Sunday, November 30, 2008

China and the economic crisis

Wow, a month has gone by since I returned from the USA; I have not blogged in that time since Blogger seemed to be blocked, but now seems to be unblocked!

Work has been variably busy and variably not-so-busy; whilst playing time has been somewhat restricted because of apartment hunting (and subsequent upgrading of current apartment, once it was decided not to move, for the moment) and the cold!

As with the rest of the world everyone is talking about the economy; as you may have read China's only ever concern is social (and therefore political) stability and the biggest threat to this has always been employment. In the past, with massive economic growth coming through manufacturing goods for the West, the rural unemployed found jobs in the urban areas. But now the factories are collapsing due to the lack of orders from the West.

This is a serious problem and serious not just in the sense of budget problems but in the sense of social stability affecting the country's very existence. So far things have been quite quiet.... some protests by taxi drivers; a huge government plan to spend money on infrastructure and other projects to provide jobs; discussions about how to increase domestic consumption.

For the West, the recession is a problem.... a big problem, but the country will survive. In China, the fear is the problem could get big enough to be a serious threat to the country. The government does not talk about that of course, but it knows it.

If you consider there are 150m migrant workers who are employed in the cities in restaurants, construction and factories -and now losing their jobs left, right and centre; 100m middle-class whose savings are locked up in apartments whose value is collapsing (how to boost consumption if savings are in property that you cannot sell?); 3m students who will not get a job next summer; 600m farmers who are now about to a) sell their land to agricultural businesses to get some income (temporarily, but then be job-less) and b) be unable to find jobs on the land due the increasing rate of agricultural mechanisation/modernisation.

And this is just the start; we all need to hope that the economic problems only last for 2 years and that China can survive them. Not just for China's sake -but China's impact on the World is now so great, that other countries are all dependent on China. Hell, every multinational company is here trying to make money, because they know they can't make any at home right now!

There is hope though... hope that chinese government and citizens spend their money in China to increase domestic consumption which keeps the factories open and workers employed and provides profits to local and foreign companies. Increasing consumption is hardly a solution to climate change and related environmental crises affecting China, but.... at least it is a short-term solution.

In the mean-time the West's so-called solution to the crisis is for indebted governments to go into more debt to try to trasnfer money to already indebted citizens, in the hope they will rack up more debts spending that money buying stuff. Some how i think the solution of 'borrowing money to spend money' is not going to solve the problem... it is what created the problem.

We just need to accept that we should only spend what we have, and not try to create a society based on spending what we do not have. We'll just end up back in this mess again in the future. This is (hopefully, short) adjustment period where we try to pay off our debts and then, afterwards, not get into so much debt again and just spend within our means. But is that just wishful thinking and gross over simplifaction?

The Chinese people and government have saved money, so they can spend it. This is better than borrowing money to spend, for sure. Maybe the solution is that FIRST we save money, THEN we spend; rather than FIRST we spend money, THEN we try to save! Anyway, we'll have to see what happens as Western governments pile up debts to try to spend their way out of recession. Hopefully the governments' economic advisers know something I don't and their temporary solutions will actually create an economically sustainable society once this crisis is over. Hopefully.

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