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China's Economy: Crash Landing?

Any time the official New China News Agency files a piece with the headline: "Experts: China's economy has ability to recover from slowdown," it's time to worry about China's economy. You've already heard the news, no doubt.

Five straight quarters of slower growth. China's National Bureau of Statistics announced this week that the nation's economy grew at an annual rate of 9 percent in the quarter ending Sept. 30, the lowest since 2003 -- when the SARS epidemic turned the economy upside down. Exports are shrinking so fast that some economists are predicting the sector will not grow at all next year.

More ominously for "social stability," however, are the lay-offs. More than half of China's 7,000 plus toy makers are out of business. More than 67,000 small- and medium-sized enterprises have gone belly up in the first nine months of this year, according to a report in the China Business News this week. There are an increasing number of reports about labor unrest among those turfed out of work.

Obviously, China, too, will put together a stimulus package. More investment in infrastructure, lower interest rates. China just lowered taxes and mortgage interest rates on real estate purchases, which should (again) stoke its on-again-off-again housing market. But it's clear that China won't escape economic tough times.

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Comments (19)

Geja Author Profile Page:

In 1997-98 there were equally loud predictions of China's "crash landing", but what happened was a beautiful "soft landing" managed tightly by the central government and then Premier Zhu Rongji. After refueling, she immediate took off again in 1999.

mikeMM Author Profile Page:

Why does everybody here act like they know what China is? Until you have been there, lived there, worked there and have seen the counrty through you own eyes and not the eyes of the media, what you say is nothing more than a ill-informed opinion.

gavin1 Author Profile Page:

jamesmoylan:

We choose our rulers. The culpability lies with us.

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No, you do not choose rulers. You only enjoy the illusion that you can choose the rulers, who would say anything to get chosen and do everything else.

jamesmoylan Author Profile Page:

Thanks for the considered response but I beg to disagree Peter 34.

When the world accepts some sort of moral equivalence between democracies - (however faulty and unwieldy) - and totalitarian states that are run by the few without regard for the personal freedoms or individual rights of the many - then we all become complicit in the subjugation of the Chinese (and North Korean et al)populations.
Because we (in the western world) do have the option.

We can decide to forgo a quick buck and demonstrate rationale and compromise. We don't have to allow the few to sell our collective soul for their own personal benefit.

We choose our rulers. The culpability lies with us.

Peter34 Author Profile Page:

jamesmoylan:

God help the poorer citizens of China.
Actively oppressed by a government colluding with the American corporate sector. It's like getting bashed by a thug with a Policeman standing by, deliberately looking the other way, while wearing a suspiciously expensive watch.
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Comparing India with China,you will know it is rough to solve problems in a populous country.In China,you might see the lacking of democracy,yet in India,you might see the abuse of democracy.

Still in both countries,the very few corrupted and benefited and majority are the poor. I am very impressed by an Indian writer's words,which are to the effect that the Chinese government is mainly busy at creating a business boom with more employment to justify its legitimacy,yet the Indian government is majorly busy at getting the vote.

Obviously,two largest populous countries with ol'time great civilization are bogged down in modern civilization.They all show each other the unpleasant side of their distinct political system but with the same problem of huge population and numerous ethnic groups.

jamesmoylan Author Profile Page:

What has happened to America? Just like my own country (Australia) you guys have given up on the idea of human rights. The more our own concept of human values is debased the more we allow and even encourage rogue states like China.

And there is no doubting that China is a rogue state. It is no longer even pretending to be a Communist State (although I doubt that we've ever really witnessed a Communist State - just totalitarian approximations).

In China you have the right to be imprisoned.

In China you have the right to be told not to believe (in whatever).

In China you are what you are told to be - or you aren't.

In China you are only worth what the State decides you are worth - you have no intrinsic rights.

These are the realities of this police state.
Why does the world treat China differently to North Korea? They are much the same sort of entity. Either you have the rule of law backed by the will of the people or you have countries full of people enslaved to the will of the almighty dollar. You have an American public and a worldwide consumer market being peddled cheap goods made by slave labour - and nobody blinks!

Who made the decision that Chinese civil rights are different to those I possess?

Why didn't I get a say?

Who is getting rich from the labour of slaves in China?

Who is profiting from our deliberate wilful ignorance - our planned and careful ignorance?

So the world is now witness to the remaining great Superpower allowing a tiny fraction of its population to rape and pillage like the Huns of old - then retire with the fruits of their hateful and corrupt activities intact.

God help the poorer citizens of China.

Actively oppressed by a government colluding with the American corporate sector. It's like getting bashed by a thug with a Policeman standing by, deliberately looking the other way, while wearing a suspiciously expensive watch.

whocarestibet Author Profile Page:

I also doubt the "strong economic fundamental" of China's economy. When I was in China this summer, (just before Olimpic Games), I was so impressed by the inflation I experienced Beijing. The price for real estate was incredibly high, although few ordinary citizens can afford them. Even for ordinary goods like milk and meat, the prices had increased dramatically for the past year. The recession may give China a chance to squeeze the bubble in the over-heated markets and to update itself, especially its banking systems.

Peter34 Author Profile Page:

Caveman1:
The recent growth trend has been due to currency manipulation and speculation, not strong economic fundamentals. The essential elements - good corporate governance, sustainable growth in industrial strength, rule of law and effective judicial system, accountability for people in leadership, vigorous debate of important economic, social, environmental and political issues - all are severly lacking in China. I don't see how you can attain sustainable growth without these elements - and now you are seeing the air coming out of the biggest economic bubble in the history of the world. Take cover.
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As for the currency manipulation and speculation,this accusation is overly simplistic. I think you should know the notorious story of Wall Street speculators on how they grab Asian countries' wealth in 1990s Asian Financial crisis and 1980s Japanese financial crisis.Those American firms robbed others' money by offering nothing.Plus,they benefited because U.S government and IMF's coercion on other countries.

Are those essential elements the cause or the result of a strong,sustainable development? It is quite arguable question. As a developing country,China needs to acquire those favorable elements and is on the way by trading off this or another.We are not talking about textbook and make brainstorming. Those elements are only the hindsight for the success,and people forgot how hard every country come through in a imperfect reality during the course.


dahuanzhou Author Profile Page:

“More ominously for "social stability," however, are the lay-offs. More than half of China's 7,000 plus toy makers are out of business. More than 67,000 small- and medium-sized enterprises have gone belly up in the first nine months of this year, according to a report in the China Business News this week. There are an increasing number of reports about labor unrest among those turfed out of work”.
Yes, some foreign bosses closed the factory in China overnight and ran away without paying all the debts (including personal debts) and wages to workers, they already transferred the cash to other place to set up other factories. They have inescapable responsibility for Chinese social instability. It also gave China a lesson that foreign investment may also have negative effects. China can not put undue stress on export-oriented economics , We must expand our own home market.

blasmaic Author Profile Page:

Why won't someone fix this page so it works properly?

timothy2me Author Profile Page:

China can transition to a consumer driven economy. They can sell the HD TVs, etc. to themselves.

Benkgee Author Profile Page:

Earlier this year, Chinese authorities wanted to reduce the growth rate to about 8% to prevent overheating. Now, the growth rate is down to 9%, some think the Chinese economy just crashed. Some sectors of the Chinese economy is going through very painfull adjustments, but other sectors are expanding. Now, with inflation at a reasonable level and prices of major resourses coming down, the Chinese economy will be in fine shape. September figures indicate that export was still growing and import went up by 29%, China is doing its part.

Caveman1 Author Profile Page:

China can't really afford too much of slowdown in growth. Estimates have it that it needs about 8% growth in GDP to soak up all the excess labour that is being unlocked as population grows and people migrate to the cities. If you get much slower growth, you end up with millions and millions of pissed off unemployed men (and a lot fewer women) who can't get jobs or wives. Large factories are already closing up and you can see that incomes are stalled - auto sales have dried up and commodity demand for building is falling rapidly as projects and developments are being walked away from. The whole idea that China is decoupled from the US/European economies is bogus. The recent growth trend has been due to currency manipulation and speculation, not strong economic fundamentals. The essential elements - good corporate governance, sustainable growth in industrial strength, rule of law and effective judicial system, accountability for people in leadership, vigorous debate of important economic, social, environmental and political issues - all are severly lacking in China. I don't see how you can attain sustainable growth without these elements - and now you are seeing the air coming out of the biggest economic bubble in the history of the world. Take cover.

beijingpost Author Profile Page:

It will be tough for some of the exporters in the coming time, the RMB has steadily appreciated against the USD, GBP and Euro making low cost products not so low cost anymore. However I noticed that many of the low wage factory workers have decided to return to the countryside. The reason is rising food prices and the scrapping of taxes for the farmers. With incomes rising in the countryside internal demand is growing rapidly. China is still doing relatively well compared to other developing countries. The government is careful not too rock the boat too hard but if needed can indeed upgrade infrastructure, spend on cleaner energy research, build water purification plants, continue massive reforestation projects to help the poor. Call it socialism or whatever you want to call it but at least they are trying to do the best for their people. Elected or not. The China bashing comments that all the factories are owned by government apparatsjiks are not based on any facts. Most enterprises are truly private and as banks have always been reluctant to lend to small businesses most have been financed with savings and loans from friends and families. Banks in China prefer to throw their money away to big corporations.

Peter34 Author Profile Page:

For years,Chinese experts have worried about the overheating of economy. Now comes the time they don't have to issue new policy to force those low value-added production to halt.It is the market that demands producers to update themselves.

China will face a tough time.Yet it is the most resilient one,given its less dependence on export,untapped rural market,and less affected financial liquidity.

Caveman1 Author Profile Page:

China's boom was built on speculative flows and keeping wages low. Exchange controls allowed them to build up their foreign currency holdings to unbalanced levels - if they start spending it, the RMB will rise and exports will drop. Official numbers out of China are anything but reliable. Infrastructure and real estate investment was also partially fueled by loans to Communist Party people that run most Chinese companies and local governments - these loans are secured by real estate that is quickly losing value. As in Japan in the 1990s, the property market has overheated and now the banks will be left with a raft of bad loans on their books, many of them coming due in early 2009. Time to bail on China - it was a big white elephant of 1.3 billion people, only a quarter of which ever took part in the "economic miracle".

otherness1 Author Profile Page:

Let me get this right. The Chinese economy grows at 9 percent in one-quarter. Chinese banks are sitting on massive amounts of foreign currency reserves. Exports make up a tiny fraction of the Chinese economy. Leadership has just instituted major land reform in the countryside to put more money in the hands of the rural peasants in an effort to stimulate massive, untapped internal demand. China is booming. Nowadays, if I want to show my children the most modern cities in the world we don't take a trip to any American city, we go to Shanghai or Nanjing to visit wife's parents. Mr. Pomfret, you certainly are a "foreign devil" with a negative attitude towards a country where there is little animosity expressed towards Americans. You don't report the news, you produce propaganda for the Republican Party, who are always looking for new enemies to blame our problems on so we won't look too closely at their own domestic failures. Shame on you.

Peter34 Author Profile Page:

Looked differently,this recession is a good chance for China to upgrade itself. Being an export dependency is the worst that China has been headed for.Now it is time for the Chinese government look inward and solve the economic plight of their own people instead of trading back risky paper-U.S dollar and T-Bond. There are more needs to continue investing in infrastructure construction in the less developed area.But the unceasingly obsessions in real estate is wrong. Had the government prompted more investment, the financial service and manufacturing should have been the centerpiece of all important.The backward technology and inefficient financial sector constitute the bottleneck of further development in China.

george22_1999 Author Profile Page:

Crash Landing? The standard fear about a China crash revolved around some kind of social, environmental, or financial crisis born of China's too, too fast growth. From this point of view, the best thing China could hope for is a world slowdown which could permit China some much needed breathing space to allow its banking system to catch up, to give it time to develop better environmental and product safeguards, and to ward off the social unrest generated by accelerating inflation.

Secondly, China's export segment is about 10-15% of GDP, whereas its buildout is over 45% of GDP. It badly needs to focus on increasing its much needed electricity generating capacity, and it badly needs cheaper commodity imports to feed its buildout without adding to inflationary pressure. The world slowdown gives it the cheap prices, and allows it to divert labor to road and powerplant building, and factory modernisation.

I don't think you know what you are talking about.

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