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Political Setting and Business



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5. Political Setting and Business


Much of the writing in the business press gives the impression that China has become a hive of capitalism virtually overnight. This may be true (to at least some extent) of some places like Shanghai and Guangdong, in much of rural China the organisational structure and procedures established under Mao are still in place. Rural Yunnan is no exception. Many of the border towns do have effectively unrestrained commercial activity. Their local economies are built on cross border trade into Burma, Laos and Vietnam. But in the hinterland, commerce is much more constrained: a strange nascent capitalism coexists, often uneasily, with the administrative apparatus of the command economy.

The official administration comprises two elements: there is the government service, which provides administration, education, health, the judicial system etc, and there is the Communist Party. The Communist Party provides a political structure, that feeds, through a series of complex hierarchical levels, into the top levels in Beijing. Not all Yunnanese, by any means, are members of the Communist Party. It is quite possible for a person to be a civil servant at country or prefectural level, but not a member of the Communist Party. Some join the party to further careers in the civil administration, while others, feeling that exigencies of Party discipline would act as a constraint, decline to become members.

Since 1979, the so called ‘household responsibility system’ has been in place. This abolished the collective system, and gave households a high degree of economic autonomy. Not long afterwards, communities were encouraged to establish Township Enterprises. These were effectively community businesses which are today the main form of business organisation in the province. They are mainly concerned with processing agricultural and mining products, but an increasing proportion are engaged in light manufacturing.

The Township Enterprises (TE) are in some respects a curious hybrid of socialism and capitalism. They are supposed to be engaged in market economics, but are often heavily subsidised. Moreover, they may be continuously bailed out by government banks and other institutions, even after it is clear they will not be profitable. Some are in fact set up by the civil administration to exploit the central government’s policy of supporting TEs: the funds used to bail them out may come ultimately from the Beijing authorities. These are channelled into provincial or prefectural coffers through the medium of taxes and levies on the TE concerned. These local authorities have resorted to these unconventional fiscal arrangements as they have increasingly been starved for revenue from Beijing through more usual channels.

Two other examples of the way in which the market economy is deflected by state policies in the province can be mentioned. First of all, all individuals are registered as being residents of a particular locality. It is very difficult for a rural person to obtain permission to move to a city, or even a small provincial town. The reason for this is that the authorities still prioritise agricultural production and are anxious to avoid the social and economic problems which they fear will arise if large numbers of people migrate to urban areas. It has the consequence of starving many urban-based enterprises for labour.

The second deflection of market economics is caused by the pegging of the prices of many agricultural products by the authorities. Farmers are also obliged to pay taxes in kind - in most cases in grain of one sort or another, usually rice or wheat. The intention here is to provide insurance against the devastating shortages of staples which have afflicted China in the past. It is also designed to secure relatively cheap produce for town and city dwellers - the very places which are off limits (except for short visits) to farmers. Since the value per unit of produce assigned by the state is always less than what it might fetch on the increasingly important unofficial market, peasants become extremely resentful, especially as inflation steadily increases the costs of agricultural inputs and consumer items, the prices for which are only loosely controlled. The obligation to commit a proportion of their resources to grain production can also mean that they must divert energies from potentially profitable alternatives.

All of these factors place producers in Yunnan at a competitive disadvantage relative to those across the border. They also frequently find it difficult to raise capital. Furthermore, the information they have about market conditions beyond their localities, within China, let alone across international frontiers, is still heavily controlled by officials trying, for one reason or another, to manipulate the economy, or to maintain political authority.

One might expect that these conditions will change slowly as market forces become more compelling. At the same time, there are forces for conservatism, partly engendered by a wish to avoid the excesses too much free market economics has afflicted on some neighbouring countries.


6. Trade with Yunnan: Large Scale, Small Scale: Formal and Informal, Licit and Illicit


While the grand visions national governments and multilateral agencies, the travails of cashed up investors and of large construction companies receive most of the publicity in the efforts to promote trade with Yunnan, most of the running is made by the usually unrecorded activities of small traders, or more accurately, networks of small traders. This is not a matter for surprise, as most of the trade in the region has for centuries been carried on by small traders. The Yunnanese Chinese have traded tea, opium, and precious stones to Laos, Burma and northern Thailand (Maxwell Hill 1989). The Lue have traded from their bases in north Thailand and northern Laos with Yunnan and Burma. The Kachin have traded, and continue to trade jade with dealers in Kunming, Mandalay and Chiang Mai.

If is very difficult to make clear distinction between large scale and small scale (since small traders are integrated into far flung networks which in their sum have important effects on the border region economy), between formal and informal (since commodities traded, for instance, new cars, may be very much products of the formal structure) or even between the licit and the illicit (because the narcotics trade launders funds into the mainstream economy in highly significant quantities).



I will elaborate briefly on these points:

  1. The narcotics trade is without doubt the largest industry in the region. Narcotics are also by far and away the most significant export industry. Although this is all ‘informal’, it is commonly ignored by official commentators and policy makers, whose bottom line is inevitably skewed as a consequence. It is also very much a regional trade. Most opium is grown in Burma these days, and refined into heroin in factories along the border - with the active collaboration of Burmese officials. The activity is often funded by money from Thai sources, and is increasingly being channelled to world markets through Yunnan and Laos. Yunnan officials and entrepreneurs are important links in the chain, and are largely untouched by enforcement authorities despite frequent well publicised executions of relatively small players. Many of the key men in the trade in upper Burma are Yunnanese Chinese, sometimes with links deep into the official Chinese communist party structure. The narcotics trade is not a separate entity: a significant proportion of the money it earns is ploughed back into the ‘mainstream’ economy by a number of devices. Ironically, it may stimulate the broader economy of Yunnan, as it has been doing in north Thailand for several decades.9

  1. The trade in new cars to Yunnan, which flourished until about late 1994, is an intriguing example of the enterprise of small-scale entrepreneurs in Laos and Thailand in dealing with Yunnanese counterparts. Despite the very primitive transport facilities in the region, new cars, usually Japanese brands, were shipped up the Mekong, or driven across Laos to the Yunnan frontier to be sold to buyers in the province and beyond. These vehicles were bought by dealers in free ports like Dubai, shipped to Bangkok, trucked to the Lao border on the Mekong under bond, cleared Thai and Laos customs and then continued on the final stage of their journey. The trade reached a significant volume, although it was ‘personalised’ to the extent that individual buyers in China placed specific orders. Investments in particular transactions were purchased by small traders in Laos and Thailand. Sometimes individuals banded together to raise the capital to pay for a specific car ordered by a particular individual in Yunnan, sharing the profits - and the risks. The latter were not inconsiderable - not least the possibility of overloaded vessels sinking on the river. However, the demand was considerable, and was generated primarily by the fact that the waiting time for a person wishing to purchase a new car in remote Yunnan could amount to two or three years if they worked through conventional distributional networks which originated in Chinese seaboard ports. Unfortunately for the Mekong trade, the provincial authorities, seeing a useful source of revenue, effectively closed this avenue off by imposing a 200% duty on imported vehicles in 1994. Considerable numbers of new vehicles never reached their buyers and after a considerable time deteriorating, unsaleable, in rice paddies near the Lao frontier, were cannibalised for their spare parts - at considerable loss to both investors and putative buyers.

  1. The structure of the informal trade networks which carry trade from Southeast Asia into Yunnan, and from Yunnan into China is very different from that of conventional Western trade with its corporate structure. The elements of this trade - the small family business - are very small. It is the breadth of its integration with similar units across the region, and ultimately with larger organisations which render its structure so basically different from small-scale enterprises in the West. The enterprise and scope of overseas Chinese networks are virtually legendary (DFAT 1995), but those originating from Yunnan appear to be particularly complex. Chinese from all over China, fleeing the Japanese, settled in Yunnan, which became the place where the allied forces striking back against the invaders in Southeast Asia and China consolidated themselves. Defence industries were located there, and skill and enterprise of the refugees used to build a new industrial base. Rather than suffering from the ravages of war, experienced by much of the remainder of China, the people of Yunnan arguably benefited from it.

The province became a melting pot of Chinese from many regions. After the war, fearing the rise of the Communists, many migrated overseas. It was, after all, relatively easy to slip across the international borders that lay to the west and south of the province. There is anecdotal evidence that since the liberalisation of the economy following the death of Mao in 1976, there has been a steady trickle of returnees, bringing capital, expertise, and a cosmopolitan world view. Even for those who have chosen to stay in their adopted countries abroad, it has become much easier in recent years to activate their links back in Yunnan to establish new joint ventures with their kin and compatriots who stayed at home.

It may that Yunnan lacks the advantages of Guangdong and Fujian, that is, an adjacent source of capital and a gateway to world markets which gave these provinces a kick-start. However, what is does have in its favour is access to an unusually rich (literally and figuratively) and wide web of international family networks.



  1. On a more sombre note, the extent of the trade in human beings from Yunnan with Southeast Asia should be recognised. A great deal of publicity has recently been given to the traffic in young women from Yunnan to supply brothels in Thailand. This is undoubtedly a major and iniquitous business, rendered even more so by concern about the spread of HIV/AIDS. Less recognised is the magnitude of the trade in men, destined often for labour markets as far away as the US, who are smuggled down the Mekong from Yunnan, or overland across the border. These men are voluntary illegal migrants, paying large sums (reputedly about US$25 000: in gross terms, given the numbers of people involved the trade is worth a great deal of money) to middlemen for services rendered. Underworld Chinese gangs, which are also involved in the narcotics trade, are heavily involved. Not all their clients reach their destinations. Among the better known of these are the twenty or so men who suffocated under a tarpaulin in the vessel which was being used to smuggle them down the Mekong in June 1995. Less well known are those who are compelled to courier narcotics through Thailand and who have no recourse when arrested, or who are murdered when they refuse to cooperate with their bosses. This does not deter many: it is estimated that as many as five thousand illegal Chinese migrants, who have crossed the Yunnan frontier, are on the move in any one day in Thailand (Bertil Lintner, personal communication).



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