Wednesday, 29 October 2008

Big Carnage in Big China: crisis fallout continues

The idea that China could escape the global downturn was always a myth as I have attempted to bang on about in this blog.

We have all heard about factories closing, workers being fired and house prices falling.

But is this just the beginning? Silk Road International Blog have an excellent post on this looking at the effects at "ground zero".

So, How Does the Carnage Look from Ground Level? [Silk Road International Blog]

I spoke with NPR again this week about the “feeling on the ground in southern China.” And while I can’t speak for everyone, I know what I’m seeing across a large spectrum of industries and in a number of cities.

Basically, the euphoria is over. Lack of any real press for the first 8 months of the year and no 3Q numbers until this last week meant that China thought it was immune from the global slow down. Um, it’s time to wake up from the artificially induced “one world, one dream.”

What happened in the US with homes happened in southern China with export factories. They mortgaged their future on the promise of continued growth and now it’s all gone and debts are higher than the value of inefficient factories and increasingly inexpensive labor.

With growth at 9% people are worried. On the street that means a couple of things. First spending will drop and conservative Chinese will save even more. The domestic stock market scared millions of investors 9at least twice in the last decade now) and the US crash compounded that fear. I don’t believe that the domestic economy is as impressive as the govt says. It has never been the savior that MNC’s have dreamed and it’s not going to save the GDP this next year either. People aren’t spending, they aren’t investing, the housing bubble is popping. The milk scandal has totally obscured any of the positives that the 0lympics created. And it just keeps getting worse.

The article then gives 6 good reasons why things are bad and getting worse.

Finally, in point 4 the author of this post alludes to my previous post on the "great social unrest" mystery (see previous posts). We appear to agree on this one.

If I was a betting man, I’d put money on 4Q numbers being below 8.5% and next years numbers even lower. (Honest numbers will be below 8.5% for sure but “official” numbers will not be that low because of the need to control a bit of the domestic collective psychology—like the US will never have another “great depression” because it sound’s so awful, 8.5% is the magic number that has to be hit just to keep the new entrants into the workforce employed in China. A drop below 8.5% and people will start thinking ‘89 again.)

I will like the author to elaborate on what he means by this final statement.


1 comment:

dvdd8n said...

What I meant by this last comment "people will start thinking '89 again" is that the spring and summer of 1989 were originally more about economic issue than democracy. In fact, democracy was a rather late comer to the Tiananmen party. Social unrest in China is most often related to one of two things: unemployment and/or corruption. Rarely are people protesting for more rights. (Despite what many Westerners want to believe, the bottom line is that most people in China have never had it so good. Really.) But if growth drops below the magic 8.5% point that is needed just to keep new workers employed there will be increasing larger numbers of people with reasons to protest. And that is scarier to the current government, I think, than just about anything else. Beijing remembers 1989 too.