This story from the BBC covers largely familiar ground as far as the deterioration of the Chinese economy is concerned, but in contrast to some other articles featured here, stresses the political implications of lower growth.
Note that while many in passing observe that lower economic growth could be destabilizing for China, it also appears that many analysts discount that possibility because the malcontents lack organized leadership. But it is far from a given that that would continue.
From the BBC (hat tip reader Sean, boldface ours):
China has said its employment outlook is “grim”, amid worries that economic problems could lead to social unrest…
Over the last few weeks, there have been an increasing number of signs that China is feeling the effects of a global economic slowdown.
Yin Weimin, minister of human resources and social security, said that had resulted in a “grim” employment situation in China.
“This is particularly the case for labour-intensive small- and medium-sized companies,” Mr Yin told a news conference….
The authorities expect to keep the unemployment rate within its target of 4.5% this year, but that figure is expected to rise next year, it was revealed…
Maintaining employment stability is important in China because the leadership fears people who lose their jobs could protest.
Meng Jianzhu, minister of public security, this week warned the police to be “fully aware of the challenges brought by the global financial crisis”.
He said officers should be careful about how they handle “mass incidents”, Beijing’s euphemism for protests by ordinary people.
These protests are common in China, although they are often isolated incidents sparked by particular local grievances….
Professor Joseph Cheng, of Hong Kong’s City University, said the legitimacy of the Chinese government was built on economic growth.
“If people see that economic growth can no longer be maintained, then the very basis of the government has been eroded,” he said.
He added that the widening gap between rich and poor in China could exacerbate current economic problems.
“Because of this, the hardships of those who suffer might become unbearable,” he said.
Sounds like the US.
same problem the Putin regime is about to face in Russia, the legitimacy of the whole system was based on performance. when companies stop paying wages in Russia as they currently are, and the grocery stores run out of food (like they did in the bad old days), you’re going to have angry masses on the streets. China could implode. So could Russia.
Everyone talks about the US being in the 1930’s. That’s not accurate. China is in the position the US was in the 30’s – big account surplus, export dependent. Export subsidies are their version of Smoot Hawley. I’m still thinking the China slowdown will be a lot harder then people think.
Jason…couldn’t agree more. as pettis and setser have pointed out, China has completely ignored imports…thats what the US did in 1930. Domestic consumption is not an important enough feature of the GDP growth in China.
However, to China’s credit, they’ve proposed a fiscal stimulus plan and are cutting rates (vs. the US actually raised rates in the 30’s and waited until FDR proposed the new deal…4 years after the downturn began).
I would just quote Chinese Premier Chou En-lai, “It’s too early to tell.”
Let’s check back in three years time. (Or better yet, in 2020.) We will see clearly which country emerges as the winner of current crisis then.
My bets are on China.
Unrest grows in China as unemployment situation becomes "grim"
… also appears that many analysts discount that possibility because the malcontents lack organized leadership.
I’ve spent a fair amount of time in China in a number of cities, and I’d find it difficult to countenance unrest there, as opposed to, say, L.A. or even Paris. People just don’t have it in them. There’s a strong military spirit, strong patriotism, and a lot of insecurity.
The lack of material goods as distraction and the compulsion to think and act collectively are the two things that I can imagine would expose China to revolution. Those definitely count, but I’ll agree with k thus far.
Why would you bet on China? Because their government is so good? Because their banks are sound? Their economic policies are grounded in reality? Because the people are suckers who are letting their government steal their savings to subsidize American consumers getting good cheaper than true cost? Other than that the people are hard working and there are so many obvious deficiencies that present business opportunities, I can’t think of a reason to be long on China. The level of corruption is high, the profit margins are terrible, and their engine of growth is located in other people’s countries. Sadly China will have to take a big beating before they can resume growth.
It’s not a zero sum game, so it isn’t clear to me that there’s going to be a definite “winner”. I’ve been working in China/Asia for a couple of years now, and just based on what I’ve seen, I think people are discounting some of the very real risks that China faces. By 2020, China will be an old country – it needs to get rich now. Managing a transition to a consumer based economy on top of all the changes its going through is no small task for any country. I’m much more comfortable with India’s prospects.
China is in the position the US was in the 30’s – big account surplus, export dependent.
And a huge stock market bubble in which a lot of common folk were participating.
(vs. the US actually raised rates in the 30’s and waited until FDR proposed the new deal…4 years after the downturn began).
Not true. Please check your data before posting false assertions.h
I see China as a 19th century USA…lots of potential internal growth. They’ve been shifting to more of a consumer market for sometime and they have the products already. They don’t need to import much other than raw materials and energy (oil). It’ll still be rough as the products they made for the USA aren’t what China needs …but the factories and expertise for whatever they want is there. They have ‘demand’ which unfortunately isn’t what the USA has much of anymore. A unemployment rate of 4.5 is a bit lower than ours but it’s probably a false figure (like ours) . However, not sure if they have enough food. One thing the USA could sell them.
By 2020, China will be an old country – it needs to get rich now.
Jason, I’m not so sure. Life is not very highly valued — I’ve seen squalor and safety standards that made my jaw drop — and they don’t have any shortage of educated or ridiculously motivated workers. They don’t rely on domestic consumption very much. A lot of people don’t really contribute or do much of anything beyond living in and operating their shops. I don’t think the demographics matter very much there, as opposed to Japan, Europe, or America, where we do an excellent job of leveraging the worth of an individual. They have an immense pool of people salivating for a chance.
A unemployment rate of 4.5 is a bit lower than ours but it’s probably a false figure (like ours) .
I don’t think this number’s so meaningful for their economy because the productivity of any given individual is so low compared to their industrial base and GDP. They spend a lot of time farming, playing checkers and chess, and sitting around in shops.
Also, I should mention that I definitely agree with Prof. Cheng. There’s a lot of simmering discontent with their government. I just don’t think that that discontent matters much and certainly don’t think economic stagnation is likely to produce a rebellion against it. Don’t forget the dog that Hong Kong has in this game…
They don’t rely on domestic consumption very much. A lot of people don’t really contribute or do much of anything beyond living in and operating their shops.
I agree, domestic consumption in China is pretty bad. I also don’t think China will ever be as rich per capita as the US (too many people). But the problem is there is no one to buy all those exports they keep churning out. They may have lots of people waiting for a chance, but this is their “baby boom” generation. Things like the one-child policy means that after this generation, their population falls off a cliff. I don’t know what China does if it can’t get rich before it gets old.
It is not clear to me whether chinese anger would really be focused inwards or towards the US. Handling of individual difficulties will be critical ,but it is fairly unrealistic to expect major social unrest as a result. I suspect unrest will be very quickly curtailed after Public Security Minister Meng Jianzhu said police “should be fully aware of the challenge brought by the global financial crisis and try their best to maintain social stability”.
This in itself poses a risk that investors will perceive China as a less friendly place to invest especially if there is evidence that chinese government expectations are not firmly footed in reality. The biggest concern would be that fragmentation and infighting start to occur within government between the different arms of government. Too much focus on internal infighting could spell trouble for the rest of the world as government becomes parralised in the glare of the headlights of the downturn.
Anonymous, the FED and the BoE _did_ raise rates at the top of the deflationary cycle in 1931.
They were trying to protect their currencies against …. gold.
Also the mistaken insistance to the gold standard limited the FED’s ability to lend to banks even before the rate hikes.
The sooner a country gave up gold standard the faster the depression ended.
So we can say gold standard was largely to blame on the deflationary cycles in the US and the world in general between 1819 and 1933.
That is the whole point of the gold standard, limit growth to within your means. The depression didn’t end because of going off the gold standard. It just delayed the end of the depression, until now.
Don’t kid yourselves folks. Severe corruption, incredible lack of individual rights, lack of basic resource and means to supply the population at large, these things don’t paint a pretty picture. As much as I respect the hard-work and efforts of the Chinese people(I work with many in research), they (or rather their gov.) are not poised for long term development, at least in a robust fashion. They will always be at a huge disadvantage without basic political freedoms. The best ideas will lack hope of surfacing, and the gov.(corruption filled) will have priority over the people. Not saying there is a simple solution, or any one thing to blame, but the “ends” that are supposed to justify the “means” will most likely never come to be under these circumstances.
I second Lemmiwinks…the fed raised rates twice (both 100bp moves)…starting Oct 31 1931 and again a week later.
the run on gold in the US was presaged by the european collapse that started in the late twenties but reached a tipping point when the storied Austrian/Rothschild bank, Credit-Anstalt, failed in May 1931 after everyone demanded their deposits in gold. (some of this collapse can also be attributed to the versailles treaty’s onerous payment terms imposed on the fmr Weimar Rep…totally different story, though the seeds of WWII were sown during this downturn)