Erenlai - Items filtered by date: Sunday, 22 March 2009
Monday, 23 March 2009 00:00

The Chinese Paradox

In these times of crises, there is something like a Chinese paradox.

On the one hand, Chinese is doing better than most nations when it comes to economic resilience: China has not been at the origin of the crisis; it does not experience a financial breakdown, though its stock market has been devastated and unemployment is increasing quickly; it has fiscal and financial means far superior to the ones of any other nation for engineering a stimulus; if its exports are falling, its imports are following on the same rhythm, letting its commercial surplus intact; once the crisis is over, it will most probably become the number two world economy, and Japan will be relegated to number three; its stimulus might actually come at the right time, helping it to achieve the infrastructure it still needs; its foreign reserves make it able to buy world-class industrial assets at unheard-of prices and to secure its energy and raw material supply for a long time. Summing up, the present world recession might actually be one decisive step in the accession of China to world prominence.

But there is the other side of the equation…

If China’s economic and financial bases are comparatively sound, Chinas’ social and political sensitivity to the crisis is extremely high. Years of growth as well as the citizens’ acute perception of inequalities and corruption make society prone to rebel if revenues fall or unemployment continues to grow. According to unofficial reports, urban unemployment is already above 9 percent. The arrival of university graduates on the labor market is a source of tension, nurtured by parents’ expectations after having overpaid for ensuring that their children receive education and the job that used to be almost automatically attached to a university degree. Chinas’ higher education system proves to be very ill adapted to current economic needs…

When it comes to the stimulus, a significant rise in consumption will be extremely difficult to achieve, with consumers’ anxiety and expectant attitude linked to the cost of healthcare, threat of unemployment and necessary family investment in education. Vouchers can only achieve a very temporary effect. Public investment is easier to stimulate, but the problem here lies elsewhere: China is still not able to ensure quality spending where it needs it most – water sanitation, green buildings and green industries. “White elephants” types of projects and mere dilapidation of funds are still attached to sudden increase in public spending. If banks are now lending money more easily, they seem to do so preferentially to state industries (maybe recreating rampant bad loans), which is not where China needs to invest. So, stimulus might impede rather than hasten the necessary shift in China’s economic logic. Sustainability still remains a dream rather than a strategy.

In the countryside, the coming back of migrant workers makes the problem of land scarcity and degradation even more acute than before. Actually, the fact that millions of rural workers are left jobless (there will probably be more than forty millions people in this situation at the end of the year) has consequences that might be even more difficult to estimate. Part of this population comes back to the fields, where it will be mostly idle. Another part will stay in the cities, looking for an opportunity and constituting a growing lumpenproletariat. Finally, many of them will establish themselves in prefectoral-level and county-level cities, somewhere between their village and bigger metropolis, in several cases thus creating social tensions. In some parts of Chinas’ West, unemployment might already be a factor in the rise of animosity between Han Chinese and ethnic minorities.

Finally, there are several anniversaries this year that make the whole situation even more sensitive… The most important of these anniversaries is the foundation of the People’s Republic on October 1st. Some analysts see dissensions brewing within the Party’s leadership ahead of this celebration as to the course of action to be taken. Nobody knows yet in which mod China will celebrate the sixty years of the regime. The hydra of the crisis might be already largely vanquished, but the most plausible scenario is that China by then will enter into full struggle with its tentacles.

(Photo: B.V.)


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