Thomas White Global Investing
China
China  Stamp
January 2, 2009
A Postcard from China
China :China Celebrates 30 Years of Reform but Uncertain Times Loom

Chinese factory worker In the first three quarters of this year, around 50,000 small firms have pulled down the shutters. Worse, around 9,000 of the 45,000 factories in Guangzhou, Shenzhen, and Dongguan may close in the next three months. Although estimates vary, around four million workers have been laid off this year.

On December 18, 2008, China celebrated 30 years of economic reform. At that time, Deng Xiaoping set China free to pursue the economic miracle of getting rich. Since then, China hasn’t looked back, clocking an average 9% growth over the three decades. Yet, this 30-year anniversary comes at what are increasingly troubled times for Asia’s fastest growing economy.

As the worldwide financial crisis tightens its tentacles around a gasping global economy, China’s impressive growth juggernaut has sputtered. The country’s GDP is expected to grow by just 7.5% this year, compared to double-digit rise of 11.4% in 2007. In 2009, it might slip even further to below 5%.

In the south, in the prosperous Guangdong Province, the economic powerhouse of Asia, and ‘factory of the world,’ signs of slowdown are visible. At the Dongguan train station laid off migrant workers are slowly going back to hometowns as far as Hubei, Henan, or Guangxi. As export orders trickle down, factories are forced to pull down their shutters.

Grim estimates show that around 2.5 million workers could lose their jobs in factories in the region by the time the Chinese New Year rolls around. Their problems are not just because of the global slowdown – raw material prices have skyrocketed, labor costs have shot up, and a series of recalls on Chinese products dented the country’s image as the world’s manufacturing hub.

The government is trying hard to reverse the trend. A mammoth $586 billion stimulus package was unveiled in November and an aggressive monetary policy has seen the People’s Bank of China cut interest rates four times already since September. This is not enough yet to quell rising public anger – there have been a series of labor protests across the country, worrying signs for the Communist Party, which treasures social stability above all else. Around 9,000 taxi drivers went on strike in Chongqing in November, demanding better working conditions. In Longhui County another 1,000 teachers stood on the picket line over unpaid allowances.

There have also been a number of peaceful protests by factory workers, mainly in southern China. For decades now, China has managed to survive through tricky periods such as the Asian Financial Crisis of 1997. Deng Xiaoping’s reforms have brought about far reaching changes in not just industry but also in education, housing, and life expectancy. Life in China now is better now than it was 30 years ago. But, the progress has come at an environmental price, and the recent strikes and protests show that people accustomed to the new prosperity of China will expect no less.

As the Communist Party celebrated 30 years of reform at a ceremony in the Great Hall of the People in Beijing, President Hu Jintao was careful to keep the spotlight on economic development. Until recently, his government was trying to curb existing problems like rampant corruption, climate-wrecking pollution, and income inequality. Now it’s a different story. “Only development makes sense,” said President Hu Jintao, during his speech, echoing Deng Xiaoping’s words 30 years earlier. Indeed. Global recession or not, China’s development, simply, must go on. Beijing can afford no less.

 

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