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Home , Lanzhou, Shenyang

cover story A Cornell-IIPM Think Tank-B&E Joint Study Inside Reflections on A changing China

Arthur C. Wheaton, Director, Western NY Labor & Environmental Programs and Faculty of Industrial Relations at Cornell University’s School of Industrial & La- bour Relations, after spending more than two weeks in cities across China, writes on the country’s evolving economic and social environment

n June, I boarded an Air Canada flight from Toronto I can confirm from my own experiences that the love of (Canada) to International Airport with my quality and luxury goods described by Helen Wang is accu- Chinese-born wife and our nine year-old daughter. rate. Thanks to insights from friends on this trip, I hope to Designed to help teach our daughter about Chinese provide to B&E’s readers a few glimpses of the economic culture and to improve her Mandarin language and social conditions of China today. Our friends either live skills, the trip was our first to in or work in Beijing, Xi’an, , , , Ieight years. or . Their are into banking, retail, We were fortunate to be able to visit some of the same stock trading, financial management, teaching or are mili- families and places that were part of our first trip. The tary officers and government officials in China. contrast between then and now in lifestyle and other The changes in the economic and social statuses of the trends was astonishing. On both trips, I filtered much of families in the eight years since my first visit are marked. what I saw through my lens as an automotive industry spe- All the families could be described as middle class to up- cialist for Cornell University’s ILR School. Cars are a re- per middle class. When I met these families in 2004, only flection of what has shifted in many elements of Chinese one owned a car. The rest relied on public transportation, life and I will report here on some of the changes. bicycles, taxis and friends. Today, all of them do. First, it is impossible to summarise China’s economic Then, we were driven around by one professional couple and social conditions. With more than 1.3 billion people – a senior banking manager and a financial manager – in living in China, there are too many perspectives to consid- their Toyota Camry. [The car’s trunk was large enough to er for a short answer. Statistics and data on China’s econo- take golf clubs to the private country clubs for our days on my are available from sources. What is unclear is how ac- the 180-hole designer golf course. Golf was not just a hobby, curately those numbers reflect the reality of the people liv- but an escape allowing them to unwind and be pampered in ing there. The statistics and economic data tend to focus style.] In 2012, this couple picked us up at the Beijing air- only on the highly developed regions of China and might port in their new BMW X3 SUV. The busy couple is now bal- not apply to all of China. ancing careers in separate cities, They live in Shanghai and According to Helen Wang, author of The Chinese Dream: Beijing and spend weekends and holidays together. The The Rise of the World’s Largest Middle Class..., there are husband rents an apartment in Shanghai, while his wife more than 300 million Chinese who are considered middle has a company flat in Beijing, where the BMW is class. That is nearly the population of the entire United parked. The couple has presently rented out their retire- States. The middle class has a growing discretionary in- ment home in Shenzhen. They plan to move into it when come and a growing force in the Chinese economy. A lot of they officially retire. We did not get the opportunity to play Chinese, especially young women consumers, are smitten a full round of golf this time, but did hit 200 golf balls at Arthur C. Wheaton Director – Western NY with luxury brands. They associate Western luxury brands the exclusive driving range. Labor and Environmental with quality of life and sophistication. They want restau- In Beijing, we put up at the 8.8 Hotel, about 3 miles from Programs & Faculty of Industrial rant meals, health club memberships and travel. They want the and Tiananmen Square and across the Relations, Cornell University’s to see the world. The restaurant business and malls are street from the wife’s corporate apartment. She told us not School of Industrial & therefore doing very well in the country. to drink tap water in Beijing. Even to prepare instant cof- Labour Relations

May 2012 9 cover story A Cornell-IIPM Think Tank-B&E Joint Study Inside China

fee and tea using the electric heater in How the Chinese auto market got its wheels spinning after the 1990s our room, she strictly recommended In 2005, Passenger Vehicles (PVs) outsold Commercial Vehicles (CVs) for the first time ‘only’ bottled water. The hotel had a 2000 45% tasty breakfast buffet for RMB 15 (- PV Sales (x10,000 units) an). That was about $2.50. An old CV Sales (x10,000 units) 1600 36% computer with Internet access was Growth rate (%; y-o-y) provided in the lobby. Interestingly, 1200 27% limited parking was available – if you honked the horn, the gated barrier on 800 18% wheels was opened by the front desk! Two-city families in China are not 400 9% unique. At least three other families

we spent time with, have similar cir- 0 0% cumstances and multiple residences. 1978 1995 ‘97 ‘99 2001 ‘03 ‘05 ‘07 ‘09 ‘11 The incomes and lifestyles have in- Source: China Association of Automobile Manufacturers deed improved since my 2004 visit, but life is more complex. The changes we saw in our friends’ lives occurred dur- open all night to register cars before the July 1 deadline. ing the same time their nation’s saw a burst of automotive The policy is a hybrid attempt to satisfy two constituencies activity. In 2004, China passenger car sales exceeded two – auctions favour those with more money, while lotteries million vehicles for the first time. China is now the largest allow a more egalitarian chance to own a car. Jing’an , Shanghai: The Jing’an Buddhist in the background is situated on West Road, in Shanghai province. To take a look of automotive market in the world. From January to June In 2004, a battle waged between cars and two-wheeled the inside of this piece of Buddhist architecture, you would require to pay a fee of RMB 30 (it is open between 8am and 5pm). This temple, built in 247 AD, was originally located beside Creek, but was relocated to its current site in 1216. Jing’an is close to Shanghai’s business hub. As such traffic 2012, China sold more than 7.6 million passenger cars. GM vehicles for control of the streets. Navigating major streets conditions in this city is growing worse by the day. With cities like Beijing and already having implemented policies to curb the growing auto and Volkswagen continue to lead the market in car sales required great courage for pedestrians and drivers. Bicy- revolution in China, we might soon see one of the laws to curb the growing number of automobiles replicated in Jing’an making large profits. cles were used to move furniture, appliances and multiple The booming economy and massive increase in car sales people, as cars whooshed by and honked their horns. In government workers, these funds can only be used to pur- ing, and travel was nearly nonstop for three weeks. We had are evident on the streets. Cars by Buick, VW, Audi, Volvo, waves, pedestrians attempted to cross the streets with chase a home. In their case, the decision to purchase the a great time soaking up the Chinese culture. Hyundai, Land Rover, Nissan and others are very common. few crosswalks or signals to help them. second home was driven by the desire to maximise the The shopping choices available were much greater than Some of the car brands rarely seen in the – Today, the automobile appears victorious in most large employee benefit while upgrading to a newer and nicer the United States. China has embraced luxury and name Peugeot, Citroen, Renault and Fiat – are also prevalent. cities. The economic expansion of 9-10% of GDP per year home. They can only use this government benefit twice and brands from Europe, Asia and North America. Levi’s, Cal- There were many other Chinese has given millions of Chinese citizens the city of Shenyang has even placed restrictions on the vin Klein, Estee Lauder, Coach, Nike, Canon, , and brands harder to identify except for enough discretionary income to live number of homes you can own in downtown areas. Sony could be found in every mall and most shopping cen- the fleets of Build Your Dream (BYD) Abundance of cars the Western dream of owning a We had the opportunity to visit four World Heritage sites ters. , KFC, Starbucks and McDonald’s were easy taxis in Xi’an. The abundance of cars home, driving a car and buying luxu- on this trip. The travel and tourist destinations available in to find and filled with happy customers. The prices for and limited infrastructure are caus- and limited infra- ry goods. Bicycles and scooters are China include an impressive 43 UNESCO World Heritage these goods and services were far more expensive than ing traffic jams forcing controversial structure are caus- seen more on side streets than on sites. To put this in perspective, according to UNESCO, In- traditional Chinese brands and often much more expensive policy changes to slow growth. The major roadways. But yes, besides dia has 29 and US has 21 such sites. We managed to see than identical goods sold in . restrictive policies also highlight the ing traffic jams, this change, taxis, subways and bus- the Summer in Beijing, the in Bei- After five days in Beijing, we were ready for our second tensions between the “haves” and the es still provide quick and easy access jing, the Great Wall, and The of Emperor - destination. We debated taking a train or flying 1000 km “have nots” desiring cars. forcing controversial for those without a car, and pedestri- Shihuang (and his Terracotta Army) in Lintong District, west to Xi’an. We decided to fly which cost about RMB1000 Shanghai began auctioning license policy changes to ans still face obstacle courses when Xi’an. These tourist and cultural attractions are awe-in- per person ($160 each way) returning to the Beijing Inter- plates in 1994 to limit car sales in crossing the street! spiring and eye-opening. The scenic and cultural sig- national Airport for our two-hour flight to Xi’an. China’s largest city. The rich can sim- slow growth in China The second family we visited in- nificance of these sites are quite impressive. Photos of While waiting for our flight, I explored the airport mak- ply pay more money to get what they cluded a government professional world leaders visiting these locations are proudly dis- ing some interesting observations. The airport terminals want. In Beijing, there is a quota of employee, a military officer and a played. The crowds of paying tourists purchasing souve- have special water stations dispensing free hot or cold wa- 20,000 license plates per month selected by lottery and teenage daughter. They live in Shenyang in prov- nirs help the local economy and help spread the news ter. The sign on the machine explains that this water is drivers are only allowed to drive 4 days per work week. Al- ince (in North-east of China) and flew to Beijing for some about the wonders of China. safe to drink and has been tested. These machines are not so, the city has implemented the odd-even licence plate sight-seeing and visit family. They now own a Mazda6 se- What caught my eye while visiting these highly regarded simple drinking fountains. They are more like free vending number system that allows cars with odd and even num- dan and two homes. places was the disparity between the “haves” and the machines with the option for boiling hot or cold drinking bers to be driven only on alternate days. On many occasions, the couple have to live separately “have-nots”. Outside and near the entrances of these parks water. Cups are sometimes provided. Many airport cus- During my visit, the city of Guangzhou had just imple- due to individual job responsibilities. Their decision to own are many eager entrepreneurs pushing their unauthorised tomers fill their water bottles with hot water for tea. mented its new policy for a 5,000 license plate auction and two homes also reflects the diversity in China’s complex goods and services to the visitors. Handmade crafts, local A second discovery in the airport involved wireless In- 5,000 plate lottery per month – total of 10,000 cars a housing market. Government employees in China have ac- fruit, souvenirs, toys and tour-guide and restaurants ser- ternet access. My iPhone had not been able to access wire- month. Instead of registering around 1,000 cars per day, cess to a housing fund and low rate financing. The housing vices are sold by aggressive unofficial vendors. less servers during my trip. After dozens of tries, I gave up registrations will be limited to 120,000 per year (less than fund is similar to a 401K retirement plan in the United The second family joined us on our visits to the Great on the effort until I returned to the airport. I happened to 330 a day!). Guangzhou announced this policy unilaterally States – the employer provides matching funds if the em- Wall, Forbidden City, Tiananmen Square, Summer Palace, notice a kiosk at the coffee shop that said something about and with almost no notice. Some car dealerships stayed ployee contributes a percentage of his or her wages. For Olympic and numerous restaurants. Shopping, din- Internet access. The kiosk inside the PEK airport required

10 Business & Economy May 2012 11 cover story A Cornell-IIPM Think Tank-B&E Joint Study Inside China

me to scan my passport in order to get a Wi-Fi password. stores are within walking distance. Restaurants tended to be informal Rise in China’s Per capita income shopping, desire for luxury name Having some time to kill before my flight I gave it a try. It The first of the new homes being built in Xi’an is a luxury and quaint. One discomforting as- GDP and earnings: Proportional change brands, and a willingness to spend

took six or seven attempts to get the website to accept the condo in a gated community. It will replace the primary pect however was sometimes paying Growth rate money on quality. The choices con- log in and password. About 10 minutes before boarding residence. We visited the lobby of the new high rise com- for access to putrid-smelling rest- 25% cerning travel, dining and shopping the airplane, I was able to download the subject line of my plex as the family pampered us with coffee, tea and luxury rooms. Per capita income of Urban residents were based on quality experiences. Per capita income of Rural residents emails. It did not download the full message but at long seating areas. It is in the brand new part of town that re- According to The Wall Street Jour- 20% Not cheapest prices. Having said that, Per capita GDP last I could see some email on my phone. That ended up sembles a mix of Beverly Hills, California, and Las Vegas. nal, China has failed to meet its tar- China does have plenty of choices for being the first and only time I was able to access a Wi-Fi It boasts beautiful landscaping, lots of bright lights, all gets for clean drinking water. Water 15% every budget and varied tastes. connection on my phone in China. I must however add that new roads and the best schools in the area. quality and sanitary conditions in the 10% On July 10, 2012 we boarded our Internet access does work there if you have a Chinese The second new home is being built in Shenyang, anoth- big cities have improved since 2004. Delta Airlines flight in Beijing to make wireless provider. The 388 million smartphone and tablet er ancient capital, and will serve as their summer vacation Large cities have drinkable tap water 5% our way home. We had a very busy and users are proof. home. It will be a shared duplex. That will allow them to that does not require boiling for enjoyable stay in China. We spent time When we arrived in Xi’an, we met family number three – spend time with the extended family and take advantage of about 80% of people. Smaller cities 0% with family and good friends. We saw a successful clothing retailer, his wife and twin daughters. the region’s cooler summer climate. and rural areas have a lower per- many cultural, historic and scenic -5% They have three homes already, and are awaiting comple- One big difference in Chinese home ownership com- centage. The Chinese government 1978 2010 sites. We left with fond memories, tion of two new homes in Shenyang and Xi’an! pared to US is the absence of an annual property tax. Once has not been able to achieve its stat- souvenirs, photos and a few lessons Source: National Bureau of Statistics of China We drove to their luxury high-rise home in a gated com- the home is purchased, it can be maintained for very little ed goals. The surrounding areas out- learned. munity in their high-end Camry. They hope to upgrade to a money beyond the utilities and maintenance. Home owner- side the large cities have many chal- The first lesson that I took away BMW X6 soon as SUVs are becoming more popular and can ship for the third family serves as an investment and a life- lenges remaining. Sales of Consumer goods was to be thankful for our clean drink- be very expensive. For example, a Jeep Grand Cherokee style choice. Driving in Xi’an is not for the faint Quick growth despite fears of a slowdown ing water. It was easy to forget that that costs $28,000 in US can cost as much as $84,000 in In order to cool the housing market, the city of Xi’an has of heart. The city is filled with very Growth rate (y-o-y) not everyone can just go to the sink or China after taxes and fees. placed a strict limit of owning two homes in the city. If you aggressive drivers that honk their 25% drinking fountain to get fresh clean We did not get to see the parking space. When they pur- currently own two homes in the city of Xi’an, you must sell horns and pay little attention to stay- water. In the poorer rural areas, out- chased their beautiful apartment, the parking was sold one before you can purchase another in Xi’an. Xian cannot ing in their lane or obeying traffic 20% side the big cities, access to clean re- out. They ended up paying about $30,000 for a parking restrict homes purchased in other provinces. signals. It was not unusual to have 5 strooms is a challenge. Finding rest- spot in the neighboring apartment complex underground While in Xi’an, we visited the Mausoleum of Emperor Qin cars trying to fit into two or three 15% rooms was not difficult. Finding a sit ramp. While cars are seen almost everywhere, parking can Shi Huang and the Terracotta Army. It claims to be the lanes of traffic. down toilet with toilet paper felt like a be a difficult and expensive problem. most famous tourist destination in China. The complex is Once outside the city limits we got 10% birthday present. The rationale for family three’s multiple residences is al- about 35 kilometers from Xi’an. onto the that required a toll. The second lesson related to access so complicated. The primary home is in Xi’an, where the The parking lots, restaurants, and restroom facilities The amount of traffic on the paid 5% to information and data. While in - twins go to school. A second home in their hometown of outside the official park can range from convenient and highways was very light compared to na, I learned Internet access is spotty. Chaoyang is occupied by the husband’s parents. The hus- clean to revolting. Many surrounding areas had souvenir the city. Driving was at much higher 0% While searching websites at my hotel band lives in Lanzhou, where two of the clothing stores are shops with affordable and interesting goods to sell. Park- speeds (we averaged about 120km/ Dec 2010 Dec 2011 and in friends’ homes, many websites located. He does not have a car in Lanzhou because the ing lots seemed safe with little apparent criminal activity. hour in the left lane) and people Source: National Bureau of Statistics of China were blocked. A simple search for an stayed in the proper lane. Trucks article on “Chinese debt levels” that I Scenes from modern China made up a higher percentage of traf- read on the plane was blocked by all (Clockwise from Right): Graduates from 28 universities fic in the middle and right hand lanes. Cars are able to the Internet web sites. The Wall Street Journal, Financial look for job opportunities at the drive at higher speeds and access the left lane. Times and other Western sources for financial data were Graduates Job Fair in Shanghai; Pedestrians walk past a We managed to visit several famous places in and near either limited or blocked when the topic searched was housing foreign Xi’an. We climbed Huashan () mountain, rode bicy- “China”!!! brand outlets in Shanghai; A restaurant in Xi’an; Customers cles on top of the Xi’an ancient city wall, walked the Huaq- The third and final lesson was that the growing middle gather at Apple’s second store in , Shanghai; Shoppers ing pools and ancient spas, and climbed the Dayan class in China is very real. Nearly everyone in Beijing I saw queue to enter a Louis Vuitton with its scenic city view. talking on a phone had a new model iPhone or other ad- store in a mall in Shanghai The fourth family we spent time with is comprised of vanced smartphone. The cameras were those of Canon, stock trader, fashion designer and teenage son. They flew Nikon and other high-quality brands. The cars I rode in to Xi’an to join us. They live in Shanghai and were more luxurious and expensive than what I drive at where their son goes to school. They own a Buick Excelle home. that stays in Shanghai. During my visit in 2004, they were Meanwhile, the poor in rural areas were begging for designing clothes and running a retail clothing chain. Sky- your empty water bottles to get the deposit money or try- rocketing prices for renting retail space and diminishing ing to sell you fruit. margins on clothing can make it a difficult business. They I look forward to our next trip to China. It is hard to pre- did not own a car and were in the process of buying a new dict how things will change in a few years. The Chinese home in Shanghai. They now sublet the former retail space economy is facing many of the same challenges as Europe, in Xi’an and closed the store. They seem to be much happi- the United States and other major economies. The focus on er these days and are looking for the best fashion colleges jobs is on the minds of leaders in many countries. China is in the world for their son to attend. no exception. What all four families had in common is their love for In July, China’s Premier Wen Jiabao said that ensuring

12 Business & Economy May 2012 13 cover story A Cornell-IIPM Think Tank-B&E Joint Study Inside China

employment is the priority of China’s development strate- at a meeting held in , capital of (as reported in gy. China’s labor situation will become more “severe,” he Xinhua Daily). said, underscoring concern that the weakest economic I do not own a crystal ball or claim to see into the future. growth since 2009 will lead to increasing job losses. The My feeling is that China will continue to be a diverse and government will continue to implement a more “proactive” growing country. The growing middle class in the cities labor policy, Wen said at a government meeting on employ- will continue to desire and purchase goods and services. ment, according to a statement posted on the central gov- China will face increasing environmental and economic ernment’s website. The job situation will become more challenges with strong, if unpredictable, governmental pol- “complex,” Wen said. To buoy the economy, China has ad- icies. Those challenges will be more severe in the rural and opted a string of pro-growth measures, in- poorer parts of China. cluding lowering banks’ reserve ratio to The Chinese families I met have a strong boost lending, subsidising energy-saving commitment to give their children the best ed- household electrical appliances and speed- ucation possible in order to find good jobs in ing up approval for major construction future. China’s youth and young adults have projects. The central bank cut the bench- been exposed to the hard work of their par- mark interest rate two times in a month, in ents and the benefits of good jobs. a bid to inject liquidity into the market. While walking around Beijing, I noticed China’s economy expanded 7.6% y-o-y in many posters mentioning “Beijing Spirit: Pa- the second quarter of 2012, slowing from triotism, Innovation, Inclusiveness and Virtue”. 8.1% in the first quarter as per the National These qualities and aspirations should serve Bureau of Statistics. The growth rate the people of China well into the future. The marked the sixth consecutive quarter of consumers’ emphasis on quality and value will decline and was the slowest pace since the push Chinese manufacturers to improve or be first quarter of 2009. “As current economic left in the past. The marketplace and economy situations at home and abroad are very in China will continue to attract the best com- complicated, Chinese companies should panies in the world. I only hope that economic look for momentum for growth even out of success is shared throughout all of China – the downward economic pressure,” said and that China can continue to remain the epi- center of growth for the global economy. Yes, (Top): June 30, 2012, Xi’an: The under-construction luxury residential complex where the clothing the umpteen pro-growth measures may not retailer and his family whom Art Wheaton visited in be enough to save the Chinese double-digit China plans to move-in in future; (Bottom): Shanghai: A slum area in downtown Shanghai. Such growth story for ever, but my bet is – China localities are being demolished as newer housing will continue to lead the world into the 22nd complexes add fuel to the already raging fire in China’s real estate industry century. Not only because it has companies that produce goods for billions around the The complex real estate market in China world, but because it is a complete consumer Real growth or a bubble in the making? market in itself. [Rather – gauging its size, and the urban-rural divide still – many geo- Real Estate Investment in Eastern, Central and Western Regions in 2011 graphical markets combined together]. Regions Investment Growth Rate Residential More than two weeks in China gives you a (RMB 100 Residential y-o-y (%) Buildings good idea about what the dragon nation was, million) Buildings is and can become. Penning down this cover National Total 61740 44308 27.9 30.2 piece for the ‘Inside China’ issue of Business Eastern 35607 25215 27.2 31.1 & Economy, was an interesting exercise. What Central 13197 9832 25.5 25.3 I have written here is after visiting (or having Western 12936 9262 32.8 33.3 a detailed conversation with people from) eight cities: Beijing, Xi’an, Shenyang, Shàng- Sales of Commercial Buildings in Eastern, Central and Western Regions in 2011 hai, Shenzhen, Lánzhou, Zhengzhou and Cha- Floor Space of Commercial oyang. There are over 660 big cities and over Buildings Sold Sales of Commercial Buildings Regions 930,000 villages in China, and therefore so Absolute value Growth Rate Absolute value Growth Rate (x 1000 sq m) y-o-y (%) (x 1000 sq m) y-o-y (%) much more to discover and write about the changing China story. Pay a visit to China. National Total 109946 4.9 59119 12.1 Am very confident you will find the untold bit Eastern 51052 0.1 34628 3.8 in my article interesting. Central 29312 11.3 11895 29.4 Western 29581 8 12596 23.9 With inputs from: Mary Catt, Asst. Director of Source: National Bureau of Statistics of China Communications, Cornell University ILR School

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