Yueyue: China’s Social Fabric in Tatters

Submitted by Tractus Asset … on Tue, 11/01/2011 - 00:18

A driver in Foshan, South China, ran over a 2 year old girl named Yueyue (小悦悦) twice, rather than face the hassle of a possible lawsuit. Meanwhile, 18 people walked by the seriously wounded girl, ignoring the situation until a female scrap collector stopped and brought her to the hospital. The girl died from severe injuries a couple of days later. The entire incident was captured on a very graphic video.

http://news.sky.com/home/world-news/article/16091304

This is hardly an isolated incident. Similar cases have been reported all over China. It is easy to take the moral high ground and accuse their drivers and bystanders as cold hearted and inhumane. But when 18 consecutive spectators behaved alike, then it demonstrates a socially conditioned behavior that has broad implications.

China has 1.3 billion people and intense competition for material resources. The judiciary has failed to evolve along with the transformation of the modern Chinese society. Most importantly, in order to maintain the stability required for rapid economic growth, the system (體制) has disincentivised and even occasionally penalized those who raise voices for sociopolitical justice and reforms.

For instance, there have been high profile cases of activist parents and lawyers jailed after the 2008 tainted milk scandal. Many Chinese are thus conditioned to be silent and focus on their self interests. Truth and public interests are concepts monopolized in only official speeches. Very few people can confidently say that he or she would act differently in this all imposing system.

We do not briefly raise this issue for a philosophical or political debate. Rather, we see that this mode of social behavior will probably have grave consequences for China in the coming years, and most investors have yet to sufficiently factor this reality into their decisions when investing in China.

• Investors should take financial figures they receive from China with a grain of salt. Such figures need to be substantially discounted when valuing a potential investment. Moreover, direct investment in China is especially tricky, as witnessed by the disgraceful violation of shareholder rights in the case of Yahoo’s investment in Alibaba.

In the longer term, the breakdown in social trust and responsibilities may hinder the future development of Chinese corporations, especially the ones requiring high technology, service excellence and credibility.

• Then there are the often discussed risks of political unrests. However, I think the Chinese government has a very tight grip on the state apparatus. There is no viable alternative political force capable of putting a dent in the government’s power. Any challenge will be put down promptly and decisively. There may be sharp disturbances, but the risk of China spinning out of control politically is minimal.

The most likely risk that is grossly underestimated is some kind of industrial or environmental disaster. Imagine a nuclear accident in one of the most fertile and highly populated regions in China, or a chemical plant releasing toxic fumes that lead to thousands of causalities in a metropolitan city. Consider a deadly virus/bacteria outbreak triggered by irresponsible use of antibiotics in farming and medicine.

People should not assume China is capable of safely operating nuclear power plants when it is having problems with high speed railways. Managing sophisticated technology infrastructures requires a responsible organizational culture that values social responsibilities and positive feedback loops. The potential impact of a single nuclear accident is incomparable to a few train crashes.

Everything in China occurs on a grand scale, even the accidents.

• As for Hong Kong, I think it is naïve to assume that this unique business center can always be shielded from China’s harsher side. The city is now firmly attached to China in all vital functions. It is inevitable that whatever happens in China will greatly affect Hong Kong as well. It is crucial for high net worth investors in Hong Kong to diversify some of their assets internationally and to recognize that the future value of the city’s real estate will be directly linked to developments in China.