Country Driving

by Peter Hessler

  Boss Wang flushed. “I c-c-called the tax bureau but I couldn’t get an answer about the registration, so I figured I’d wait. You have to understand, I don’t know anybody here. We’re just getting s-s-started. It’s better if we meet personally, so I thought the phone wasn’t convenient.”

  Two of the men finally settled onto the couch, but Cadre Liu still drifted. Now he stood by the window, peering out at Suisong Road. “The environment here isn’t very good,” he remarked.

  “Everything is still new,” Boss Wang said. “They haven’t finished the street.”

  “How many workers do you have?”

  “T-t-twelve or thirteen. After we have customers we’ll add more.”

  “How many?”

  “Maybe fifty to sixty.”

  “What about that part of the building down there?”

  “That’s not ours. That’s being rented by another company. They’re moving here from Shanghai.”

  “What’s their product?”

  “Thermoses.”

  Cadre Liu nodded—he probably did this everywhere, gathering intelligence on any new companies that could be shaken down. He turned again to Boss Wang. “Do you have an accountant?”

  “We have a secretary who handles accounts. We don’t need a real accountant yet.”

  “Well, you’re going to need one soon.”

  “Once business picks up we’ll hire one.”

  Cadre Liu took another card out of his pleather money bag. “You should call this company,” he said. “My friend is the boss, and he can provide an accounting service.”

  There was only the slightest pause before Boss Wang responded. Then he said the right thing: “H-h-how much?”

  “I think it’s around six or seven hundred a month. But I’m not sure. You can call them. They’re a very good company.”

  Boss Wang left the card sitting on his desk. For Cadre Liu, it served two purposes: a favor for a friend and an additional source of intelligence, because the accounting service would give him a line of information on the business. The best part, of course, was that the bra ring factory would pay to be monitored.

  Cadre Liu produced the registration papers and Boss Wang stamped them with the company chop. At the end, the official mentioned the accountant again.

  “OK,” Boss Wang said. “I’ll call them. I just want things to be c-c-convenient.”

  “We want things to be convenient, too,” said Cadre Liu, smiling. He left the room; the others followed; nobody shook hands. The moment the men were gone, I realized how tense I’d felt just watching the conversation, and I sank back in my chair. But Boss Wang had already picked up the office phone. He dialed the number on the card and said, “Wei, I’d like to ask you to introduce an accountant to me…”

  GUANXI IS LOGICAL (“Even a schoolchild can figure it out!”), and at the individual level it clearly works. An official receives a gift; a factory receives favorable treatment—there’s no mystery to such exchanges. But it’s hard to see how this system pays off for a city as a whole. In Lishui, I drove on brand-new roads past massive construction projects, and often I wondered: Who pays for all this? By Zhejiang standards, Lishui was underdeveloped; in 2006, the annual per capita GDP was only $1,460. Nowadays, with the planned economy long gone, there was relatively little money coming from the central government. Chinese cities have to raise much of their own funds, but by law they can’t issue municipal bonds, like American cities. They also can’t charge significant property taxes, because land is still nationalized. The tax base is weak, especially for a fledgling industrial region: in Lishui’s development zone, companies received tax breaks for their initial three years of production, and after that most of them would cheat on their earnings reports anyway. It worked out well for the factories and the officials—they got favors and cash and all the Chunghwa a man could smoke—but it was impossible for the city to survive on its tax revenue.

  And yet Lishui, like most Chinese cities, spent money everywhere. From 2000 to 2005, Lishui invested $8.8 billion in infrastructure, which was five times the amount for the previous half century. After that massive spending campaign, they immediately topped it: in the first half of 2006, when the bra ring factory opened, Lishui’s infrastructure investment rose by another 31.7 percent, as compared to the previous year. Real estate investment increased by 57.2 percent. This was real cash, all of it parlayed into new roads and new bridges and new buildings; it wasn’t just a matter of Chunghwa changing hands. But where did it all come from?

  The answer lay beneath all that construction. It was land, or more precisely it was the way that land-use rights transfer from rural to urban regions. In the Chinese countryside, all land is collective, and farmers like Wei Ziqi have no right to sell their plots or homes on the open market. Instead, the village handles all deals, and even the village has little power to negotiate if a city decides to expand into their farmland. In these situations, the city can acquire the land at will, and they pay set prices that have been established by the government. After the sale is made, and the farmers have moved off the land, the city can build basic infrastructure and reclassify the region as urban. And urban land-use rights can be auctioned off at market rates, to the highest bidder. It’s a type of arbitrage, buying rural land and reselling it as urban, and it can be practiced only by governments from the township level up.

  The profits from such exchanges are immense. Wang Lina, an economist at the Chinese Academy of Social Sciences, told me that cities in coastal regions receive roughly half their fiscal revenue from real estate transactions. She described Chinese cities as resembling corporations, with the mayor serving as the CEO. “Their goal is to make money, obviously,” she said. “But they can’t only sell real estate. Investors aren’t stupid—they know enough to wonder who’s going to buy apartments in a city that has no industry.” In order to solve this problem, local governments often build a development zone, where they sell land-use rights at cost. The cheap prices attract factories, which provide some tax revenue, but the key is that they expand the city. More bosses, more shopkeepers, more migrants—all of it means more suburbs and a better real estate market.

  If a city hopes to stay solvent, it must continually expand. In order to build infrastructure, the local government takes out huge loans from state-owned banks. Wang Lijiong, the director of Lishui’s development zone, told me that back in 2003 the city had borrowed over sixty million dollars in order to start blowing up the mountains and building roads. “If you want to get wool, you have to raise the sheep,” he explained. But there were many parts of China where officials had gambled on investors who never arrived. When this happened, the development zone remained half-built, and the loans failed, and the whole bubble collapsed.

  By 2006, the central government had realized the risks of this system, and they were trying to slow growth. They raised interest rates, and they required cities to undergo a more stringent application process for major expansions. But authority had become so decentralized that rules were hard to enforce. Wang Lina said that the Ministry of Land Resources simply didn’t have enough staff to do the necessary on-site investigations. Sometimes they even relied on satellite images to try to figure out which cities were embarking on major construction projects. Budgets were a disaster, because governments could effectively decide what to report and what to hide. Wang had recently researched a town in Henan Province where the government reported a year’s fiscal revenue of only two hundred million yuan, or roughly a quarter of a million dollars. But they had spent five times that amount on infrastructure projects. Wang couldn’t tell where the money came from—she assumed the city had profited from real estate transactions, but there were many ways to avoid reporting such deals. The cadres, like everybody else, were involved in the guanxi game; major deals were accompanied by bribes and gifts, and nobody left a paper trail. And only a fool bothered to think about long-term goals. “Every five years you change the local government officials,” Wang said. “So they kn
ow they have a limited opportunity. Do they worry about the next generation of leaders? They have to get it while they can.”

  Wang, like many scholars, believed that eventually the Chinese government will have to privatize land. With stable income from property taxes, they could end the current system of real estate speculation, but there isn’t much incentive to make a change now. And the people who suffer the most are those with the least power: the farmers. Their loss of land helps subsidize China’s urbanization, and they have no legal recourse—it’s hard enough to overthrow a single village Party Secretary, not to mention the whole system. In any case, most peasants are so intent on migrating, or coping with the transition to private enterprise, that the last thing they worry about is changing the constitution.

  In a country where everybody is on the move, the land itself is fluid, at least in the legal sense. All around a city like Lishui, farms are being converted to suburbs, and every construction site means more revenue for the government. East of downtown, one major development was happening in a place formerly known as Xiahe. Xiahe was a village on the banks of the Hao River; in the old days peasants raised rice, tangerines, and vegetables. But a few years ago the Lishui government had acquired a 16.5-acre section of the village. For the rights to this land, the city paid slightly less than one million dollars, most of which was used to compensate local farmers who had to move out. I met a Xiahe resident named Zhang Qiaoping, who had supported a family of four on a plot of land that consisted of roughly one-third of an acre. When Zhang lost his land, he was given a payment of fifteen thousand dollars.

  After the city acquired the Xiahe territory, they built a network of roads and installed a sewage system, and then they sold the development rights to a private company called Yintai. Yintai planned to build an apartment complex, and Zhang Qiaoping had heard that they paid around thirty-six million dollars for the land. After talking with him, I visited Yintai’s main office, where the director of development showed me documents certifying the actual price: thirty-seven million dollars. In other words, Lishui had bought land for one million and then, in the span of three years, flipped it for thirty-seven million. And much of this had been done openly—even the peasants knew the ballpark figures. When I asked Zhang Qiaoping if the deal was fair, he shrugged. “They have the right to buy it,” he said. In truth, his plot of land had been worth at least two hundred thousand dollars, but he hadn’t protested about his fifteen-thousand-dollar settlement. Instead, he took the cash and invested in a small shop directly across from Yintai’s planned apartment complex. The project was being built day and night, and construction workers often stopped by Zhang’s new shop to buy food and drinks. Knowing that he couldn’t fight the system, Zhang had done what he could to profit from it.

  The new apartment complex was called Jiangbin, or Riverside. It consisted of twenty-eight buildings, the tallest of which would be eleven stories. The planned centerpiece was a musical fountain larger than a football field. For this construction project, Yintai had borrowed more than twenty-eight million dollars, much of it from individuals hoping to earn high interest rates. In Zhejiang this is common—companies often raise money through private investors, because it’s easier than getting bank loans. Technically, such fund-raising is illegal, but it’s widely tolerated in a country where capital tends to be in short supply. At Yintai, company officials didn’t believe there would be any problem paying the money back, because their timing seemed to be perfect: during the past five years, the average price of a Lishui apartment had risen sixfold. The vice chairman of the board at Yintai told me that they expected to profit nineteen million dollars total from Riverside.

  The vice chairman’s name was Ji Shengjun, and he was the son of Yintai’s founder. Back in 1978, when the reforms began, the Jis were a poor peasant family in the town of Qiaotou. The patriarch worked for private construction crews, eventually starting his own company. He caught the early wave of the building boom, expanding his business all across Zhejiang, and now he worked with all three of his sons. Ji Shengjun was the youngest, at twenty-seven years of age. In addition to the family development company, he owned a number of businesses on the side, including a local nightclub called Masear. One evening I met him there, in the upstairs VIP room. He wore black Prada loafers, black Prada trousers, and a red and black Versace shirt. He carried a gold-plated Dupont cigarette lighter that had cost over six hundred dollars. He smoked Chunghwa cigarettes, naturally. Like everybody else in the VIP room, I was served Ji’s drink of choice, which was Old Matisse Scotch sweetened with green tea and served in a wineglass. Every once in a while, after taking a drink, Ji leaned over and spat directly onto the carpet, rubbing it in with his Prada loafers. He wore no socks.

  There were a half dozen people in the VIP room. The door was monitored by Ji’s personal bodyguard, a well-built man in a tight T-shirt. One of the bodyguard’s daily responsibilities was to carry Ji’s Louis Vitton clutch purse as he cruised around Lishui. In the club, a pretty young woman sat close to Ji, her hand on his lap. When Ji told me that he was about to have a wedding, I made the mistake of referring to this woman as his fiancée, which made everybody laugh. Ji was friendly and easygoing, and whenever he smiled he showed tea-stained teeth. He had the extreme thinness that you often find in the countryside, where people are slightly malnourished—if not for the Prada clothes and the bodyguard, this man would have been indistinguishable from a peasant. And his multimillion-dollar company raised money in the peasant way, relying on guanxi and acquiring loans from individuals. Ji Shengjun told me offhandedly that it had cost him $1.25 million to open the nightclub. I never met his fiancée. The pretty young woman in the VIP room was sucking a lollipop. She stroked Ji’s arm and cooed in his ear; from appearances it seemed romantic, but then I caught a fragment of their conversation. It was strictly business: she was pleading with Ji to help her acquire a visa so she could look for work in Portugal.

  ONE JULY AFTERNOON, AT the start of a summer rainstorm, the bra ring factory received an express mail envelope. It was pleather weather—in the development zone, the initial stages of a downpour consisted of big dirty drops. The deliveryman held the envelope over his head, to guard against the filthy rain, and once he was inside the factory he wiped the package on his trousers and handed it to Master Luo. The envelope contained nothing but four nylon bra straps. Each was a different color: pink, white, brown, and light blue. There was no letter, no invoice—no explanation of any sort. The straps were a kind of semaphore, and Master Luo knew who could interpret them. “Xiao Long!” he called upstairs, to the factory dormitories. “Delivery!”

  Xiao Long was the factory chemist. His full name was Long Chunming, but everybody called him Xiao Long—“Little Long.” He came downstairs wearing a pair of plastic flip-flops and a blue-and-white basketball uniform. In bigger factories, workers dress in company jumpsuits, but the bra ring plant was so small and informal that everybody wore whatever they pleased. Little Long’s shorts and tank top were nylon knockoffs of the Puma brand, and they gave him the appearance of an athlete at game time. He studied the envelope’s return address: it came from a brassiere assembly plant in a city called Dongyang.

  “They ordered rings a couple of days ago, and these are the colors,” he explained. It was easy to remember because the bra ring factory still had so little business. At the moment, they had only four regular buyers, all of whom were small. Boss Gao and Boss Wang were often away from the plant for days at a time, trying to woo new customers, but the bosses usually returned with long faces and short tempers. Workers had started to gossip—there were rumors that the factory was in financial trouble. The bosses had already laid off some of the young women on the assembly line, and they called the Tao family into work sporadically, when orders arrived. Only a half dozen technicians like Master Luo and Little Long were still working full-time.

  After Little Long deciphered the envelope, I followed him to the factory lab, which was located next to the Machine room. Dre
ssed in the Puma uniform, Little Long picked up his playbook—a loose-leaf notebook filled with dozens of rings taped in rows, their colors changing incrementally from page to page. Next to each ring, Little Long had inscribed the dyeing formula and an English name. These descriptions sounded exotic: a red ring, for example, was labeled as “Sellan Bordeaux G-P.” Little Long didn’t speak the foreign language, but he had copied long lines of inscriptions from other sample books:

  Padomide Br. Yellow 8GMX

  Padocid Violet NWL

  Sellanyl Yellow N–5GL

  Padocid Turquoise Blue N–3GL

  Padomide Rhodamine

  “I already know how to make the pink and the blue,” he said. “But now I have to do the brown.” He cut off a piece of the strap and compared the color to other browns in the book, trying to gauge the formula. Then he took out three powdered dyes: blue, yellow, and red. He poured each powder into a beaker and weighed them on a balance scale. He wrote down the ratios on a new page in his notebook. “This will take more blue and yellow, less red,” he said. He heated water, mixed in the powders, and tried the resulting dye on a few rings. He checked the color against the strap—too light. More blue, more red. He tried again: still too light. It took three times before he got a match. “There are Big Masters in Guangdong who can just look at a color once and immediately know the formula,” he said. “They work for the big Hong Kong companies; a Big Master like that makes tens of thousands of yuan every month. I’m nowhere near that level.”

  The sudden downpour had stopped and now the air felt muggy. Outdoors it was over one hundred degrees Fahrenheit, and here in the lab, with the burners and the machines, it was even hotter. After the initial round of dyeing, Little Long had taken off his uniform top, like a playground athlete who’s finished the first game and wants to get serious. Finally I did the same, and both of us stood sweating in the lab, watching the rings spin in an industrial mixer. Virtually all the factory men went shirtless in summer.