Monday, September 16, 2013

Book Review: The Chinese Dream by Helen H. Wang

For three decades, since China began its reform in 1978, its economy amazed the world by growing in double digits, doubling roughly every seven years. When it first doubled, most pundits pooh-poohed the growth as coming from a small base. When the economy doubled again, some say it couldn’t possibly go on. Then it doubled and some predicted a pending collapse. Despite the dire forecasts, it doubled yet again.

Finally, China’s economy stopped growing in double digits, but it was not because of any of the reasons given by the western pundits and economists. The economy slowed to below 10%/year because of the global slowdown triggered by the bubble created by America’s Wall Street in 2008.

The credit default obligations and repackaged subprime mortgages brought the American economy to a virtual ruin while the European and Japanese economies actually contracted. China managed to grow at “only” around 8% per annum, which means doubling every ten years instead of seven.

Suddenly, the world’s equity markets began to take notice of China’s economy, by now the second largest, second only the U.S. Today when China’s manufacturing indices decline slightly, all the stock markets take a tumble. Conversely when China’s indices changed positively, all the world’s equity markets brightened.

Despite the obvious linkage of China’s economy to the well being of the global economy, there remain naysayers that maintain their skepticism and believe that so long as China does not become a democracy, its economy cannot defy gravity indefinitely. It would be terribly tactless, of course, to point out that so-called democracies were the first to tumble during the crisis triggered by the collapse of Lehman Brothers.

Many mainstream economists now share the widespread belief that not enough of China’s economy is coming from consumption, that China needs to rebalance economic priorities away from too much dependence on fixed assets investments such as infrastructure building and to spend more and save less.

On the other hand, retail sales in China’s cities have been increasing at a rate nearly double that of GDP. We see young urban professionals living the life of conspicuous consumption; travelling overseas and sweeping the luxury goods clean off the shelves of high-end, name brand shops.

How can we reconcile the seeming contradiction of China’s need to have more of its GDP coming from consumption and the obvious over the top consumption behavior of certain socio-economic groups? One explanation comes from “The Chinese Dream” written by Helen Wang.

This book is an intensive study of China burgeoning middle class and how it came to be. The bulk of the book is devoted to personal interviews in China, from migrant workers to entrepreneurs, from laid off workers to those that got the jump start by taking over parts of state owned companies in the process of being privatized. By way of examples, the author illustrated that China’s private sector “is really neither private nor public” but a peculiar blend of capitalism with Chinese characteristics.

It’s not possible to explain the complexity of today’s China in any single book, but by her wide-ranging interviews and personal stories along with careful research and extensive footnotes, Ms. Wang has made an important contribution to understanding the attitudes and mindsets of upward and mobile young Chinese.

By understanding this social and trend setting group of largely urban professionals, it is possible to project China’s consumer behavior into the future. Just as China has become an integral part of the global economy, the Chinese customer will become an increasingly important buyer for all kinds of goods and services.

Whether you are interested in understanding today’s China as part of business planning exercise or for personal enlightenment, this book would be an excellent primer and starting point.