Olympics
Mark China's
Second Coming
By Muhammad Cohen
07 August,
2008
Asia
Times Online
HONG KONG - They are describing the 2008 Summer Olympic Games as Beijing's "coming-out party", but that's incorrect. A debutante, no matter how big, just gets one coming-out party, and China had its moment in 1997. That event was called the Hong Kong handover from British rule.
The handover was just 11 years ago, but China and the world have changed enormously. More telling, so have global attitudes toward China and China's attitude toward the rest of the world.
The handover put China on the global center stage for the first time since the Tiananmen Square massacre in 1989, which was closer to 1997 than 1997 is to today. The deadly crackdown on peaceful anti-government demonstrators made China an international pariah in many circles. Just as international memory of that debacle was fading in 1996, China launched a series of missile tests in the Taiwan Strait ahead of Taiwan's first presidential election. In response, the US dispatched an aircraft carrier to the strait barely 15 months ahead of the handover, indicative of the doubts about China living up to its promises in Hong Kong.
'The world will be watching'
When the handover night came on June 30, 1997, even though China had an invitation to the party, it was still the country cousin, and people counted the silverware when it came to the table. The team that had orchestrated the Tiananmen crackdown still ruled, except for Deng Xiaoping, who died in February 1997.
As an international outsider taking sovereignty over established Hong Kong, China had to prove a lot to the global family. There were questions about whether China could behave properly among the global establishment and keep its commitments to Hong Kong. "The world will be watching," US secretary of state Madeline Albright warned when she came to town for the ceremonies.
Hong Kong residents, even if they were proud to have Chinese rather than foreign colonists in charge of the city, were also worried about possible changes on the landscape. We worried about the free flow of information, we worried whether lower-salaried mainlanders would take our jobs, whether border controls would stay in place, whether we could still hold a candlelight vigil every June 4 to remember Tiananmen. No one ever said so, but the large number of pregnant women around town during 1997 suggested latent fear the mainland's one-child policy would migrate to Hong Kong.
Between worries, we confidently enumerated all the ways we Hong Kong sophisticates would enlighten the mainland on complexities of modern business and living. We expected that China would need decades to catch up with us. The Basic Law hammered out between Britain and China promised 50 years with Hong Kong's "way of life" unchanged; at the end of those 50 years, we believed China would have become much more like Hong Kong. We were also convinced that the economic freedoms China was experimenting with - and in 1997 China, mainland stock markets, foreign investment, and even private ownership were still experiments - would inevitably produce political freedom.
'Rich is glorious'
After nearly two decades of reform, the Chinese economy in 1997 was wobbling on training wheels. A speculative boom followed Deng's 1992 visit to the southern special economic zones to re-energize reforms. "To get rich is glorious," Deng declared, and Chinese rushed to glory by any means, legal or otherwise. The resulting binge became a bubble, and the central bank to end the party with big interest rate hikes to rein in speculation and tamp down inflation. In 1997, as high rates stalled growth, the Chinese economy looked decidedly mortal.
Foreign companies brave enough to invest in China in 1997 still found the domestic market of 1.3 billion consumers a distant rumor. Even in the wealthiest urban areas, annual disposable incomes didn't reach US$700. The potential that excited foreign minds since the 1840s and spiked with China's opening during the 1980s had given way to the realization that heavy regulation and tight controls on foreign businesses plus cut-throat competition from Chinese companies and rampant counterfeiting made it virtually impossible for outsiders to succeed.
Even the Marlboro Man galloped into the sunset; US tobacco giant Philip Morris couldn't get a joint venture partner to make cigarettes in China and Beijing wouldn't aggressively police product piracy, so it withdrew from the mainland market.
While the handover held the spotlight, developments just over the horizon loomed to transform China's place in the world. Less than 48 hours after Hong Kong's return to China, Thailand floated the baht, triggering the Asian economic crisis. For some Asian countries, such as Indonesia, the impact of the crisis has been as devastating and widespread as the West's Great Depression of 1929, with tens of millions thrust from the middle class back into a cycle of poverty and despair that persists today. For other Asia tigers - South Korea, Thailand, Malaysia - the crisis proved to be a steep, but temporary, detour on the road to the next economic level. For China, the crisis changed everything.
The crisis was rooted in Western money that came to Asia as portfolio investment - equity or loans - denominated in US dollars. That so-called hot money helped finance thriving exporters and businesses catering to expanding local markets, driving genuine economic growth. With local currencies pegged to the dollar, the formula worked. But when Thailand broke the link, hot money ran, and borrowers needed more baht, rupiah and ringgit per dollar of repayment. The tough times also laid bare the extent of crony capitalism and corruption in the region, and foreign investors could no longer ignore it.
Summers romance
As the crisis deepened and spread, the US dispatched its deputy Treasury secretary Lawrence Summers to Beijing. The Bill Clinton administration feared China would devalue the yuan to maintain competitiveness, plunging Asia into a new round of devaluations and dooming recovery prospects. Summers met with then-deputy premier and Bank of China governor Zhu Rongji. Deng had said, "Zhu Rongji is the only one who understands economics." But unlike most of China's business and government leadership dealing in the dismal science, Zhu wasn't a fast-buck artist. Old school down to the well-oiled part in his hair, Zhu wanted to ensure his mentor Deng's market reforms would outlast the two of them.
Delighting Summers, Zhu said China wasn't considering devaluation. For several reasons, Zhu placed China and the US on the same side in the Asian crisis. He also realized China could find more sustainable post-crisis prosperity by taking a new tack.
Asia still had two-thirds of the world's people and its cheapest production base, but the crisis had shattered the old model for foreign investors. China offered a refreshing alternative. Disdaining hot money from portfolio investors (back then), China wanted joint ventures bearing jobs wrapped in bricks and mortar, and it wanted them more than ever.
The Asian crisis choked off one of China's key avenues for foreign investment: ethnic Chinese in Southeast Asia. So China needed to extend its net further to find new investors, and Zhu Rongji was the right guy to haul them in.
Joining the club
In 1998, Zhu succeeded Tiananmen hardliner Li Peng as premier. Zhu immediately reached out for Western investment and focused on joining the World Trade Organization (WTO)to help raise investor confidence. WTO membership would also accelerate the pace of China's economic reforms and make those changes nearly impossible to undo. China largely honored its commitments to Hong Kong, boosting confidence that Western companies could do business in China without Red Guards burning the factories and reeducating the managers.
Under Zhu Rongji, China must have seemed like a puppy dog eager to please the West. It provided Western companies with a platform for investing in Asia and, as a WTO member - it formally acceded at the end of 2001 - accepted imports on much fairer terms. It was in the midst of that quantum leap in enthusiasm about China that Beijing was awarded the Olympics, in July 2001. At the time, China even promised to improve its human-rights performance in the spirit of the Olympics.
But the modern Olympic spirit is all about money, a good fit with today's China. Surging foreign investment over the past decade has made China the world's factory floor, a central player in the global economy (reducing Hong Kong to a footnote), rather than the emerging sideshow it was in 1997 and even 2001. Today, China has the world's leading trade surplus and its largest foreign exchange reserves, including the world's biggest horde of US Treasury securities.
Rather than a coming-out party, the Olympics signal a coming-in party for the house that Mao built as a full-fledged member of the global establishment that dismissed it as an interloper in 1997. Don't expect anyone to be hard on a new club member and business partner for occupying Tibet or other human-rights shortcomings. Largely thanks to the accident of the economic crisis and the policies of Zhu Rongji, the puppy dog of 2001 has grown into a 70 kilogram pit bull that no one dares cross.
Former broadcast news producer Muhammad Cohen told America’s story to the world as a US diplomat and is author of Hong Kong On Air (www.hongkongonair.com), a novel set during the 1997 handover about television news, love, betrayal, high finance and cheap lingerie.
Copyright 2008 Asia Times Online
