Ever changing relations between lender and borrower
Raymond Zhou China Daily  Updated: 2005-12-03 06:43

The story of Yang Bailao is at least 60 years old, but how he comes to epitomize the evolving fate of a debtor would have been beyond his comprehension had he lived to this day.

In a village in North China, circa 1945, lived a poor farmer named Yang Bailao. He owed some debt to the landlord Huang Shiren. Chinese New Year was a bad time for Yang because custom dictates one must pay off every penny. He went into hiding for many days but came back home on New Year's Eve. The evil landlord, however, sent his lackeys to Yang's home. They demanded payment and forced him to give up his daughter as collateral. Yang died from heartbreak in the winter.

Well, actually the main character was his daughter, who was later abused as Huang's slave girl and ran off into the mountains. With no food or shelter, she lived the life of a savage, her hair turning white due to malnutrition. Thus was born the legend of the "white-haired girl."

Some literary historians contend this is based on a true story. Whatever embellishments the story took on, it gained popularity in 1945 after it was adapted into a folk opera, then, in 1950, a feature film, effectively transforming it into national folklore. The third incarnation came in 1964 when it was turned into a ballet and then filmed twice in the early 1970s as one of the eight "model plays" that monopolized the cultural scene of the cultural revolution era (1966-76).

The tragic tale, imprinted on public psyche throughout these art forms, served to highlight the class divide between rich and poor in old China. But in the last two decades, the characters Yang Bailao (meaning "toil for nothing") and Huang Shiren ("merciful world," obviously a sarcastic reference) have mutated into archetypes for debtors and creditors in China.

In the old days, as in the story, the poor borrowed from the rich, and the rich made profits by charging double-digit interest rates, very much like what loan sharks or credit cards do nowadays. The poor begged because they needed the money to feed hungry babies, or otherwise scrape a subsistence living. The rich came by from time to time, demanding payment or beating them up. At least that's the image indelibly etched into our collective mind. Even though the rich were legally owed money, they were morally repugnant.

In the early 1990s when China's economy took off, those with access to easy money borrowed large amounts from banks, rarely giving thought to payback. Then came the crisis of "triangle of debt" (san jiao zhai) when one debtor failed payment and caused a domino effect. Suddenly, the debtor became the king and the master while the creditor came begging and often went bankrupt in the aftermath of giving out bad loans.

The symbolic significance of Yang and Huang went through a reversal of fortune as Yang the debtor dined and wined in swanky five-star hotels, whereas Huang, the creditor, became miserable and contemplated suicide. This time around, the public professed its heart to Huang.

Fast forward 15 years, and we'll have Act Three of the Yang-Huang pas de deux.

The US is the world's richest nation, in GDP if not per capita; China, for all its economic vitality, is very poor in per-capita terms. Yet, China has bought a significant chunk of America's national debt. To paraphrase this story, now the rich Huang is living upon a mounting pile of debt voluntarily supplied by the poor Yang, and they both seem to be happy with it. Their welfare is so interlocked that hurting one may automatically affect the other.

It defies common sense that Yang, who presumably needs more money to lift himself out of poverty, should help out Huang with his luxury living. In this case, 1,000-square-metre monster houses, below-1-per-cent savings rate, costly wars, among other examples. Economic theories stipulate that money should chase spots of highest return, and Yang is poised at the curve of high growth and high return.

However, in the real world, decisions may not be made purely with economic rationalizing. The United States wants a stronger yuan so that it can stem the trade deficit; and China is propping up the dollar, which has the effect of sustaining the lavish lifestyle for the US.

China and the United States may be marching to different tunes, but it's obvious that they need each other, sometimes in the most unexpected ways. And of course the purchase of US Treasury Bonds is only one form of financial activities, whereas overall investment flows both ways, but mainly from the United States to China. Unlike the original tale, this international version of debtor-creditor wrangling may eventually make both better off.

E-mail: raymondzhou@chinadaily.com.cn

(China Daily 12/03/2005 page4)