Is the Chinese model replicable?

July 01, 2013 (LBO) Three days in Shanghai is surely not enough to understand what makes China tick. But as I sit in the new Pudong International Airport looking across the runway at the big cargo ships on the adjacent Yangtze River head out to sea or into port, I sort of get the value of central planning by an elite cadre. The Chinese may be building bits and pieces of infrastructure that don’t quite fit together in Sri Lanka, but in their own country the articulation seems work at least on the commercial side. Why do I limit my praise to what I did not directly experience? Let me illustrate with the case of airport transfers. The gold standard, in my view is Hong Kong (Kuala Lumpur too). Here, the airport is distant from the city, but they have completely eliminated the inconvenience and even made it better than what it used to be. Airline check-in can be done in a city terminal, where you also buy the ticket for the high-speed train to the airport. They will take your bags hours ahead of departure, eliminating the hassle of having to go back to the hotel in a rush after meetings or sightseeing just to pick up the bags. So you can do whatever you want, knowing that all you have to do is walk aboard the train with train ticket and boarding card and clear immigration at the airport. And no lugging bags on and off trains. What is the situation in China’s commercial capital? They have the world’s only commercial MagLev [Magnetic Levitation] train connecting the airport to an eastern suburb (and not the city center, for some reason). I took the MagLev, since it’s the only practical option I had for doing 300 kmph on land. But, despite the MagLev being a dedicated airport train with just two stations and one 30 km stretch of track (should I say something else, since the train actually floats above the surface once it gets going?), one had to haul luggage up and down staircases, since there are no check-in facilities in the city. And getting to and from the city station is not that easy, even though it is connected by metro.

This makes the MagLev not as popular as airport links elsewhere. I am sure they will never recover their investment in this little toy, but that’s probably the last thing the Chinese government worries about given the amounts of loose cash it has in hand. So, they do things fast and they do impressive things. But that is not always the same as doing things well.In any case, I am skeptical about all knowing bureaucrats, however elite the civil service is and however well they are rewarded. I am highly impressed by how much they have achieved since Deng Xiao Ping executed the 180 degree turn. I did not get a chance to visit the Middle Kingdom in the bad old days, but I did have opportunity to interact with large numbers of functionaries sent on study tours of the US and the first wave of Chinese graduate students coming to the US. More than the buildings and the things they seem to possess in great quantities, I am impressed by the change in the people. The self-confidence is palpable and the monotonous uniformity of dress and demeanor is no more. I am sure the quality of the bureaucracy has also improved. But they do make mistakes. The massive investments being made in all sectors have masked their errors (possibly the MagLev is a mistake too; why has it not been extended if not?). One mistake I am familiar with is their effort to impose by fiat a Chinese technology standard for 3G mobile telephony. No one adopted it, so China Mobile, the largest operator was mandated to use it. Its performance was sub-optimal and China Mobile lost market share.

Now 3G is being gradually and quietly phased out and replaced by less nationalistic 4G standards. In the process, they wasted not only the Chinese people’s money but also those of the foreign manufacturers who were compelled to follow that standard. This brings me to another aspect of the Chinese model that several Asian countries, including India and Indonesia, are trying to emulate these days. This is the imposition of national manufacturing requirements. It is a fact that much of the inputs for China’s telecom networks are manufactured in China which has a trade surplus in telecom equipment, unlike many Asian countries. It is also a fact that China’s government has for years imposed national manufacturing requirements. What is debatable is whether the latter was the cause of the former. Because of its early emphasis on attracting foreign investment in manufacturing, an enormous amount of telecom equipment manufacturing occurs in China. It would take significant effort to source telecom equipment that is not made in China. And this is not about companies such as Huawei and ZTE. Much of the American network equipment company Cisco’s manufacturing is done in China. While China used quotas in the past, it has now forsworn manufacturing quotas as part of its commitments under the WTO. And yet, others are trying to emulate its past policies.Pity. There are many things we can learn from China. But we need to study what they are doing in depth, not based our actions on surface observations. Rohan Samarajiva heads LirneAsia, a regional think tank. He was also a former telecoms regulator in Sri Lanka. To read previous columns go to LBOs main navigation panel and click on the 'Choices' category.