Tour Brings China Capitalism Into Perspective

by Jeff Hankins  on Monday, Oct. 11, 2010 12:00 am  

Long known as an isolated nation, China is beginning to embrace the Western world with Arkansas companies ready and happy to help.

We're told the Chinese 20-somethings in the cities are living and spending for today because most know they won't be able to afford to buy apartments or real estate. One of our tour guides participated in the government's effort to transfer property to private ownership and paid $40 per SF for a small apartment. She says she could sell it for $400 per SF today, which helps explain some of the wealth creation under way.

Tracking the Wealth
The wealth in these Chinese urban centers is nearly impossible to understand or explain, despite our group's best efforts to ask questions and put the pieces together. With per capita income of just $10,000 a year, how do these people afford to drive BMWs or buy multimillion-dollar high-rise apartments? Much like the United States, China already has a super-wealthy class of people that might represent only 1 percent of the population. But in Shanghai alone, with its population of about 18 million, that sliver represents 190,000 people — the entire population of Little Rock.

Even more stunning is that the Chinese market-driven economy runs on cold, hard cash. McLarty, a Little Rock Central High School graduate whose 15 luxury auto dealerships generated $1.4 billion in revenue during the past year, says 90 percent of the sales are cash deals. These are BMW models that range from $100,000 to $150,000 — twice as expensive as U.S. models mostly because of tariffs and consumption taxes, but also because of high demand and limited supply.

(Slideshow: Click to take a photo tour of Mark McLarty's Shanghai BMW dealership. And click here to read more about McLarty's China business.)

Of course the unspoken explanation for the incongruous wealth centers on corruption and insider deals with the government, but China is hardly unique in the world in that respect. And every time we were lulled into fascination with the economic explosion, evidence of substantial poverty appeared, particularly the farther from the cities we traveled.

It was impossible to completely forget that we were in a Communist country that doesn't afford the same freedoms as the United States. China's efforts to shield its citizens from anti-Communist communications remain clear through filtered government newspapers, lack of access to major U.S. television news networks and the inability to access websites such as Facebook, Twitter and YouTube.

But at the same time, I didn't see people who appeared to be suppressed, oppressed or threatened. China will struggle to build a middle class and lift its people out of poverty, but the bona fide efforts to improve quality of life were evident. The Chinese government finally recognized it couldn't be a world power within the confines of the Great Wall using a massive army. The country needed to generate economic strength and clout, and that meant creating wealth and seeing how capitalism could work to its benefit to increase global strength.

(Video: Click to watch Jeff Hankins talk about his China trip on "Arkansas Week.")

$3.6 Trillion in Infrastructure
China couldn't begin to compete globally in a market economy until it made considerable investment in infrastructure. A story in the China Daily during our stay said the country might need to invest $3.6 trillion by 2020 to build infrastructure to support the massive urbanization effort.

The amount of commercial construction already completed in the last 15 years and still in progress throughout China is stunning. Imagine 200 skyscrapers the size of Arkansas' tallest, the 40-story Metropolitan Tower, under construction at once between Little Rock and Cabot. We saw essentially that in one stretch of highway between the airport and Xi'an, and similar levels of construction activity are happening throughout China's major cities. The country's impact on commodities prices became clear instantly.

One of our guides described three decades of developments in China that have had a major impact on their quality of life. Bicycles, sewing machines and watches were the big three items locals bought starting in the late 1970s, then washing machines and refrigerators in the '80s. In the '90s, city residents acquired air conditioners, cell phones and home audio and video equipment. The past decade started with the purchase of laptops, cars and apartments, and today more Chinese consumers are spending on vacations and education.

(Slideshow: Click for a photo tour of the new Shanghai Wal-Mart Supercenter.

 

 

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