This week two stories have reached a stage that shows the complexity of China's policymaking process and challenges the myth of "China, Inc." -- a well-oiled centrally controlled, hierarchical policy process.
Case #1: Green Dam. From seemingly out of no where, the Chinese in early June announced all Windows-based PCs sold from July 1 had to come with the anti-porn Green Dam software pre-installed. It took about 10 seconds for the Chinese Internet community to essentially unleash an electronic riot in opposition. Rebecca MacKinnon's RConversation has captured much of the conflict. If there was more time to quietly engage the Chinese government, foreign industry could have let the Netizens take the entire lead, but with time running short, the international business community organized quickly and loudly, bringing out the big guns in the form of the US Trade Representative and Secretary of Commerce threatening China with a WTO case if they didn't back down. Low and behold, China did just that, and the dam burst.
The story challenges the China, Inc. picture in several ways: 1) The Internet allowed Chinese society into the policy debate; 2) Chinese industry showed through their actions (not installing Green Dam) that they opposed the policy. Too bad for Sony and Acer; they read their cards wrong and apparently were obediently intstaling Green Dam. Oops! 3) A Chinese software company played on the Chinese government's vulnerabilities and used the "protect our children" slogan to sell MIIT a defective product. One hopes MIIT included a clause in the contract: "If you sell us pirated software and a firestorm erupts, we get our RMB 40 million back." 4) From my own observations, MIIT internally was not fully unified behind Green Dam.; and 5) Most assuredly, the firestorm attracted the attention of senior officials, and they put the cabash on Green Dam for the time being.
Case #2: The deadline for concluding negotiations over annual iron ore benchmark prices came and went on July 1 without a deal. The Chinese side was "led" by the China Iron and Steel Industry Association, but CISA never was able to exercise any discipline over those it claimed to represent. By contrast, the oligopoly of the Big 3 iron ore producers (Rio Tinto, BHP Billton, and Vale) held together amazingly well. Small and medium-sized Chinese steel producers and traders went behind CISA and negotiated private deals to buy iron ore on the spot market. The Big 3 had previously not sold to the smaller producers since they had enough contract business with the larger Chinese mills via the benchmark contract system. Going around them was pure genius -- actually, it's a simple and effective strategy. What is also amazing is that despite the economic importance of the industry and the political connections of the largest steel firms, they could not get the Chinese government to throw them a bone and offer them any sort of regulatory support that might have given them a fighting chance at the negotiating table.
That China is more pluralistic and the process more complex and subject to innumerable forces is overall a positive development. China is less likely to go hell-bent down a crazy path because internal opposition will mobilize to tamper down such desires. China is having a difficult time manipulating international prices despite its size because fragmentation trumps size any day of the week. 5-6 Japanese steel companies could sit and decide prices for steel in Japan because they controlled 80% of the market; China's top 70 firms don't control that much.
China's growing pluralism has consequences across the many areas in which China engages the world, and I look forward to discussing those issues in future entries.