In the book, you say China is at a ‘critical turning point’ – investment-led growth has led to bad debt and Non-Performing Loans. Can China get out this debt trap?

Following the 2008 global financial crisis, China launched a massive stimulus programme to keep its economy afloat. It worked, in that China avoided the dramatic falls in economic growth that many other parts of the world saw. But that reliance on debt to drive the economy then became a bad habit that the government has yet to overcome. Total debt as a proportion of GDP is now more than 300 percent and has been growing steadily. This kind of growth at this level is seen by many economists as unsustainable. China’s leaders know what they need to do: in order to break their reliance on debt-fuelled growth – which by the way has contributed to the country’s pollution problem and has been energy wasteful – they need to build up a much stronger consumer and service-driven economy. But while progress has been made, they are still struggling to grow the proportion of the economy made up of domestic consumption; it is still below 40 percent, a rate not much changed in years, and one that is some twenty percentage points below the world average.

How scary are the demographics? Has China run out of its once seemingly limitless supply of young workers?

What had been what economists call a “demographic dividend” has now become something of a demographic time-bomb for China. And recent moves towards ending the notorious one-child policy appear to be too late; couples have reached an income and education level where they are no longer interested in having more children. The high costs of education in China also discourage families from having more kids. As the workforce ages (and it recently began to shrink in overall size too), innovation tends to suffer; those who are older typically are not as willing to take risks with new ideas and that hurts the economy’s vibrancy, research by Ctrip founder James Liang has shown. In the factories, demographics, of course, has had a huge impact as workers age, shortages emerge, and wages rise. Overall competitiveness has suffered, with manufacturing wages now higher than in Mexico or Malaysia. Meanwhile, the cost of supporting an ageing population with ever more retirees is substantial. It is putting pressures on the finances of local governments and families alike, who have to pay for new health care and pension costs.

The economic ‘rebalancing’ away from FDI and manufacture to retail and services has really been all about the urban middle class. How is rebalancing playing out in the countryside?

In my mind, this is the biggest challenge facing China: ensuring that the other half of the country who still live in rural China or are migrants who hail from the interior regions, also become part of the spending middle class. This is a top government priority and is critical to the success or failure of the China model going forward; it will not be easy and may well fail. One of the biggest obstacles is the continuing strength of the hukou policy. That means that migrants are unable in most cases to access affordable healthcare in the cities they live in or put their children in urban public schools. Instead, they are supposed to return to the countryside for their medical needs, put their children in low quality but often pricey private schools that cater to migrants, or leave their offspring as ‘left-behind children’ in the interior. The policy also explains the prevalence in China of what economists call ‘precautionary savings’ – when people are afraid to spend too much today and instead are saving most of their earnings to pay future costs of education, healthcare or retirement. That too helps explain why China has a savings rate of around 45 percent, much higher than in most places around the world.

You say the government now favours ‘reverse migration’, back from the city to the country, as a way to help care for the rising rural elderly population, and revitalise local economies with small businesses. Is this happening and does it work?

The record of this policy is mixed. Policymakers do see the trend of migrants returning to their hometowns as positive, in that they can both be closer to their ageing parents, and help overcome the national tragedy of left-behind children or youth growing up in the countryside far from their mothers and fathers. Local governments in the interior have tried to ease the challenges faced by returnee migrants by providing training and financial help, often in the form of low-interest loans, for those who want to start their own businesses. The goal is that migrants will succeed as entrepreneurs upon their return and help to revitalise places that otherwise might lag as China develops. One challenge is that the returnees may feel like strangers in their own villages, after decades working in faraway cities, and thus may not have the right connections or knowledge to succeed. There are many cases already of returnees seeing their newly-formed small businesses fail.

It has been suggested that the problem of a lack of workers can be solved by automation and AI. Is this possible, and if so, you seem to suggest that it means employers are now looking to that future and ignoring better pay and conditions for human workers?

Even before the trade war and Covid-19 brought the issue of global diversification of supply chains to a head, factories producing lower-value products were leaving China in droves for countries in SE Asia and beyond. Now that trend has only accelerated. It is something that has long worried policymakers who do not want China to face the same hollowing out of industry that was seen in places like Japan. One plank of the national strategic upgrading plan “Made in China 2025” is focused on encouraging the automation of factories, along with building up a more competitive domestic robot-making industry, with both factories and automation companies being granted large subsidies in cities like Dongguan. This is helping China move more quickly towards a less labour-intensive manufacturing future. But it is also causing frictions between factory management and those migrant workers who do not want to return to their villages but would rather stay in the cities. In some cases, worker protests have erupted as factory managers have moved to quickly automate and shed employees.

Are there any good business success models for rural returnees?

In rural Guizhou, local governments are trying to encourage returnees to set up small businesses in ecotourism, with the aim of luring wealthier urbanites to holiday in this part of the country. In many ways, that is a natural choice, given the stunning mountain scenery, interesting ethnic diversity found among the people living there, and the spicy local cuisine, not to mention the clean environment with little industry in most of the province. Other places including neighbouring Yunnan have tried to use e-commerce to find markets for local delicacies, whether it’s Pu’er tea or wild mushrooms. Both of these models have been successful to a degree, although not without facing challenges. One common problem has been the phenomenon where everyone jumps into the same business and creates a glut, where for example, hundreds of rural villages all might be competing for the same tourists. Provincial governments too have often focused on large capital-heavy, but low labour-intensity vanity projects, like Guizhou’s push to make its capital of Guiyang into a national Big Data centre; the trouble is it provides little employment for the large numbers of migrants now returning.

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Paul French: A Shanghai free taxi? You’ve got to explain the concept, please?

Frank Langfitt: I got the idea from my experience as a cabbie in the 1980s in Philadelphia, my home town. I found driving a cab was a great way to meet and talk with a wide variety of people, who would often share their thoughts and open up about their lives in the privacy of a taxi.

Flash forward to Shanghai in 2014. As a reporter, I was looking for a way to understand the changes in China from the ground up, so I created a free cab service with signs in Mandarin. People in Shanghai know a good deal when they see it.

I met a lot of people this way and then followed the lives of my most interesting passengers for the next four to five years around China and around the world.

People often ask if the Chinese government tried to stop me. In fact, Chinese state security knew what I was doing but never interfered. I later heard indirectly that one agent who monitored me actually related to the characters and liked the free taxi stories, which I broadcasted on NPR.

PF: Your subtitle is ‘the hustlers and rebels of the New China’ – for those migrating to the city is hustling and rebelling in myriad ways essential?

FL: I think hustling is the natural state of the Chinese migrant. Migrants have to work extremely hard to pay for housing, food and other amenities in an expensive megacity like Shanghai. In addition, they always need to be looking for ways to get ahead given the incredible competition in a city of about 24 million people.

Under China’s household registration system, migrants don’t enjoy the same benefits to health care and education that people born to cities like Beijing and Shanghai do, so that is another source of frustration and insecurity.

Most people in Shanghai don’t rebel. They are too busy just trying to get by. This societal and economic pressure works to the advantage of the Communist Party.

I did meet some people who were rebellious, which made them all the more interesting. They included Fifi, who tried to teach high school politics in post-Tiananmen China, and Ashley, who moved overseas, rejecting the systemic corruption that her parents, Communist Party officials, had little choice but to embrace.

PF: One of the characters, Sarah, is very typical of many young women migrating to the city for work and a new life. After two decades of internal migration, what’s changed for the Sarahs of China coming to Shanghai?

FL: Sarah is an archetype: the young woman from the provinces trying to make her way in the big city. But the Sarahs of an earlier era were very different financially and educationally.

Sarah 1.0 would have arrived in Shanghai in the 1980s or 1990s. She would’ve been a blue-collar woman with limited education who would’ve found work in either factories or homes, cooking and caring for children.

Those migrants still exist, but Sarah 2.0 is a different species. She is a college-educated, aspirational professional, who has benefitted from decades of strong economic growth and China’s massive expansion of university education.

For instance, when I first met Sarah, she was working for a company that made computer chips for credit cards and wasn’t sure whether she could find a foothold in Shanghai.

Years later, we had lunch at a university cafeteria where she was getting her masters in psychology – with financial help from the government – and aiming for a PhD.

To put this in perspective, Sarah’s mother, who also lived in Shanghai, cleaned rooms at the Ritz Carlton a few blocks from my apartment.

Frank Langfitt

PF: Your interviews seem uniquely penetrating and successful. Any tips for getting meaningful and helpful conversations going in China? 

FL: Thanks. I’m glad you found them interesting. The key to the free taxi concept was that it turned the normal foreign reporting process upside down. When passengers stepped into the car, they started interviewing me, so they felt much more comfortable directing the initial conversation than facing questions about sensitive issues from an American reporter.

I used other techniques as well. One was what the American writer Gay Talese once called the art of hanging out. I spent hours in the car, in people’s homes and later on the phone, just chatting and listening and letting people bring up more personal or sensitive topics when they felt comfortable.

A boss had forced him to work as a human ox, ploughing a field in Xinjiang

Sometimes, I spoke with people for two hours and only 10 minutes near the end of the conversation was relevant and useable. I also tried to be patient and wait until people were comfortable revealing painful parts of their pasts.

When I asked one character, Charles, about spending years travelling across the country from one dead-end job to another, he repeatedly broke down.

Two years later, I pressed him on his experience. He told me a horrific story where a boss had forced him to work as a human ox, ploughing a field in Xinjiang in China’s far northwest.

In another example, it took several years before a woman I knew was willing to reveal and detail how she had suffered a forced abortion.

PF: You say ‘trust is a scarce resource’ in China’s cities. Is this not the case in all big cities or is Shanghai, as some would argue, especially ruthless?

FL: To varying degrees, distrust is a part of the urban experience, but I think it is more acute in China and Shanghai for several reasons. Consider Fifi, whom I mentioned earlier. One day, her knee gave out while she was crossing the road and she sat on the pavement for twenty-five minutes. No one helped her. The reason: they feared that if they did, she would falsely blame them for her injury and sue them.

In an infamous case, a judge ordered a young man to pay $7,000 in compensation to an elderly woman who’d fallen at a bus stop. The judge argued that no one would help a stranger unless he or she had been responsible for their injuries.

The atmosphere of deceit and distrust is driven by a clash between an old, rural system of ethics based on family and kinship ties, and the reality of a modern megacity

Yunxiang Yan, a professor of anthropology at UCLA, says this atmosphere of deceit and distrust is driven by a clash between an old, rural system of ethics based on family and kinship ties, and the reality of a modern megacity, such as Shanghai, filled with people from all over China and around the world.

“Taking advantage of a stranger or even hurting a stranger might not be considered as morally wrong because that stranger is not part of the group,” Yan told me. “Morality is relative.”

To me, this tension seems even sharper in Shanghai, which has a long, colourful history of cons and scams. Consider, the Merriam-Webster dictionary defines Shanghai as “to put aboard a ship by force often with the help of liquor or a drug.” I never encountered anything so severe, but it was common for sex workers on Nanjing Road, Shanghai’s main shopping street, to lure tourists to private rooms where thugs threatened them and maxed out their credit cards.

PF: You first covered China back in the ’80s and ’90s and then again more recently. Many of your passengers were millennials and younger people. What are the big generational differences we need to understand and appreciate? 

FL: There are big divisions between parents, who may have grown up during the political tumult and poverty of the Cultural Revolution (1966-1976), and their children, who have only known spectacular economic growth.

Children tend to be far more worldly and better travelled than their parents. They also spend far more of their savings, because they’ve never lived in a time in China where annual GDP growth fell below six percent. But this is only one of many generation gaps.

The velocity of change in China is so great that a generation lasts between three to five years. For instance, one person I got to know, Ashley, was born in 1989 and grew up with access to Google and the writings of the Tiananmen democracy figures. She spent a semester during her MBA in Paris, interacting with younger classmates who had grown up in a much more nationalistic China where the internet is heavily censored.

One classmate, who was just five years younger, said he thought the 2014 Occupy campaign for democracy in Hong Kong was crazy and stupid and the protesters were trash.

Ashley, by contrast, was sympathetic to the cause. “I think generally people who are born in the eighties, most people with sense, would think that democracy is a good thing,” Ashley told me, “but I think the younger generation doesn’t think that way anymore.”

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