Misunderstood China: Uncovering the Truth behind the Bamboo Curtain

Chi Lo''s second book gives a balanced analysis of numerous contentious issues.

As Chi Lo points out in the introduction to latest work, writing about China can come across as too subjective. Often, the writer's standpoint can be guessed before a word is read. Factors determining the writer's approach are numerous.

They can range from how far geographically the writer is from China (long-standing locally-based observers can often be the most cynical), the country he's from and the nature of his personal experience.

US writers will often focus on Falun Gong and human rights, while English writers have a good line in witty business critiques. Partly, the variety of views is surely to do with the language barrier, and the difficulty of obtaining accurate information in a culture which does not have the same attitude as the West to the 'Truth'.

A further problem is the anecdotal approach, when individual experiences are over-generalized. Chi Lo's book can also be seen as deriving from Lo's position as a Western-trained Hong Kong resident.

He has an intellectual rigour deriving from his background in economics as well as a cultural ability to critique both sides. True to his academic training, Lo is keen to provide and answer: "With rising Chinese influence, it's crucial to set straight the myths so that better business, political and social reactions can be formed," he writes.

There's always a certain danger when a writer sets out to tell the 'truth'. While an intellectual focus can break down a phenomenon into rational chunks, it's not the only, or even necessarily the most persuasive, approach. Sometimes it seems an anecdote or vignette - of the kind Ian Johnson provides in his book 'Wild Grass' can make an even stronger impression.

Which of the two approaches is most 'truthful' is hard to say. In any case, Lo's narrows down his focuses on topics such as the nature and speed of China's growth, its impact on south-east Asian countries, the problems within the banking system and the issue of Rmb devalution.

The book packages many pro and anti viewpoints on a vital range of issues in one convenient location. In that sense, Lo undoubtedly succeeds in his goal of illuminating many issues obscured for political or selfish reasons.

Lo can sometimes come across as somewhat waspish, especially in when he berates the Japanese for hypocrisy when they call for a stronger Rmb. Yet he almost manages it to elevate this to a rhetorical device.

For example, the beginning of the book features a discussion of foreign direct investment (FDI), of which China has managed to pull in half a trillion dollars since 1978. Lo points out that this is not a sign purely of China's attractiveness as a market but also a sign of caution.

Investors prefer to keep hands-on managerial control in 'difficult' countries. Although the point that FDI can be a sign that the domestic financial system is not functioning properly has been made before, Chi Lo adds that the SOEs, despite their woeful reputation, are interesting targets for FDI.

That's because SOEs are usually a curious mixture of quite valuable assets - often their access to land, even though they don't always own it automatically - and liabilities. Lo's claim that foreigners are taking over SOEs under the guise of FDI is fascinating, and worthy of further study. That's especially true in view of the great break up being carried out in China's public sector which one leading International Finance Corporation economist says has affected 80% of China's SOEs.

There is a slight discrepancy here with what Lo writes and the current widely-touted foreign preference for wholly-foreign owned enterprises (rather than acquiring Chinese assets in a joint venture), while the IFC study suggests most of the M&A activity is being carried out by locals rather than foreigners.

In any case, the initial negativity is enough to make the reader conclude the writer is a 'China basher'. But Lo then provides a series of convincing reasons why there is grounds for substantial optimism regarding China's growth.

For example, while accepting the point that Chinese statistics are sloppy, Lo points out the National Bureau of Statistics wisely has its own collection of data gatherers. These bypass provincial truth twisters and are partly trained by the International Monetary Fund.

He also tackles the issue of the pensions fund shortfall and points out that the Chinese problem at   points out that the Chinese problem at 45-75% of GDP is not even in the same league as that facing the US and Italy  – 110% and 240% respectively.

 With regard to the Rmb debate, Lo argues that it's almost impossible to work out a scientific level for the currency because of the huge structural changes underway in the mainland economy and the paucity of reliable data.

As regards to China 'exporting deflation', Lo agrees that that is occurring, but that the oversupply problem in the Western economies, especially the debt-fuelled decade of the last century, must also take its fair share of the blame. In any case, it's basic economic theory that companies will leverage their competitive advantage - which in China's case means cheap labour being traded for capital goods.

It isdifficult to see cheaper toys, textiles and other light manufacturing goods being the mortal to threat to the US some protectionist politicians claim. As Lo points out, cheaper consumer goods means the consumer has more money to spend elsewhere.

He also makes the valuable point that China's share of world exports has increased on the back of solid improvements in total factor productivity (that is, improving the efficiency of inputs such as land, capital and labour), rather than 'dumping' goods at low prices. That's impressive when you consider that China has not slashed its currency by the 60% on average of many of its Asian neighbours in the wake of the Asian crisis.

He is extremely unsympathetic to south-east Asian countries apart from Singapore, which he singles out as one of the few countries which has moved successfully into more value-added goods. That combination of accepting shortcomings but obstinately pointing out the positives ultimately brings a welcome breath of fresh air to the controversies that continuously swirl around China.

Hopefully, this book represents a step in the evolution of the debate about China.