Postcards From Tomorrow Square (13 page)

Just a few: In the far north of China, Intel has just agreed to build a major chip-fabrication plant, with high-end engineering and design jobs, not just seats on the assembly line. In Beijing, both Microsoft and Google have opened genuine research centers, not just offices to serve the local market. Down in Shenzhen, Liam Casey’s company is creating industrial-design centers, where products will be conceived, not just snapped together. What was recently a factory zone in Shanghai is being gentrified; local authorities are pushing factories to relocate 10 miles away, so their buildings can be turned into white-collar engineering and design centers.

At the moment, most jobs I’ve seen the young women in the factories perform have not been “taken” from America, because in America these assembly-type tasks would be done by machines. But the Chinese goal is, of course, to build toward something more lucrative.

Many people I have spoken with say that the climb will be slow for Chinese industries, because they have so far to go in bringing their design, management, and branding efforts up to world standards. “Think about it—global companies are full of CEOs and executives from India, but very few Chinese,” Dominic Barton, the chairman of McKinsey’s Asia Pacific practice, told me. The main reason, he said, is China’s limited pool of executives with adequate foreign-language skills and experience working abroad. Andy Switky, the managing director of Asia Pacific for the famed California design firm IDEO, described a frequent Chinese outlook toward quality control as “happy with crappy.” This makes it hard for them to move beyond the local, low-value market. “Even now in China, most people don’t have an iPod or a notebook computer,” the manager of a Taiwanese-owned audio-device factory told me. “So it’s harder for them to think up improvements, or even tell a good one from a bad one.” These and other factors may slow China’s progress. But that’s a feeble basis for American hopes.

The measures Americans most often discuss for dealing with China are not much better as a long-term basis for hope. Yes, the RMB is now undervalued against the dollar. Yes, that makes Chinese exports cheaper than they would otherwise be. And yes, the RMB’s value should rise—and it will. But at no conceivable level would it bring those Shenzhen jobs back to Ohio. At best it would make U.S. exports, from locomotives and high-tech medical equipment to wine and software, more attractive. Such commercial victories are important, but they are unlikely to be advanced by threats of retaliatory tariffs if China does not speed the RMB’s climb. Also, the faster the dollar falls against the RMB, the faster Chinese authorities might move their assets out of dollars to stronger currencies.

In 2007 the U.S. government imposed special tariffs, called countervailing duties, on imports of glossy paper from China. This is the kind of paper used to print magazines and catalogs, and Chinese exports of it to the United States rose tenfold from 2004 to 2006. The U.S. government said the duties were necessary to offset the export subsidies Chinese manufacturers receive via low-cost loans, tax breaks, and other benefits. Under WTO rules, export subsidies of all sorts are prohibited; U.S. officials, academics, and trade groups have prepared lists of de facto subsidies that cut the price of Chinese goods to U.S. consumers by 25 percent, 40 percent, and even more. (The Chinese—like the Europeans, Australians, and others—are quick to retort that the United States subsidizes many products, too, especially exports from large-scale farms.)

This is obviously significant. But think again of those Ethernet connectors that retail for $29.95 and cost only $2 to make. Removing all imaginable subsidies might push the manufacturing cost to $3. Suppose it went to $4. That would have a big effect on decisions made by corporations that outsource to China. Can they raise the retail price? Must they just accept a lower margin? Should they build the next factory in Vietnam? But it would not make anyone bring production back to the United States.

Government policy and favoritism may play a big role in China’s huge road-building and land-development policies, but they seem to be secondary factors in the outsourcing boom. For instance, when I asked Mr. China which officials I should try to interview in the local Shenzhen government to understand how they worked with companies, he said he didn’t know. He’d never met any.

American complaints about the RMB, about subsidies, and about other Chinese practices have this in common: They assume that the solution to long-term tensions in the trading relationship lies in changes on China’s side. I think that assumption is naive. If the United States is unhappy with the effects of its interaction with China, that’s America’s problem, not China’s. To imagine that the United States can stop China from pursuing its own economic ambitions through nagging, threats, or enticement is to fool ourselves. If a country does not like the terms of its business dealings with the world, it needs to change its own policies, not expect the world to change. China has done just that, to its own benefit—and, up until now, to America’s.

Are we uncomfortable with the America that is being shaped by global economic forces? The inequality? The sense of entitlement for some? Of stifled opportunity for others? The widespread fear that today’s trends—borrowing, consuming, looking inward, using up infrastructure—will make it hard to stay ahead tomorrow, particularly in regard to China? If so, those trends themselves, and the American choices behind them, are what Americans can address. They’re not China’s problem, and they’re not the fault of anyone in Shenzhen.

MACAU’S BIG GAMBLE

SEPTEMBER 2007

T
oday’s boom times in China are interesting in their own right, as economic booms always are. By chance and by design, I have lived in the middle of several of them: the Texas oil boom of the mid-1970s, Japan’s all-around boom of the late 1980s, and the Seattle and Bay Area Internet bubble of the late 1990s. Inside the boom zone, people don’t spend much time thinking about how the good times began, or asking how long the boom can last. Everyone, everywhere, takes his own prosperity as a sign of cleverness, wise planning, and hard work. From outside, the questions concern the boom’s effects—on culture, on values, on old establishments and traditions. Such questions about China’s boom are unusually compelling, simply because of the country’s scale. What will its growth mean for the global environment? For jobs and prices outside of China? For the military balance of power and the ideological contest of ideas?

Right now the very most booming part of generally booming China raises questions like these in a peculiar and intriguing form. This part is the tiny peninsula of Macau—as it spells its name, versus Macao in American usage. Geographically, it is one-sixth the size of the District of Columbia, and it has a population of half a million. It officially became Chinese territory only in 1999, after centuries of colonial control by Portugal. Like its neighbor Hong Kong, which was transferred from British to Chinese control in 1997, Macau is a “special administrative region” of China, meaning it is supposed to run by its own laws and customs for at least 50 years after the handover.

While China’s overall economy has grown about 10 percent per year since the 1980s, Macau’s has recently been growing by 20. While Shanghai, Beijing, and other big cities are dotted with construction cranes, Macau appears to be made of them. Early this year, on a tour of Macau’s Cotai Strip, where a version of the Las Vegas Strip is being created, I counted more than 200 working cranes before I lost track. While the rest of China is struggling to contain the tensions between the very rich and the very poor, via what the central government calls its “harmonious society” policy, Macau is rushing to make itself more attractive to the very rich—and to anyone else who would like to visit the only part of Chinese territory where casino gambling is legal. (State-run lotteries are the only legal gambling outlet on the mainland.)

Last year Macau finally overtook Las Vegas in gambling revenues: Macau had about $7 billion, versus $6.5 billion for Las Vegas. As we will see, this statistical achievement is less significant than it sounds. But news outlets naturally presented it to Americans as more evidence of China’s incomprehensible scale and its unstoppable rise—plus, on the bright side, as another example of the riches open to Western companies (in this case, U.S. casino firms) that can figure out how to get part of the pot-o’-gold Chinese market.

Yes, what is happening in Macau should be of intense interest to casino operators everywhere, and to the financiers and suppliers who thrive off the world’s gambling industry, and to those compiling information on how Chinese people use their new wealth. But in repeated visits to Macau, I found it far more interesting than I would have guessed from most of the gambling-boom stories.

It is interesting in a lowbrow way because of Macau’s ineradicable seediness. Look in one direction, and you see a new five-star hotel. Turn 90 degrees, and you see an alley down which Indiana Jones might run, pursued by gangsters, or where Sydney Greenstreet might totter out from a smoky den. But this same small locale is also deeply interesting in highbrow ways. The fate of modern Macau will be determined in part by the same political and ideological struggles that are determining so many other aspects of China’s rise. The more China influences businesses and societies elsewhere, the more it comes under pressure to adhere to broadly accepted international standards rather than to its accustomed ways. These standards include such vague-sounding principles as rule of law, transparency, and accountability, which in practice mean: Can you trust a contract? Can you win a lawsuit? Do you know who’s really making a decision? Will the decision be made in favor of whoever provides a “red envelope” containing the biggest bribe? How many sets of books should a company be keeping, anyway? How much money laundering is too much, if Macau wants to be internationally respectable?

O
ur story begins 450 years ago, when the Portuguese established effective control over Macau and began using it as their trading base for markets in China and Japan. By the mid-1800s, this business had been eclipsed by the rise of British banks and trading companies in Hong Kong. The Portuguese government of Macau responded by legalizing gambling and developing what two academic analysts recently called a “sordid” economic structure—a “mixture of gambling, opium, and coolies trade, together with prostitution, crime and contraband.” The businesses reinforced one another, since peasants who fell into debt at the gambling tables or in the opium dens could be turned into coolies or indentured seamen until they worked off what they owed.

Through the world wars of the twentieth century and the rise of the Communists on the Chinese mainland, the Portuguese government oversaw Macau’s casinos and its vice-based economy. The prelude to Macau’s modern era began in 1962, when Stanley Ho, a 41-year-old entrepreneur from Hong Kong with a Chinese father and a Portuguese mother, paid Portugal about half a million U.S. dollars to take over monopoly rights to run all casinos in Macau. Soon he also dominated the helicopter and ferry businesses that brought customers from Hong Kong, and owned the biggest department store, the racetrack, and so on. He held a one-third share in the airport and a one-seventh share in Air Macau. Perhaps it’s not surprising to hear that now, in his mid-eighties, Ho is the richest man in Macau and one of the richest in all of China, with assets estimated at $7 billion. Or that he is debonair and sharply dressed, renowned for his skill at the tango and other ballroom dances, or that he has had, by most reports, four wives and 17 children. His flagship operation has been the Casino Lisboa—rendered in Chinese as
Pujing
, or “capital of Portugal”—which has a 1950s–Las Vegas look. (Earlier this year, he opened the glitzier, bigger Grand Lisboa Casino.) He is referred to in Macau as “Dr. Stanley Ho,” including on the avenue of that name running through the middle of the town and, for a while, on his apparently now-defunct online gambling site,
DrHo.com
.

Stanley Ho has not been charged with any crime but is typically described (outside his home territory) as being “associated with” or “suspected of ties to” criminal gangs from Macau and surrounding areas. The New Jersey Casino Control Commission is now considering whether one of its licensees, MGM Mirage, can enter a partnership with one of Ho’s daughters, Pansy Ho. The decision will turn on whether Pansy Ho, whose reputation is otherwise positive, can prove that she is wholly independent of her father’s influence. (The Nevada Gaming Commission and Mississippi Gaming Commission have already considered the same question and given Pansy Ho their OK.)

By all accounts, the Macau of Stanley Ho’s heyday was loose, easy, and lightly regulated. British Hong Kong attracted business through rule-of-law government and investments in infrastructure and education. Portuguese Macau enticed visitors. During the mid-1980s, my family visited Hong Kong. One day while I stayed there for meetings, my wife took our two school-age sons to Macau by ferry for a day trip. She returned ashen; they were wide-eyed after their brief visit to Gomorrah. In those days, according to a recent
Time
magazine report on the “sleazy, sleepy” city, “its architecturally charming but run-down streets were lined with hookers and occasionally reverberated with gunfire and car bombings from triad gang battles.”

It’s less violent now, but the old Macau is with us still. One hotel where my wife and I stayed this year doubled as a brothel featuring Russian women. On my latest visit, I stayed in Ho’s original Hotel Lisboa, where the young women patrolling the corridors and popping into elevators to greet unaccompanied men were Chinese. To be fair, the city also has beautiful gardens, an informative city-history museum, a good collection of local art, elegant colonial buildings, abundant Portuguese-Chinese
estabelecimento comidas
for informal outdoor dining, and many other elements of the tropical good life. A 1,000-foot tower offers visitors a sweeping panorama of the Pearl River Delta. Sleaziness and all, it’s an interesting place.