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.