Thursday, April 20, 2006

Mobocracy, with Chinese characteristics

China is still nominally a socialist country, and still definitely an authoritarian state. But it's economy thrives as a result of market reforms and an opening-up to foreign investment. Over $60 billion in foreign direct investment was spent here last year, as companies from all over the world sought to stake out early claims in the newest land of opportunity. The Chinese are struggling to maintain an image of their economy as open and accessible, a place where entrepreneurs--foriegn and Chinese--can strike it rich as China transitions from a socialist to a market economy. It is at the moment, however, something like a 'Mobocracy,' where profitable businesses can be built, but on a constantly shifting semi-legal basis, always vulnerable to poaching by government officials, by people with better government connections, or some security guards with bailing wire.
A case in point is the story of Mark Kitto, founder of the highly popular 'That's' magazines in Beijing, Shanghai, and other cities. After working for years to build a chain of successful magazines, Kitto was ousted from the company he had founded by his Chinese government 'partners.' It's a very enlightening story of how the Chinese economy works these days, and Mr. Kitto tells it himself in this Prospect article.
Kitto is a fairly well-funded and savvy foreigner, who is fighting the usurpation of his magazines in the Chinese courts (or at least fighting to get the rights to his brand name back). Smaller businesses are not likely to have such resources, and can be highly vulnerable to the petty tactics of the better-connected. Like, for instance, some security guards and some bailing wire.
Near where we live in Beijing, for example, is an oddly shaped concrete plaza surrounded by an abandoned warehouse and a small strip of down-market restaurants. Our favorite grocery store--the High Honesty Supermarket--was here too, but closed down at the beginning of winter. But we continued to visit the plaza, to go to our usual restaurant there, and to buy vegetables from the farmers' market set up in the abandoned warehouse. Yesterday, though, we found that the gate leading from our apartment complex to the plaza had been wired shut. We had to walk all the way around the block to use another entrance.
According to employees at the restaurant, and sellers at the vegetable market, the owners of the plaza want the businesses to shut down and move away so that the plaza can be redeveloped into a housing high-rise. By closing the gates off, foot traffic through the plaza has been dramatically reduced, and by slowly strangling the businesses around the plaza, the landowners don't have to pay them any compensation to move them elsewhere. We'll make a point of walking the long way 'round from now on, but the toll on the businesses seems evident already. Some have already closed or are putting their merchandise on sale. Our favorite restaurant is usually packed at lunch times, but yesterday we were the only customers.
For more coverage of Kitto's case, see the Danwei web log and this Daily Telegraph story.
For more on our favorite restaurant and the farmers' market, stay tuned.

1 comment:

China Law Blog said...

I think you are going to far in making it seem that what happened to Kitto in China is common. I blogged on that here: http://www.chinalawblog.com/chinalawblog/2006/03/thats_china_and.html.

The reality is that Kitto's magazine was being run illegally and he was in partnership with the state. Both of those things make what happened to him far more likely than a WFOE that has been set up properly in China.


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