to worry about if you have super-soap at home.

Some people in the audience had rather dirty trousers. The merchant volunteered to solve the problem on the spot:

  

After such compelling demonstration, the audience was convinced.

 

 

I also bought some soap:

Unfortunately, the product displayed some unforseen features. When I arrived at home after my travels in China, the soap had successfully absorbed a lot of liquidity, and had transformed itself into an interestingly smelling, crumbly pulp:

The Bo Xilai Affair

Bo Xilai

This year, Chongqing has been the theater of one of China's most significant political scandals during the last 20 years.

Its popular mayor Bo Xilai, former minister of commerce with ambitions to the highest positions in party and state, was ousted in March in an affair that included his police chief seeking refuge in an American consulate, and his wife being accused of murdering a British businessman.

Bo had been popular in Chongqing for pursuing generous social policies, and cracking down on crime and corruption. However, due to his use of Maoist slogans and an often intransparent, hands-on approach of doing business, his opponents accused him of 'neo-leftist populism', and of undermining the rule of law.

In early May, posters of Bo's campaigns were still widely visible throughout the city:

The Bo Xilai affair with its multiple layers and meanings offers a range of interesting insights into the otherwise obscure world of Chinese politics.

First, the scandal permits a glance behind the facade of party unity, which had been carefully maintained since Tiananmen. It reveals how different factions struggle for power within the party. Some of these struggles have their origin in the 1980s and before, and are now continued by the children and followers of politicians that occupied prominent positions during the early years of reform. John Garnaut has an excellent article on this in Foreign Policy, the ideas of which he further developed in a recent book on the topic.

Second, the affair reveals the nervousness that always accompanies a leadership change at the top of Chinese politics. 2012 is an important year, as 7 of the 9 members of the Politbureau Standing Committee (the highest and most powerful decision-making body in China) are going to be replaced.

Using Chongqing as a platform, Bo Xilai conducted an agressive campaign to recommend himself for one of these posts. However, it seems that he was not able to secure enough support in time, so that his opponents managed to bring him down before he was able to make himself untouchable by becoming a member of the country's top leadership. A reason for the opposition Bo was facing might have been his use of populist Maoist slogans (e.g. as mobile phone messages sent to Chongqing's citizens), showing the deep fear the reformist faction in the Chinese government still has of a backslide into Cultural Revolution-style politics. It seems that a key objective of the group around Hu Jintao and Wen Jiaobao is to secure Deng Xiaoping's pragmatist legacy for the next ten years, and it is well possible that Bo's ascent was seen as a threat in this respect. 

Finally, the story also illustrates the intense competition between different economic models that is taking place across China's provinces. It is widely seen that this open and experimental approach played an important role in China's economic success during the last 20 years (see a recent book). Economic policies are tried out on a provincial level, before being implemented nationwide.

While the Chongqing-model favoured by Bo Xilai promoted a state-centered approach to stimulate investment and consumption, it is often contrasted with the more liberal approach implemented in the province of Guangdong (see this article in the Economist in favour of Guangdong, while a recent piece in Foreign Policy points out the advantages of Chongqing). In this light, the Bo Xilai affair can also be seen in the wider context of a struggle about concepts, ideas, and China's economic future during the next decades.