For China's New Leaders, Massive Growth Means High Hopes And Hidden Traps

Guards in an underground passage between Tiananmen Square and the Forbidden City
Guards in an underground passage between Tiananmen Square and the Forbidden City
Shujie Yao*

Beginning this week, there will be a new generation of Chinese leaders. The world’s media are all highly attentive to China’s coming changes and the policy direction of China’s new leaders. I’d like to share my personal views, focused on the domestic issues such as the economy and the government.

I believe the focus of the new Chinese government must be people’s livelihood, clean governance and the environment protection.

Indisputably over the past ten years, under the leadership of Hu Jintao and Wen Jiabao, China has seen the most astonishing economic growth. The biggest catalyst for China's rapid rise was its joining the WTO at the end of 2001. Catapulted by this, China was able to be fully integrated into the world economic system, and see its inherent demographic and talent advantages flourish. It took China just 10 years to reach the level of internationalization, and international division of labor that many developed countries had required more than 30 years to achieve.

From 2001 to 2011, China's per capita GDP grew from less than $1,000 to $ 5,500 GDP and its total GDP has grown from $1.3 trillion to $7.5 trillion.

With an average annual growth rate of 20%, China has become the world’s largest exporter and was the second largest trading nation in 2010. By the end of 2011 it had foreign exchange reserves of $3.2 trillion, accounting for one-third of the total world reserves and three times that of the second-largest foreign exchange reserve, those of Japan.

Meanwhile, China also ranked as the world’s number one producer of more than 220 kinds of major industrial and agricultural products including grain, cotton, cloth, steel, cement, coal, electricity, cars, computers, mobile phones. Among the major industrial products such as computers and mobile phones, China accounts for more than a 70% share of world production. In other words, by now, consumers around the world depend onChinato turn out these products.

The past 10 years has been a singular period for the Chinese in confirming their international status.China’s total GDP continued to exceed five of the seven richest Western industrialized countries (G7),Italy,France, theUnited Kingdom,GermanyandJapan. In 13 years’ time, most probably,Chinawill overtake the world's largest economy.

China's rapid economic development is based on the high-speed development of its education, science and technology.Chinahas continuously increased spending on research and development, increasing over the past decade from less than 1% of GDP to 1.8% of the total GDP.

Critical voices

Enrollment rate for higher education has risen from 5% in 1996 to 23% in 2011. The millions of university graduates and postgraduate graduates each year are the main force in changing the structure of human capital and are an important guarantee of China’s further development.

At the same time as this fast development, a variety of voices critical of the government have been heard, especially from the Chinese people themselves, coming one after another. Why is that?

Polarization among the people, corruption and pollution have become the country’s three biggest curses – and the biggest threat to China’s stability and sustainable development.

The individual complaints and discontent are a demonstration of people’s lack of social well-being. The government should not ignore such sentiments coming from the people. Since the goal of development is the happiness of the people, when people lack a sense of well-being, the government must reflect.

It is not so much about why people are grumbling and dissatisfied, since their income has increased and they have had a better education, but about the real roots of the discontent.

The reasons are very simple. Chinese people are unhappy not because their income has decreased or their living standard has gone down, but because they feel that the increase of their living standards and income are not proportional to the efforts they have put in. Meanwhile, there’s a minority of people whose multiplying income is far beyond ordinary folk’s imagination. In other words, a widening wealth divide is what makes the public feel unhappy and discontent, in relative terms.

People’s second source of discontent is that there are more and more government officials who are enjoying more and more privileges, and the phenomenon has been legalized. That is to say without institutional reform, bureaucratization and hostility between the Government and the people will become a historical certainty.

Billions, not millions

Worst of all is the increasingly rampant corruption. In the past decade, not only has corruption not been effectively restrained, but actually has proliferated. For instance, a sub-division level urban management official in Guangdong, caught recently, owns as many as 22 apartments. Certain high-ranking officials involved in corruption are alleged to have colossal sums, not in millions of RMB, but in billions of American dollars.

Just the past five years alone, some 670,000 officials have been investigated by the Inspection Department of the Communist Party’s Commission for Discipline.

Where do these astronomical sums of money come from? The stock market and the housing market.

Money in the stock market is hollowed out. Who did it? Who causes the housing prices to soar? Ordinary people, even if they work hard all their lives without more than the basic food and drink, still cannot afford to buy a small apartment of 50 square meters? With China’s nearly 2,500 listed companies, bank profits exceed the profits of all other companies. And the profits of the two largest state-owned enterprises exceed the total of the top 500 private enterprises.

The monopoly of state-run enterprises and corruption exist at the expense of the interests of the people. Meanwhile, the high investment and export-led economic growth model faces unprecedented challenges, relying on cheap labor and the exploitation of natural resources.

One can’t turn the clock back, We can’t deny what China has achieved in the past decade. But the problems and challenges accumulated in the past ten years can’t be overlooked either. Denying the performance is unfair and would be in bad conscience, whereas ignoring the problems will not solve the issues or prevent China from falling into the so-called middle income trap.

Adam Smith criticized 18th and 19th centuryChina in saying it had fallen into a "stable and backward" status. If China does not resolve its current problems, it will fall into another "stable and backward" state.

This is why China’s new leadership must carry on the recent heritage and open up to the future, carry forward the good while overcoming the problems in a timely manner.

*Shujie Yao is the Head of School of Contemporary Chinese Studies at the University of Nottingham, UK

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Air Next: How A Crypto Scam Collapsed On A Single Spelling Mistake

It is today a proven fraud, nailed by the French stock market watchdog: Air Next resorted to a full range of dubious practices to raise money but the simplest of errors exposed the scam and limited the damage to investors.

Sky is the crypto limit

Laurence Boisseau

PARIS — Air Next promised to use blockchain technology to revolutionize passenger transport. Should we have read something into its name? In fact, the company was talking a lot of hot air from the start. Air Next turned out to be a scam, with a fake website, false identities, fake criminal records, counterfeited bank certificates, aggressive marketing … real crooks. Thirty-five employees recruited over the summer ranked among its victims, not to mention the few investors who put money in the business.

Maud (not her real name) had always dreamed of working in a start-up. In July, she spotted an ad on Linkedin and was interviewed by videoconference — hardly unusual in the era of COVID and teleworking. She was hired very quickly and signed a permanent work contract. She resigned from her old job, happy to get started on a new adventure.

Others like Maud fell for the bait. At least ten senior managers, coming from major airlines, airports, large French and American corporations, a former police officer … all firmly believed in this project. Some quit their jobs to join; some French expats even made their way back to France.

Share capital of one billion 

The story began last February, when Air Next registered with the Paris Commercial Court. The new company stated it was developing an application that would allow the purchase of airline tickets by using cryptocurrency, at unbeatable prices and with an automatic guarantee in case of cancellation or delay, via a "smart contract" system (a computer protocol that facilitates, verifies and oversees the handling of a contract).

The firm declared a share capital of one billion euros, with offices under construction at 50, Avenue des Champs Elysées, and a president, Philippe Vincent ... which was probably a usurped identity.

Last summer, Air Next started recruiting. The company also wanted to raise money to have the assets on hand to allow passenger compensation. It organized a fundraiser using an ICO, or "Initial Coin Offering", via the issuance of digital tokens, transacted in cryptocurrencies through the blockchain.

While nothing obliged him to do so, the company owner went as far as setting up a file with the AMF, France's stock market regulator which oversees this type of transaction. Seeking the market regulator stamp is optional, but when issued, it gives guarantees to those buying tokens.

screenshot of the typo that revealed the Air Next scam

The infamous typo that brought the Air Next scam down

compta online

Raising Initial Coin Offering 

Then, on Sept. 30, the AMF issued an alert, by way of a press release, on the risks of fraud associated with the ICO, as it suspected some documents to be forgeries. A few hours before that, Air Next had just brought forward by several days the date of its tokens pre-sale.

For employees of the new company, it was a brutal wake-up call. They quickly understood that they had been duped, that they'd bet on the proverbial house of cards. On the investor side, the CEO didn't get beyond an initial fundraising of 150,000 euros. He was hoping to raise millions, but despite his failure, he didn't lose confidence. Challenged by one of his employees on Telegram, he admitted that "many documents provided were false", that "an error cost the life of this project."

What was the "error" he was referring to? A typo in the name of the would-be bank backing the startup. A very small one, at the bottom of the page of the false bank certificate, where the name "Edmond de Rothschild" is misspelled "Edemond".

Finding culprits 

Before the AMF's public alert, websites specializing in crypto-assets had already noted certain inconsistencies. The company had declared a share capital of 1 billion euros, which is an enormous amount. Air Next's CEO also boasted about having discovered bitcoin at a time when only a few geeks knew about cryptocurrency.

Employees and investors filed a complaint. Failing to find the general manager, Julien Leclerc — which might also be a fake name — they started looking for other culprits. They believe that if the Paris Commercial Court hadn't registered the company, no one would have been defrauded.

Beyond the handful of victims, this case is a plea for the implementation of more secure procedures, in an increasingly digital world, particularly following the pandemic. The much touted ICO market is itself a victim, and may find it hard to recover.

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