Delusions on China

In June, China agreed to lessen control over the exchange rate value of the Renminbi in part due to pressure from the United States amidst concerns over the burgeoning trade deficit. American economists and politicians (including Obama) have postulated that China purposefully suppresses the value of their currency in order to stimulate exports by making them comparatively cheaper in overseas markets. Thus, when China allows the Renminbi to appreciate without exchange rate intervention, Chinese goods in America will be costlier relative to domestically produced goods. Americans will buy more US goods and less Chinese goods. This will purportedly assuage the growing import-export gap between China and the United States, and also stimulate domestic consumption within China. Currently, the ratio of domestic private consumption (spending by private citizens) to GDP is less than half of that in the US. China's exploding economic growth is comprised mostly of government spending, state-owned enterprises, and export growth. "Common" knowledge amongst economists is that spurring domestic consumption in China will lead to drastic increases in quality of life for Chinese citizens and instill stability in China's continuing economic growth, which needs to maintain annual gains of 8% simply to keep pace with the increasing population. Pressuring China into allowing their currency to appreciate, then, is a high priority in America.

However, this analysis, that Chinese currency revaluation is key to US and Chinese economic stability, unfortunately reflects a crass understanding of their economy. A recent WSJ op-ed, "Bashing Beijing Will Not Help Our Trade Deficit," argues that "the value of the yuan is not the main driver of the U.S. trade deficit. The wages and social safety net of Chinese workers are more important." This is on the right track, but the belief that increased wages for Chinese citizens are tenable is a pipe dream. China remains, more than most contemporary Sinologists are willing to admit, a largely state-run economy. Wage growth will come exclusively at the will of Beijing bureaucrats, not from the idealism and hopefulness of US policy-makers. To charge that we simply must increase wages in China to solve the U.S. trade deficit is akin to asserting that we should just start providing more healthcare to North Koreans in order to improve their quality of life. It's a wonderful aspiration, but pragmatically unattainable.

Pozen writes in the op-ed that "if wages rise in China, its workers would have more money to spend." And, "if wages go up in China, then the prices of its exports will rise." So, Pozen, a senior lecturer at Harvard business school, has solved all our problems: "[American politicians] should support higher wages and a stronger safety net for Chinese workers. These measures would not only help reduce the U.S. trade deficit but also would be consistent with recent efforts of China's officials to improve the living standard of its workers." And we thought cold-blooded capitalists lacked that twinkling idealism. This grand conclusion to his piece begs a question I would've hoped WSJ's editors would've demanded an answer to within the incomplete musings of the article: How do we support higher wages and a stronger safety net for Chinese workers? Perhaps a spirited letter writing campaign to Hu Jintao will do the trick.

Under the Clinton administration, we attempted to "support Chinese workers" by demanding wage increases, strengthened workers' rights, and crackdowns on human rights abuses as precursors to our approving China's admission to the WTO. Ultimately, though, we agreed to forego annual evaluations of our trading relationship with China, relinquish bargaining power over human rights abuses, and adopted China as a permanent trading partner. This gave China free reign over the US economy, as we substantially reduced tariffs and allowed Chinese companies, fueled by low-wage, indentured servitude cost advantages, to flood the US market with abundant, inexpensive goods.

Unfortunately, this favor wasn't reciprocated. US companies wishing to enter the Chinese market face stringent controls over how their business can be operated. China's most effective means of exerting influence over American companies in China is selective enforcement of the law. The way in which Chinese business law is written means that, essentially, in order to do business in China, a company will be violating a whole host of regulations. Companies that follow the Beijing dictums find themselves free from enforcement of China's amorphous blob of business regulations. However, when Beijing is displeased with a company, they swoop in with a variety of fines and punitive measures. China even went so far as to arrest four Australian executives working in Beijing. When US and Chinese values clash, American companies wishing to remain in the Chinese marketplace must placate China. In China, American companies operate entirely within the confines of the interests of Beijing.

For example, Cisco "is the worldwide leader in networking that transforms how people connect, communicate and collaborate." How did they make their money in China? By designing and implementing the firewalls that restrict Chinese citizens' access to information, censor dissidents, and provide Beijing with the intelligence to find and make disappear those who disagree with the party line. Many internet writers and bloggers in China have found themselves placed under house arrest, banned from the Internet, and detained for years without charges.

American banks also face severe restrictions. Most are allowed only one or two branches in the country. And, there are only two foreign-owned ATMs in China. 85% of Chinese citizens don't have access to credit cards. Most have no access to mortgages or other loans. And, the property market in China is so tightly controlled alongside access to mortgages that most Chinese people have to save for 20 years, without the ability to invest or earn interest, in order to purchase a modest apartment at an exorbitant price.

My point is that China's economy is structured to extend state influence, restrict the autonomy of private enterprises, bolster state-run export industries, and force the average Chinese citizen to save an enormous portion of their savings simply to obtain lower-middle class luxuries such as home ownership, reasonable access to health care, and sufficient money for retirement. In fact, China has the world's highest private savings rate. Consider that the ubiquitous American loan: car, house, second mortgage, credit cards, and student loans. They constitute negative savings. As Chinese people have significantly limited access to loans of any kind, they are structurally forced to save more.

Back to my initial point, American policy-makers believe that supporting modest wage growth will spur domestic demand and economic freedom. However, it is clear that despite the influx of McDonald's, KFC, and other bastions of "freedom," China maintains unflinching influence over its economy, wage growth, property prices, access to loans, and business development. That wage growth, globalization, and American companies will lead China to more and more economic and political freedoms is an unfortunate delusion.

Crack and Kong

The final assignment for my journalism class was a feature article. I wanted to profile a rich, successful, normal marijuana user as an alternative to the catch-all "Drugs Are BAD!" policies of Hong Kong. However, since I waited until three days before this journalism assignment was due, I had to piece together a somewhat lacking and certainly broader piece on drug usage and drug policy. Surprisingly, wealthy investment bankers don't want to talk about their drug habits to students with voice recorders... After agonizing over what clever, insightful words I wanted to use to entitle this piece, I landed on "Hong Kong's Drug Policy." So, enjoy.

The Beauty of the Game, a new show on TVB Jade Channel in Hong Kong, plays like a Chinese version of the American HBO hit Entourage, a show that depicts a young superstar actor and his buddies from New York navigating the quintessential Hollywood lifestyle: attending movie premiers, partying with all the big names of Los Angeles, and basking in fame and fortune. In a similar fashion, The Beauty of the Game is a drama about young actresses grappling with their careers in the Hong Kong entertainment industry. But, unlike Entourage, this show isn’t just trying to entertain. Hong Kong’s newest television drama is funded and produced by the Hong Kong Narcotics Division of the Security Bureau and the Action Committee Against Narcotics. It is one of the government’s latest moves in a series of initiatives designed to address rising youth drug use in Hong Kong. And, just as every television series begets devoted fans and adamant critics, the anti-drug initiatives are drawing both praise and skepticism.

Depicting the demise of seemingly normal young adults at the hands of drug use on broadcast television is just the latest in a breadth of actions by the Hong Kong government targeting a reduction in drug abuse, especially among youths. “Juvenile drug abuse has become serious in Hong Kong,” Chief Executive Donald Tsang said in a recent address to local parents. A report by the Central Registry of Drug Abuse (CRDA) states that the makeup of drug users is becoming younger. According to the CRDA’s report, the proportion of under-21 drug users has increased by 24% between 2004 and 2008. Further, schools are becoming the locale of drug use, with usage at schools increasing by 135% across the same cited time period.

Hong Kong clearly hasn’t been ignoring the latest statistics. “The Government has geared up law enforcement activities to curb the supply of drugs,” Mr. Tsang said. Alongside more banal measures like an anti-drug music video and anti-drug text messaging competition at a recent concert, one of the most contentious programs being implemented in Hong Kong is a voluntary “Trial Scheme on School Drug Testing” in the Tai Po school district to “tackle the problem of hidden drug use,” according to Mr. Tsang.

Contrary to Mr. Tsang’s suggestions, the seriousness and frequency of youth drug use in Hong Kong is not a recently developed problem, nor is the idea of drug testing Hong Kong students a recently developed solution, according to twenty-seven-year-old Amanda Chen, whose name has been altered at her request. International schools were implementing random, mandatory drug tests during her days of attendance, although she was never tested personally. And, the program didn’t have the desired impact. “I didn’t care that there was mandatory drug testing at school. The kids that wanted to use drugs used them,” she said.

Ms. Chen worked in marketing for a prominent Hong Kong magazine until she was laid off in February. I met her at a local hair salon, where her hairdresser does double-duty as her drug dealer. “Marijuana is my drug of choice. I can’t handle ecstasy anymore, that used to be my favorite. I’m too old now, my body can’t handle it.” Although Ms. Chen said she was a “late-bloomer” when it came to using drugs (she didn’t start until the age of 17), she found herself immersed in a culture of drug use since secondary school. “When I was sixteen, my aunt asked me if I knew anyone who didn’t use drugs. My honest answer was none,” she said.

Although Ms. Chen uses drugs, she thinks “the age at which children are beginning to experiment with drugs is definitely a problem.” She added, “I used to go raving. I would take “E” (ecstasy) and go to giant parties. Some of the girls there couldn’t have been older than twelve or thirteen. It was shocking, but what can you do?”

Later, she noted that she wasn’t opposed to voluntary drug testing initiatives. But, her and many others have concerns over the potential effectiveness of the government’s policies. Her hairdresser cum dealer James, who requested that his last name be withheld, chimed in that “the program is useless! Unless students are compelled to test, there is no point in spending money on this.”

The program also drew the attention of a prominent professional organization. The Hong Kong College of Psychiatrists issued a strident criticism of the proposed voluntary drug-testing campaign. In a written statement, Dr Lam Cheung said, “There is a dearth of data on the effectiveness of school-based drug testing as a means of combating psychoactive substance abuse and its potential harm.” Concerns range from privacy and confidentiality to cost and effectiveness. Dr Lam Cheung goes on to say that “because it is a voluntary program, active drug users may simply refuse to be tested.” He added, “It is well established that the window for detecting most drugs of abuse is 72 hours or less.” As a result, a student can temporarily delay a drug test in order to ensure a negative test result, before resuming drug use. So far, the government has reported that 61 percent of eligible students have enrolled in the testing program. “That leaves 40% of the population that may be active drug users who will never be tested,” wrote Dr Lam Cheung.

Another concern with the government’s policies arises from the one-size-fits-all approach to drug abuse. Nicole Fung, a professional piano teacher, used to sell marijuana with her ex-boyfriend. She spent her days teaching piano and her nights driving across the city delivering to customers. She likens marijuana usage to legal drugs like tobacco and alcohol and believes there should be a distinction in public policy between marijuana and harder drugs. “The people who we sold to all had jobs. They were normal, working people, not scary, not addicts. But, marijuana and heroine are both treated as the same thing,” she said, adding, “I don’t think it is fair to punish and treat possession of marijuana the same as harder drugs.”

Ms. Fung touches on a point that resonates with many critics of drug policies. Reports on the harmfulness or addictiveness of marijuana are hard to come by. Alcohol is reported as having a higher rate of addiction than marijuana. Yet, Hong Kong remains adamant in refusing to parse drugs into categories. At the premiere for The Beauty of the Game, Principal Assistant Secretary for Security, Eric Lee, said, “There is still misunderstanding about drugs despite concern from all sectors of the community. Some people think drugs can be categorized as ”soft” and “hard.” … It is necessary to enhance our publicity and preventive education efforts so that the public will understand there is no distinction between “soft” and “hard” drugs. They should never try!”

Hong Kong’s catchall, abstinence-based approach to drug use is reminiscent of United States President Ronald Reagan’s infamous “Just Say No!” anti-drug education program. Started in the 1980s, Reagan’s program funded billions in educational programming and literature, spanning from car bumper stickers to posters to guest speakers in schools. Unfortunately, the program quickly became synonymous with wasteful spending and lacking results, rather than declining youth drug usage. In fact, a study by the University of Michigan to track the success of the program found marked increases in youth drug use over a ten-year period. The failure in President Reagan’s ambitious program was attributable to the very same concerns being raised about Hong Kong’s anti-drug campaign.

The absence of nuance in the government’s approach to drug enforcement and education percolates into related sectors of public policy such as rehabilitation and treatment. Hong Kong publishes myriad literature on drug use. One bright green leaflet implores: “Be free. Illicit drugs are all addictive. It is extremely difficult to quit drugs. Be free. Don’t even try drugs for once.” Obvious issues in syntax aside, Ms. Chen expressed concern over the nature of the dialogue. “I think it is important to bring drug use and addiction into the open, and I’m okay with public service announcements,” Ms. Chen said, but added, “Something like this reflects poorly upon the government. Any student with exposure to drugs isn’t going to take this seriously. … Not all drugs are addictive.” Ms. Chen asked, “How can the students trust the government’s message when it is so uneducated?”

Those who work in the treatment community have also expressed concern over their preparation and ability to provide adequate care to addicts and drug abusers. Herman Chung-Shing, a member of the Social Welfare committee, expressed concern that “the amount and type of preparation amongst the medical community responsible for providing youth drug abuse treatment is not enough.” He added, “We need to train more doctors on how to treat children struggling with drugs.”

Chief Executive Tsang acknowledged a need for dialogue, saying, “Prevention of drug abuse begins at home.” But the “Not Once. Not Ever.” educational program leaves little room for a productive exchange between students and their parents, teachers, and social workers. Ms. Fung is concerned over a lack of addiction and counseling services for existing drug users, and feels the policies address prevention, but not treatment. “The program might work for someone who has never tried drugs,” Ms. Fung said, but added, “What about all of us who have already started? I don’t feel there is anyone students can turn to to ask for help.” Hong Kong’s motives are admirable. But, if you find yourself addicted to watching all the latest episodes of The Beauty of the Game, consider the many other addicts who aren’t watching.