Thursday, February 05, 2009

China's (Optimistic) Future

During this current global recession and financial crisis, I've had many debates with fellow American friends living in Shenzhen on what will happen in China in the future. My friends (some of them have been in China for more than 5 years now and speak Mandarin fluently) often believe in a similar view as western media. 

"Chinese people let the totalitarian Chinese gov't rule in exchange for economic growth - at least 8%."

If this statement holds true, the current closures of thousands of factories directly linked to the export industry and the millions of workers that has join the unemployed poses a huge problem for the stability of the gov't and society in general. Recent unrest and footage of protesting workers have shown to be initial reactions of this issue. One of my friends even hypothesized that China will invade Taiwan just to distract the Chinese people and to increase nationalism sentiment.

I personally don’t understand where this "trade-off" between the Chinese people and gov't idea came from - because I disagree with it whole-heartedly. Although there have been riots - they have been relatively isolated and usually protesting justified inequalities perpetrated by local officials (often corrupt). In the video above, the toy factory closed unexpectedly and didn’t pay any of its workers. Is that the government's fault?

I personally see Chinese people as hard working, resilient people who have a history of getting through hard times. My parents lived through hard times with rationing and the Cultural Revolution where no one had anything. Just a few years ago, my hometown Harbin, didn’t have water for a week because of a chemical spill upstream that polluted the Songhua River. My extended family and grandparents still live there. Did people panic and riot? No. Everyone worked together to get through it. 

Look at the recent earthquake in Sichuan and the aftermath of that event. China is populated with people pulling together through hard times. In the absense of gov't help, villiagers banded together to help each other. People did what they could. While this happened, the gov't mobilized quickly and was on site immediately to help. Compare this to the 2005 Katrina disaster where the gov't didnt do anything for many days at the same time people were just waiting for people to "save them" at the New Orleans Superdome. 

The definition of a Chinese person's character is that he first blames himself before blaming someone else. He works to improve his own situation rather than waiting for the government to do something (Only when it’s too unfair do people take action). He is adaptive and stable. 

My outlook for the future China has always been optimistic. Here are the steps I foresee:

1. Although Chinese exports industries are getting hit hard; this is a natural situation that will realign the Chinese economy. Different businesses have already started to focus on selling their products, once destined for the US and Europe, in China.

2. The Chinese consumer, although not too confident currently, has savings and an ample appetite to spend. As Americans are riddled with debt and are saving more, Chinese consumers are still spending. Just walk around restaurants and malls and you won’t see any signs of recession here in Shenzhen. 

3. Migrant workers who lost their jobs are not going to riot. They are going to go home, start families, start businesses and live life. Less people are going to come back into the urban areas after Chinese New Year. In a recent report, China estimates about 20 million people have returned home.  Most people have made money in the past and have it saved up at home. And since living costs are drastically lower back in the smaller towns and villages, the savings go a long way. 

4. Thousands of 海归 (haigui - overseas Chinese) have returned to China - many with high level degrees. Since opportunities in the US, Europe and other areas of the world are gone, they have come back to China to find jobs. This will greatly enhance Chinese competitiveness and future development. 

5.  Local and provincial governments understand the importance of high tech industries as well as economically sustainable green technologies. This focus will help future economic prospects.

6. The government is trying to aid in everything it can. It’s helping small businesses get loans through banks and helping consumers spend with subsidies. More importantly, the Chinese stimulus package focuses on infrastructure projects that will greatly improve Chinese transportation efficiency. During the last Asian Financial Crisis, China's lead in investing in its infrastructure helped it sustain economic growth for more than 10 years. 

7. As the economy starts to realign away from exports, the Chinese gov't will slowly sell off US debt and appreciate the Chinese RMB to higher levels. With a higher RMB, China will then go buy even more assets all over the world to further its future development. 

18 comments:

kailing said...

Agree with you, with a small "but". That is, in China's history difficult times can get out of hand fast, and then you will have the worst case scenario... an "irrational" crowd and an even more irrational (unable to dialogue/see the other side argument) government (both are brought forward as a cause of the Ti*n*nmen incident/massacre in 1989). Sooner or later the CCP has to realize (as put into reality, because they already know it) that to move Chinese people forward into a brighter future they will need to let power slowly slip off their grasp, to return it to the Chinese people, to accept Chinese people's real political will.

davesgonechina said...

You're talking my language, brother.

I said something quite similar.

Mike said...

kailing,

i dont know if i agree. Tiananmen happened in the environment of the Soviet Union dissolving and a lot of democratic riots over in eastern Europe. Everyone believed in the western system and that naturally diffused over into China.

We're now in a world climate of almost rejecting western economic beliefs - ie privatization of industries, free floating exchange rates, ect. look what happened to Russia and the Asian Financial Crisis, and now...

China has been resilient because of its own policies... of macro state control with micro capitalism. i would argue chinese people believe in the gov't more than a western way of things...

mooney47 said...

Interesting post. One thing i noticed was the second point regarding the Chinese consumer having "ample savings" and an "appetite to spend".

The argument I've heard put forth, is that this is not true for everyone, rather it is a phenomenon of the "urban city centers" where the "salaried middle class" has been insulated from the global recession. This disparity contributes to a widening of the proverbial gap between the have and have-nots and fosters social instability.

I don't know if I am as optimistic that an "export-drven" economy with so many challenges as it is generated jobs for an increasingly large workforce can weather the global recession so effortlessly.

Anonymous said...

In Chinese, the word crisis is composed of the characters danger and opportunity. It may just well be an opportunity to shake the Chinese out of their export mentality and treat themselves a little better using their hard earned money.

kellen said...

I'm not so sure about #2 in places less connected than Shenzhen. Most of my friends and acquaintances here in Southern Jiangsu are saying they're feeling the recession and are really spending a lot less than they did before. There's little income coming in to my city that isn't manufacturing and with foreign companies moving out and Chinese companies losing contracts with those foreign companies, a number of people are definitely not doing well and are keeping their savings closer than before.

While I don't think the current system in China will offer long term stability, it's always changing and I have little doubt that they'll be able to continue evolving and adapting. Just not sure they'll in fact need to let power slip off as Kailing says. But then I could be wrong.

Caspar said...

"In Chinese, the word crisis is composed of the characters danger and opportunity."

This comment is so cliché it's depressing.

Mike said...

kellen,

i think it really depends on the specific industry and city. If the industry is focused and dependent on exports and foreign corporations, then there are going to be problems. In Shenzhen there are lots of factories and import/exporters going out of business. However, if you go over to harbin, where the local economy has no dependence on foreign influence, then there is a very small drop off.

Anonymous said...

""In Chinese, the word crisis is composed of the characters danger and opportunity."

This comment is so cliché it's depressing."

It is also completely wrong

http://www.pinyin.info/chinese/crisis.html

I think it actually originated from a Simpsons episode where Lisa tells Homer the Chinese word for crisis also means opportunity.

miles said...

I think the real question is if the Chinese government foresaw the current export crisis and adequately prepared for this contingency. There are signs that they have. As you've noted, industrial restructuring had already begun in the Pearl River Delta before overriding exogenous factors in global consumption came into play. I'm pretty sure you can find evidence of other domestic policy priorities that have been spearheaded to boost domestic independence in the Chinese economy.

One thing's for sure, it's lucky China has something as obviously beneficial as investing in infrastructure development to stimulate the economy through these trying times while adding long-term value. Spending priorities are not so clear in places like the US where mostly everything is already well-developed. As a result, Republicans can pretty much arrogantly yet legitimately dismiss any kind of spending as useless pork >_< Not so in China!

Cat said...

Haha, I am the anonymous who posted the phrase "In Chinese, the word crisis is composed of the characters danger and opportunity." A Chinese colleague told this to me and I thought it was pretty neat.

Anyway, guys, please chill, geez. oh yeah, thanks for the link to why wei ji isn't danger/
opportunity, but it's so freakin' long, just get to the point! Anyway, I didn't get to finish the article and still don't see why wei (danger) ji (opportunity) can't be viewed that way.

Aside from that, my point is, sometimes we resort to more creative ways of dealing with problems only when we are squeezed to a corner or are faced with an uncomfortable situation. Without that sense of urgency or crisis, we are usually content to be in our comfort zone and do things as we have always done. My hope is that the Chinese will open their eyes to different ways of approaching issues -- instead of sacrificing their lives and saving everything, spend some for goodness sakes! Otherwise, they can save up everything, buy US treasury bonds and invest in American companies such as Merrill Lynch, Blackstone and lose everything... i.e. they toil away and make toys, iPods, Nike shoes for us Americans for nothing!

Anonymous said...

The Chinese economy is largely dependent on exports and inflows of speculative capital. If you want to see signs of recession in Shenzhen look at the real estate prices which have fallen 40% in the last year. Cast your mind back to what China was like before it opened up to get some idea of how it cannot rely on Chinese consumers alone, with a frugal nature and per capita GDP of around US$2500. The growth rate has halved to 6.9% in the last quarter and if China used the quarter on quarter numbers most economies use then it was actually a negative number. I don't know if this means political change but the economy is certainly in for some hard times.

Anonymous said...

It might be more convincing a power if it didn't rely so heavily on misinformation.

Mike said...

disagree. a bubble isnt a sign of recession. If people put money in the stock market or in housing by speculating, that is not a recession. right now, if you are in shenzhen, housing has actually stabilized and is starting to go back up a little bit. The China stock market has also rebounded.

the chinese people have naturally changed since the 1979 opening up. right now all of the young people have the money. walk into any mall and restaurant and you'll see the majority of the people there were born after 1980. chinese people are different.

...and what mis-information. maybe you're mistaken.

Anonymous said...

Yes I am mistaken. I should not have been born with a brain and a pair of eyes.

miles said...

@anonymous

If we were sitting in a classroom, then no one can really disagree with you on China's totalitarian tendencies.

However don't get too comfortable, especially if you're a westerner. Mis-information may not get by a free press, but dis-information is its specialty.

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