This is China! BLOG

The Chinese Economy: No Titanic

The China Economic Quarterly produced a report called The Flywheel Economy on the self-renewing momentum the Chinese economy has picked up as its economy develops into a juggernaut:

“As a result, the internal and external imbalances generated by this growth model are likely to grow worse before they get better.”

In other words, inflation rates, unemployment figures, disparities in wealth and currency valuations are all likely to continue growing than shrink any time soon.

“The enormous scale and intensity of China’s industrial restructuring since the mid-1990s is hard to imagine and is not fully appreciated internationally. In spite of continuing output growth, total recorded employment in all manufacturing enterprises fell by some 18m between 1995 and 2003, at least 6 times the manufacturing job losses in the United States during the same period.”

Now, that is a phenomenal figure and a disconcerting comparison. It indicates that while Americans have been whinging on about the “un-fairness” of globalization, the Chinese government has been doing something other than blaming others about the dire state of its industries and the dramatic structural changes occurring in its economy.

“Average national labour productivity gains (7.3 per cent per annum between 1995 and 2004 according to official data) were far higher than those achieved during the same period in the US (2.4 per cent), the EU-15 (1.4 per cent), Japan (2 per cent), and India (3.9 per cent).”

Now, productivity gains are still easily had here in China. Many Chinese industries are still secondary-industries that are not highly capital-intensive but are very labor intensive. China has also started from such a low level of productivity (some mates and I watched as a workman at a local restaurant took nearly an hour to cut a disk by hand from a board of plywood – whither the jig saw?); it’s easy then to see it bolt from its basement-levels of agricultural and jury-rig approaches to work.

China’s economy, though, did not get it’s kick-start only from the unleashed mercantile tendencies of its population, but also from a perfect storm of external conditions:

“These factors include an increase in foreign demand following the 1998 Asian financial crisis and economic recovery of Japan and the United States beginning in 2002; a cash infusion from the privatisation of the state-owned housing stock, which began in earnest in 1998; investment capital raised through stock market listings; and improved infrastructure, which sharply reduced logistics costs.”

In other words, as the American and European economies falter, the Chinese economy has more than enough momentum to plow forward in its unswerving purpose to increase its wealth. It’s not at all a bad time for Western companies caught in the downward spiral of their own domestic recessions to tether part of their growth plans to China’s burgeoning marketplace. For China, it’s full steam ahead.