Capitalism with Chinese Characteristics vs. US ‘Free Market’ Capitalism

AT&T Charges Its Customers Up to >2,000x what China’s State-Run Telecom Monopoly Charges

By Shawn Danino

In 2018, it’s difficult for many of us to get by without a smartphone and access to data. During the 2018 Ford School China Trip, we were given the option to purchase a Chinese SIM, which was provided by China Unicom, a state-run telecommunications operator. When we hear state-run monopoly in the United States, we immediately think of rent-seeking, price-gouging and inefficiency, but in comparing my options with AT&T (my provider in the US) versus China Unicom, I found that to be far from the truth.

If we purchased the Chinese sim, we can acquire data at a rate of 270 Renminbi for 20 Gigabytes. That comes out to about $1.0095 / Gigabyte. The rate that AT&T quotes for its out of plan international data coverage is $2.05 / MB (pictured below). After some confusing conversions from RMB to USD and from MB to GB, we find that comes out to $2,050 / GB.

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So how is AT&T able to get away with charging its customers so much? First of all, it helps that they spent over $16.7 million in 2017 lobbying the United States Congress. And anybody who points to AT&T as an example of the free market at work may want to reflect why Americans are expected to pay (at most) over 2,000x more than Chinese customers.

What’s Better for Consumers?

I came into the trip thinking that I would see many examples of corruption and rent-seeking in China and as an American, I would be gouged everywhere I went. But in Beijing in particular, nearly every place I went to counted bills through a machine, gave exact change, and refused tips. This might be a surprise to many Americans.

This also made me reflect on China’s version of capitalism. While folks in the West are critical of the role of the Chinese Communist Party (CCP) in the market, there is no disputing that China’s citizens pay far less for equivalent amounts of data. Furthermore, these lower data rates (to name one example) increase consumer surplus. I was surprised to find myself jealous of what consumer options the Chinese had! This also helped to explain why China’s savings rate was over 46% as of December 2017, according to Statista, while the rate in the United States was 2.6% in October 2017, according to Bloomberg.

Before we all defend AT&T, let me acknowledge this is not an apples to apples comparison. Those are very difficult to make for several reasons. First of all, AT&T (unless the full cost of the phone is paid upfront) does not allow Chinese SIMs to work with their phones unless the phone is fully paid off, a fact I was not privvy to until spending over an hour at the China Unicom store in Beijing. Also, that whole blocking outside providers from offering consumers more options? How does that square with our vision of ‘free-market capitalism?’

So customers like me are locked in to using options available from AT&T. One of the only ways around this is to buy a new Chinese phone altogether with a Chinese SIM, which isn’t very practical for visitors and tourists. Furthermore, all of my data, software and passwords, are stored on my AT&T iPhone 7+, so working (I’m a freelance securities trader) would have been considerably more difficult.

Throttling: When Unlimited Isn’t Really Unlimited

AT&T does provide options outside the $2,050 / GB outside coverage. One option was through their ‘passport plan’ (pictured below), which offers options ranging from $40-60 / GB, which is only 40-60x more than the options for Chinese consumers. They also ‘bundle’ different benefits and prices into this plan, showing discounted talk (only $0.35/min!) and unlimited ‘text, picture and video messages’ (although they fail to mention that the number of picture and video messages you can send is reliant on the data available).

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As a securities trader, I knew that I would be ‘working’ in China to some degree. I follow the markets, invest in technology companies I believe in and occasionally trade different options and derivatives. This meant that I needed more reliable access to data. So I bought the ‘best’ possible plan available from AT&T. It charged me $10 / day to extend my unlimited data plan from the United States to China.

However, even with my ‘cadillac’ plan, I noticed that data speeds slowed down dramatically after my first day of (relatively heavy) usage. I tried to unlock a bike using the Chinese Ofo application, and the request failed several times, likely because the speed had been slowed down to a point where the application could not fill a very simple request. There were also failed attempts to send simple text messages inside of WeChat.

Looking Forward: How Are Things Changing for American and Chinese Consumers?

One of our stakeholder meetings was with the Chinese Consumers Association (CCA, pictured below), a government agency tasked with protecting consumers with a similar mandate to the Consumer Financial Protection Bureau (CFPB) in the United States. We learned about cases the CCA pursued against high-profile foreign companies, including IKEA and Apple. Meanwhile, in the United States, President Trump recently appointed Mick Mulvaney to Chair the CFPB, in addition to his responsibilities as the Director of the Office of Management and Budget (OMB). Mulvaney has mentioned in the past that he wants ‘to kill’ the CFPB, so his leadership does not bode well for the future of consumer protection in the United States.

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So at best, AT&T offered me a rate that was ~40x the price of the Chinese monopoly, and at worst, the rate was over 2000x more. And there was no way I can use my phone with a Chinese data plan. While a state-run telecom is far from Adam Smith’s Vision of laissez-faire capitalism, AT&T’s option structure also feels pretty far from our vision of the free market. These comparisons merit further attention as Americans compare themselves to the rest of the world.

References

AT&T lobbying spend: https://www.opensecrets.org/lobby/clientsum.php?id=d000000076&year=2017

China Savings Rate: https://www.ceicdata.com/en/indicator/china/gross-savings-rate

US Savings Rate: https://www.bloomberg.com/news/articles/2018-01-26/why-the-savings-rate-is-a-reason-to-worry-about-2018-u-s-growth

China Consumers Association: http://fortune.com/2016/11/17/china-consumers-association-battery-cca-apple/

Mick Mulvaney CFPB Kill: https://slate.com/business/2017/11/mick-mulvaney-put-in-charge-of-cfpb-a-bureau-he-wanted-to-kill.html

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Arts District

Every major city deserves to have its own art district— where creatives, dissidents, and hipsters can congregate and express themselves.

I was pleasantly surprised to learn that Beijing— amidst its stately power and tradition— had its own safe haven for lonely souls and artists: Beijing 798 Art Zone (otherwise known as its “Arts District”).

The district adopted industrial chic and mid-century modern long before they became a trending decor styles in Pinterest— its most famous buildings are actually decommissioned military factories from the 1950s. In the budding days of Chinese Communism, China engaged with the Soviet Union in a “Socialist Unification Plan” in which China produced low-cost modern electronic technology.

Those days are gone, and the primary focus of these military factories have shifted to house local artists— painters, tapestry makers, photographers, culinary chefs, architects and more. In addition to your traditional visual arts, visitors can eat in the many restaurants, cafes, dessert bars available, or go shopping at local boutiques which feature local artists, to high-end luxury brands whose presence reminds us of impending gentrification of even the most entrenched districts of traditional China. Professional photographers and fashion bloggers abound the district, seeking additional ways to express their creative souls and bringing business to local clothing boutique shops.

Here, Chinese artists do not need to focus simply on Chinese tradition — nor on criticizing the government — to be considered artists. Their pieces reflect a variety of artistic genres and messages. Though ever city is entitled to have their own safe haven for artists, Beijing does a wonderful job of creating a hub for Chinese artists which reflect a uniquely Chinese experience.

—carmille

 

First Impressions

This year, we managed to squeeze our Beijing-Guangzhou-Shenzen-Hong Kong trip into a 12 day span. We started our tour at the most northern city and worked our way south along China’s eastern border.

Our first stop is what’d you’d imagine a time-period Chinese martial arts drama to take place in. The energy exudes reservation and stoicism. China’s capitol, Beijing, is what you’d expect from old-world China. Ancient buildings, large stately spaces that convey power, and an overwhelming sense of traditionalism. The Communist Party of China’s presence was also made known to us, with blatant surveillance devices placed generously throughout the city’s private and public spaces. Despite Beijing’s reputation as a world power, it was still surprising to experience that so few people we interacted with were able to understand or communicate in English— certainly a humbling experience for your typical monolingual American student.

Guangzhou has the distinction of being China’s oldest trading post, and this comes through in the first impressions of the city: modern, commercial, and busy. The city’s energy— at least compared to Beijing— was of a slightly faster pace, and its people seemed more comfortable in engaging in English. Guangzhou has a more “global” vibe; myself and many of my classmates agreed that much of what we saw in Guangzhou is what we “expected” modern China to be— based on our assessments of Western films. The backdrop of Guangzhou is what many modern Western films (which take place in China) use to illustrate China as a wealthy and growing world power. In addition to such films, Guangzhou also seems to be the typical China-located backdrop of many race-car video games— mainly due to the wide highways that weave through the city.

Hong Kong was the most southern most city on our tour— and it also had the most modern and most globalized feel to it. Buildings were modern, and high rises were plentiful; flashing neon sights and lights display were common and gave off a Las Vegas-esque vibe, and made luxury advertisements hard to miss. Due to British colonization, english influence (including the prevalence of English-speaking citizens) was evident throughout our trip. Hong Kong’s prominence as a global trading hub was hard to miss— its ports, shipping containers, and shipping vessels were prolific and an integral part of Hong Kong’s backdrop. On first impression, Hong Kong was certainly reminiscent of countless modern martial arts movies that involve some sort of mafia and kidnapping (particularly in its shipping posts!).

Though I would have preferred to spend more time in the southern cities, I could not imagine this trip without including Beijing— the city offered a baseline understanding of traditional China and grounded my perception of this part of the country, which seemingly took active efforts to mitigate aspects of globalization and Western influence.

—carmille

Skipping the Middle Step

I was first exposed to QR code in 2012 during my time as chair of economic development for the Vietnamese-American Chamber of Commerce. One of my subcommittee chairs was a dedicated proponent of the technology, but I was a skeptic and for good reasons. Its application was confined to directing users to a flyer of our Taste of Little Saigon.

 

Since then I have not seen widespread usage in the United States. In China, however, QR code technology and application are unprecedented. Everything from small street vendors to a growing number breweries are using QR allowing customers to order and pay online, which definitely helped to cut short the common Asian fight for the bill between me and a local friend during our first dinner in Beijing. I’m surprised but more impressed with the integration of traditional and at time primitive infrastructures with mind-boggling technology.

 

City bikes are everywhere in Beijing. Users scan the QR code to receive a code that they can use to enter into a small box on the bike. The technology and concept are incredible, but the build of the bike seems far behind. This stark contrast struck me because there seems to be a missing transitional phase. In other words, the technology does not necessarily match with the reduced physical build of the bikes. Another example of this mismatch is the efficient QR code application by a street vendor selling Jianbing (crepe-like). While this mismatch is neither good nor bad, examining contributing factors can be useful to understand the discourse of such relationship in particular or more broadly the discourse of development.

 

Because China has to catch up and that things are happening fast, they skip the middle step, which creates a sense of a gap. Unlike the US, China’s development is a relatively recent phenomenon. And to catch up, it must become more efficient and try to make leaps as opposed to following a traditional path where one thing happens one step at a time and are dependent on each other.

 

Another interdependent explanation for the widespread adoption of online payment and technology is, unlike in the West, people in China are less concerned about privacy and are more open to trying new technology. An excellent example of this is WeChat. The Chinese use WeChat to communicate and soon graduated to other services like red envelope. Because they use WeChat every day and things happen organically on the ground, the introduction of online payment is a natural progression that the Chinese can quickly adapt.

 

Like China’s unique economic model that has consistent growth over the last thirty years, its creation and adoption of technology also follow a unique model that doesn’t necessarily have to follow prescribed mechanisms.

– Thuc B.

US Embassy Visit

The visit to the US embassy in Beijing clarified not only the functions and current operations of the office and the roles of the Foreign Service Officers (FSO), it provided a different frame of reference of how the US plans to maneuver itself in the looming ascension of China on the global stage. We anticipated that it would be somewhat of a corollary to the previous meeting we had in the morning vis-à-vis the China-India Wuhan convening and how the US is gearing up to contain the Chinese sphere of influence, but that wasn’t the case. The FSOs delved into three main areas which undergird the core interests of the embassy under the current administration: Economics, trade and security, and political issues.

Economics:

The presentation introduced China’s rapid economic expansion by showing an illustration of what the Beijing subway routes looked like in 2002 compared to how massive it is today. The FSO who presented this section wanted to highlight how Beijing became the hub of economic development which created the picturesque, metropolitan city that it is currently. Additionally, it reflects China’s steady GDP growth which was possible through effective policy changes causing China to experience more than 35 years (1971-2015) of economic boom without a recession. Lastly, China’s One Belt One Road initiative is the current iteration of targeted economic policy to secure China’s position in the global economy by sending out state-owned enterprises to developing countries. The Chinese government is working towards a long-term economic agenda that is more focused on the quality of growth instead of the quantity of growth.

This shift of focus to quality is partly a reflection of the emphasis on comparative economics focusing not on absolute progression but the well-being relative to those around you—China’s growing inequality. China’s consistent growth and no recession for more than 30 years is a phenomenon that not many countries have experienced. While the economy has progressed, China’s political governance has not moved in the same direction let alone the same pace. Therefore, the concern from a capitalist/democratic perspective is whether this model (Socialism with Chinese characteristics ) will last or will it, at some point, fail to prove the necessity for the conventional model of duality between democracy and capitalism. While it is difficult to assess the counterfactual outcome of the traditional model, China has proved that its unique authoritarian government and quasi-capitalist policies have worked. It is essential to evaluate the changes to China’s political economy as it moves to a different stage of development that is less reliance on labor and manufacturing but more emphasis on technological and service-oriented industries.

Trade and Security:

China is currently the majority trading partner of most countries in the world. The US-China bilateral relationship shows that US exports to China increased as a percentage. This is important because it illustrates that the symbiotic relationship between the two countries may not be significant after all in the future as China is rising out of the “developing country” category and rising to a unipolar status on the global stage. How is the US responding to the security issues in the region? Forming peaceful resolutions in the South China Sea and taking diplomatic channels to mend the relationship between South and North Korea is seen as a positive development for the US in the Asian-Pacific region.

Political Relationship:

The political landscape between the US and China has shifted from one of cooperation to competition. Traditionally, economic dependencies were used to bridge political differences because of the symbiotic nature of our economic pursuits. However, as China grows more economically and gaining access to our markets without reciprocating the same level of opportunities for the US in China, it’s slowly creating conflict between the two countries. Domestically, President Xi has done a good job consolidating power by “tightening” the political environment and streamlining government initiatives. Moreover, the cultural shift in China from concerns about “do I have enough food on the table” to “can I afford to put my child in College” has forced the government to reorient their policies to cater to these changing values.

In addition to China’s unprecedented economic growth, China’s assertive presence in the South China Sea and its ambitious Belt and Road Initiative (BRI) may be contributing factors to the competitive relationship. The US interests in the region are to establish a free and open maritime for trading activities. However, China’s buildup of islands is a direct challenge to both economic and geopolitical interests. That said, the US has not shown substantial commitments of its involvement in the region, and one stark example is the withdrawal from the Trans-Pacific Partnership (TPP). Balancing China’s assertiveness requires not only the military presence but also economic investments in the region. However, such commitment must be balanced with the US reliance on China in dealing with the denuclearization of North Korea.

— Thuc B.

Future Leaders of China

Renmin University is one of the top universities in China and enjoys the highest prestige in the nation, especially in the field of social studies. Some people call Renmin University the “Cradle of Chinese Politicians”. Meeting with student representatives, professors and the Party Secretary of the School of Public Policy at Renmin University was fascinating and informative. Since one of my classmates has more detailed discussion regarding the meeting itself I am going to share some of my observations and thoughts beyond the meeting agenda. 

There were five selected student representatives from the School of Public Administration. Three of them were female students, one was a Yi ethnic minority and one was a Han student from Xinjiang. I was very impressed by how eloquent and confident these students were. The female Yi students came from Yunan Province, and English is her third, or perhaps fourth language, but she used English the whole time. In many ways, this group of future leaders resembled a lot of similarities with their American counterparts- interested, ambitious and full of energy. They have unanimously favorable and optimistic views about the government and leadership of the communist party, which is totally understandable but it still felt something was also missing.

I thought of an interesting topic brought up by Professor Liang Ma at dinner table on the first day we arrived in Beijing. In China while most comprehensive universities have majors in public administration, very few universities provide study in public policy. The reason is deeply rooted in the differences between the two political systems- democratic and authoritarian. In countries like the United States, with a more democratic system, people have a better chance of influencing the process of policy making and thus having an impact on the political future of the country through their congress persons or senators. However, in China, the Communist Party, like generations of feudalist emperors, adopted a centralized approach to manage the country. The right to make political decisions is limited to only a small group of elites. The emperors had ministers, who were able to advise the king, but the final decision remained with the emperors. In modern China, the Standing Committee of the CCP retain the right to make and alter major policies. Outside this core group, what is left for the general public is how the decisions should be implemented rather than questioning why they were made. This fundamental difference directly led to differences in the education systems. Western education emphasizes fostering critical thinking skills, while Chinese focus on rote memorization. This helps explains why there are more public administration majors compared to public policy majors.

Although the five students were from different regions of China with different ethnic backgrounds, what we heard and saw felt more like propaganda. What was missing is critical thinking. Critical thinking is something that is not taught in Chinese schools. Personally, it took me a long time to acquire critical thinking skills after I graduated.

We now stand before a critical time in world history as China once again seeks to ascend to be a great power in the world. The question for consideration is: Will Chinese students truly be ready to lead the country without being able to actively challenge figures of authorities?

-Guiqiu Wang

Stop to Smell the Roses

 

“Enjoy the beautiful roses,” this was first piece of wisdom offered by the US Ambassador to China, Max Baucus’s mouth during our visit to the US embassy on the second day of the trip. Every year in May Beijing is enlivened with roses in full bloom, they color parks and road-way medians (greenbelts). I first noticed the flowers during the bus ride along Beijing’s airport express, only an hour after arriving in the country. At first the highway seemed familiar, a mix of vehicles ranging in size swerving between lanes amoung busses and trucks, but instead of the medians being filled with grass and a spotty aray of dandilions as is often seen in US cities, there were roses.

I immediately recalled memories of working in my neighbor, Wynonna’s, rose garden as a child. I remember Wynonna teaching me how challenging it is to keep roses alive, the pruning, the weeding and the cautious application of natural and chemical pesticides. I also remember my mother killing every rose bush Wynonna gifted her. Given the required level of labor, why would Beijing chose to line thier industrial highways this way?

Roses have a long history in China. The rose is considered the “queen of flowers” and is said to represent “dauntless spirit” [1]. The city government successfully planted Chinese rose walls in isolated belts along the Third Ring Road for decoration in 2003 [2]. The practice spread after the 2008 Olympics. Theses roses are not like the roses I tended to in Wynonna’s garden, they are not the tight buds made famous on the Bachelorette, they are fluffy. In China roses are breed to have specific characteristics. The fluff, for example likely comes from a hybrid with peonies. The roses along the highway are bred to have long blooming periods, high temperature resistance, drought resistance, and they can withstand intense sunlight and resist vehicle fumes (waste gas) [2]. All this breeding has reduced maintenance costs and has resulted in the presence of roses along the Third Ring Road, Fourth Ring Road and the Airport Expressway [2].

The Division of the Flower Industry under Beijing Municipal Bureau of Landscape and Forestry has full support to continue research and devopment on breeding new Chinese rose varieties in an effort to continue lowering the costs below that of hedgerows [2]. In 2016, the Beijing Rose Museum re-opened and it includes an exhibit where visitors can breed their own virtual rose [3]! Visitors to Beijing should expect the aroma of roses to grow stronger in the next few years.

By Anna

Photo credit: Saskia

Properly formatted sources coming June 2018

1. China Whisper, “Top 10 Flowers in Chinese Culture”

2. CCTV, “Chinese roses to be widely used in greenbelts of Beijing”

3. CRJEnglish.com, “Beijing Rose Museum Boasts Diverse Array of Exhibits”