China’s Urban Development

Since its accession to the World Trade Organization in 2001, China’s economic growth has become a global powerhouse, captivating the world’s attention with its sheer scale. Visitors to major cities such as Shanghai and Beijing see skylines filled with cranes and sunsets that shimmer through a veil of particulate matter from hundreds of construction sites. Giant buildings of stressed concrete, steel and glass spring up like daisies, towering over the landscape and inhabitants. In these buildings I find that the Maoist ghosts of socialist architecture’s gigantism are alive and well, reincarnated by Western architectural firms and Chinese construction companies in this dazzling expansion that dwarfs most previous urban intensification by exponential magnitudes.

This expansion has largely been focused in urban areas. The new buildings of the coastal and Eastern metropolises are filled with foreign companies that set up shop to stay, and thus rarely heed the nonexistent call to go west, towards the rural interior of China. As a result, China’s recent great increase in wealth has roughly paralleled the growth of its rich-poor gap, largely being divided between rural and urban residents. This phenomenon of a growing gap between social strata defined by wealth and proximity to an urban center is not confined to Chinese growth, and occurs almost everywhere that modern economic growth does. However, in China, with a population of 1.3 billion, the scale is more massive, and with such a rapid economic intensification in the past few years, the disparities much greater.

In observing this colossal growth, the West’s attention has too often been almost exclusively focused on urban representations of progress. This is unsurprising given that these monolithic skyscrapers offer the most dramatic images of China’s growth and are also the ones that Chinese administrators and businessmen are most anxious to show off to foreigners. However, focus on urban development has rendered hundreds of millions of impoverished rural inhabitants virtually invisible behind the propaganda posters, echoed in the Western media, of China’s rise to prominence. Some experts predict that China may soon surpass the United States as an economic power, yet more people in China survive on less than a dollar a day than the entire population of Russia, close to 200 million according to numbers calculated by the World Bank and CIA Factbook. And hundreds of millions more live in poverty not severe enough to be classified as “extreme” under the international line of the one U.S. dollar a day.

…we may soon live in a world where the so-called “richest” country is also one of the poorest.

In other words, we may soon live in a world where the so-called “richest” country is also one of the poorest. This may sound like an Orwellian characterization, but it makes economic sense, given the burgeoning number of extremely rich Chinese, the government’s trade surplus, and the use of averages in calculating a nation’s wealth. This is a cause for concern not only for those who care about human welfare, but also for those who worry about the domestic stability of a nation that boasts a population of 1.3 billion and has already assumed a crucial role in the emerging globalized economic system.

Microfinance and the Micro-Credit Model

Microfinance has become a well-known concept in development circles in recent years, but has yet to gain much recognition among the general population. Microfinance is the practice of providing financial services to the poor who are turned away by banks because the sums that they work with are too small. As a result of this lack of access to conventional financial institutions, many poor people have to make do with keeping their small sums of money under a loose floorboard or a hay mattress, where it gets eaten by insects, doesn’t earn interest, and doesn’t allow them the possibility of building credit. The poor also have no way to take out loans because they lack sufficient collateral, making their economic condition much more susceptible to natural disasters, sickness and other troubles that impede their ability to afford survival.

If a family has to choose between paying for medicine for a desperately sick child and keeping the family cow, the cow usually gets slaughtered and the beef sold to pay the expenses. This leaves the family much worse off than before, and it may take months before they can accrue enough capital to buy a new cow. Even worse, the loss of the cow may precipitate a domino effect, where the family is forced to plough the fields with a hand-plough instead of an cow-drawn one, which means they must labor longer for less produce and thus cannot afford to send another child to school, which in turn means that the potential for that child to bring home money in the future is reduced to locally available opportunities which have already been severely curtailed by the loss of the cow. The ability to take out a small loan to pay for medicine is a luxury that few people living on less than a dollar a day possess, and yet it is precisely this inability that allows the cycle of extreme poverty to turn another generation, even in a country such as China with its massive engine of economic growth.

The remedy may lie with a revolutionary practice known as micro-credit. A subset of general microfinance, it simply refers to the practice of giving loans to individuals or groups of individuals with little or no collateral. The model was developed by Muhammad Yunus, an economist from Bangladesh who started experimenting with small loans to the very poor in the early 1970s. In 2006, Yunus and the Grameen Bank that he founded were awarded the Nobel Peace Prize for the poverty-alleviating effects yielded by the implementation of their micro-credit strategies. [n1] Today, there are over 100 million borrowers of micro-credit loans world-wide, from over 10,000 micro-credit institutions. [n2] Although conventional economics would predict that those with little or no collateral would be unsuitable as borrowers, micro-credit institutions typically have a loan repayment rate somewhere between 95-100%, well above most banks. [n3] Micro-credit borrowers can use a history of continual repayment to build up credit to take out bigger and bigger loans up to a cap, using tiny loans to help families make it through a tough time or larger loans as start-up capital for micro-enterprises like raising livestock or opening a roadside stand. Eventually, micro-loans can allow individuals and families to work their way out of extreme poverty altogether.

Opportunities in the Growing Chinese Microfinance Sector

Twenty-two hours by train south and west of Beijing in rural Sichuan province, I talked to some of the micro-credit borrowers to see if the gains advertised by international hoop-la were evident at the ground level. One of the borrowers I talked to was an extremely small man with a hump on his back that makes it difficult for him to do physical labor. When he took out his first micro-loan, he was literally a beggar living on the street. The loan was 300 RMB, less than fifty U.S. dollars. He used the loan to buy a small pig that he kept with him on the street and begged for food for it. When it was available, he performed what limited day labor his disability allowed to pay for scraps. Months passed, and the pig grew. At the end of the year he sold the pig for slaughter. He repaid his loan and made close to 200 RMB besides. With the help of another loan, he bought more pigs, and was able to live more comfortably the next year. After only a few years time, he was able to build a house to live in, and was able to stop begging. Another borrower had used a loan to open a distillery to make bai jiu, a popular Chinese rice wine. Most of the raw materials she was able to get herself, but it was only with the help of the micro-loan that she was able to buy the pipes that allowed her to produce on a large enough scale to make it profitable.

As I talked to these borrowers, I repeatedly got the sense that they wanted to express a deep gratitude for the opportunity that had allowed them to prosper. The south-west region of China and particularly Sichuan have been badly affected by an massive earthquake earlier this year that was felt all across Asia. One family I talked to showed me the area where most of their livestock had once been kept and then explained that during the earthquake a rock had fallen from the top of the mountain behind their house, destroying their pens and killing the livestock. A micro-loan had allowed them to weather the loss, to re-group, re-build, to acquire more livestock and continue with their lives. For them, while the disaster of the falling rock was certainly unfortunate, because of the micro-loan its damage did not persist as an enduring tragedy.