Business reporters, and the media in general, have long feared and bowed before the awesome economic potential of the Chinese market.
To be sure, there’s plenty to write about. In January, the country’s gross domestic product finally surpassed that of Britain and France, making China the world’s fourth-largest economy. One month before that, China bumped the United States from its position as the world’s top exporter of technology goods.
Those are significant achievements. But the media’s coverage of China’s phenomenal growth has nonetheless managed to be both breathless and simplistic.
Consider, for example, BusinessWeek’s story last August on the “moon shot of an initial public offering” by Chinese Internet search engine Baidu.com. The company’s launch price of $27 a share on August 4 rocketed to $154, crushing a five-year record for the best debut on NASDAQ. The article, which carried the flashy headline, “There’s More Where Baidu Came From,” could barely conceal its glee over the emerging Chinese Internet market.
This seemed to lean a bit towards tabloid journalism given that BW’s article itself noted that “of the 10 Chinese tech companies that went public last year, 7 are trading below their offering price.”
After reporting the IPO, BusinessWeek, and most other journalists, seem to have lost the thread of the Baidu story. Which is a shame, because every China-watcher knows that the IPOs of Chinese Internet companies always soar to phenomenal heights in the early days, and then quickly return to earth. Baidu’s stock began a steady decline three weeks after its IPO, and is now 50 percent off the $153.94 high it hit on the second day of trading.
It suffices to say that business reporters often get a little too excited about the potential of Chinese companies and markets, at the expense of fully recognizing some troubling long-term problems. Moreover, China coverage is unlikely to improve as news organizations decimate their Asian bureaus. BusinessWeek stopped publishing an Asian edition, and maintains only a skeletal staff in the region. And there are many others that are making similar cuts. For example, Time Inc., which until recently maintained a formidable presence in Asia, just retired its bureau chiefs in Beijing and Seoul (along with those in Jerusalem and Moscow).
Instead of being the exception, this is more and more becoming the rule, and as a result there are fewer reporters to cover an increasingly important and complex story. As a measure of the China story’s many layers, consider Minxin Pei’s article in the March/April issue of Foreign Policy.
She points out that “China may be rising, but no one really knows whether it can fly.” Despite the positive predictions of many business writers, the Chinese economy actually rests on pretty shaky ground — all the more so, given the rampant corruption and theft regularly practiced by the Communist party officials who pull the strings. Pei writes, “Beijing oversees a vast patronage system that secures the loyalty of supporters and allocates privileges to favored groups. The party appoints 81 percent of the chief executives of state-owned enterprises and 56 percent of all senior corporate executives … In large- and medium-sized state enterprises (ostensibly converted into shareholding companies, some of which are even traded on overseas stock markets), the Communist Party secretaries and the chairmen of the board were the same person about half the time.”
Alarming, but hardly beyond imagination. China is nothing if not a grand experiment in blending capitalism and authoritarianism. But journalists tend to whitewash the fact that this experiment has, in Pei’s words, “bred a virulent form of crony capitalism, as the ruling elites convert their political power into economic wealth and privilege at the expense of equity and efficiency.”
Some of the most corrupt businesses in China are in its banking sector, which regularly dishes out loans to undeserving crony companies. But in a Bloomberg report on Goldman Sachs’ possible role in the Industrial & Commerical Bank of China’s IPO, the wire merely hinted that there has been some political maneuvering behind the deal. It completely failed to mention the sheer volume of nonperforming bank loans the government-controlled monopoly takes on every year.
In addition to Pei’s warnings, an article in today’s International Herald Tribune preached caution to those who might overvalue the Chinese market. Author James Ku noted the economy he witnessed while working as a manager at a Shanghai start-up firm was rife with “fraud, deception and general incompetence,” and that “some of the world’s most experienced businesspeople have … made the mistake of ignoring basic business principles when chasing China’s seemingly limitless potential for profit.”
We wonder how many American business people have been burned in China because the media had convinced them that the nation’s roads were paved with gold.