Le Monde diplomatique
 The Nation
Richard Bulliet
Rami G. Khouri
Peter Kwong
Patrick Seale
Immanuel Wallerstein
|
China: Odd Man Out| by Peter Kwong | Released: 10 Nov 2008 |
The devastation of the US financial institutions has dragged the western world into its worst economic crisis since the Great Depression, and the impact on China’s export trade has been immediate. 67,000 exports-producing factories were shut down this year, including more than half of the country's toy exporters.
This is disastrous for a country in which 40% of the GDP comes from exports. After decades of phenomenal growth -- well above 10 percent – the Chinese economy slowed to 5.8 percent in the fourth quarter. The government has responded by offering tax cuts and subsidies to exporters to ride out the storm.
This, however, is not a normal cyclical downturn. The current global crisis has signaled the collapse of the US model of free market capitalism which allowed greedy Wall Street bankers to mislead investors into losing billions of dollars, and forced governments to intervene lest their national economies plunge into disaster. In response to voters’ demand, western democracies are beginning to balk at the idea of unfettered free trade, calling instead for “fair trade,” so that a country like China would not be able to use its cheap and unorganized labor to undermine their industries and living standards.
China, the great beneficiary of free trade, is not likely to see it again soon. Instead, the world’s factory will have to cope with an overproduction crisis. The “irrational exuberance” of foreign investors during the last decade has poured more than half of the world’s investment capital destined for the developing countries into China, creating an excessive productive capacity and cutthroat competition. This has forced Chinese producers to sell below cost just to keep their factories running -- then court aggressively for more foreign investment.
Signs of the looming overproduction crisis were visible for several years. Once eighty percent of the world’s Christmas ornaments and paraphernalia were produced in China. Today the demand has shrunk by 40%. As a result, the producers are peddling their products domestically, turning this nominally communist, non-Christian nation’s urban centers into surreal Santalands at Christmastime.
The solution to China’s problems is to direct its production to domestic consumption. Except, more than 500 million of its people are living on less than $2 a day, and the urban middleclass is still too small to replace American and European consumers. What’s worse, they have been hit by the bursting of China’s own real estate and stock market bubbles. Believing in the insatiable demand of the long-impoverished Chinese, developers had embarked on a building boom of historic proportions urged on by a speculative fever that had jacked-up real-estate prices into the stratosphere.
When the bubble broke, home sales plunged 56% in Beijing and 39% in Shanghai in the first half of this year. Similarly, the indexes of the Shanghai Stock Exchange had enjoyed a stunning rise, grossly disproportionate to the price-to-earnings ratios, from 1,400 in 2006 to 6,000 in 2007.
PetroChina became the world’s first company valued at more than a trillion dollars. Millions of Chinese middleclass were suckered into purchasing stocks as a way of providing for medical, education and retirement emergencies not covered under the government’s neo-liberal policies of privatization and disinvestment in public services. When the stock index fell to 1,700 this month, their savings were wiped out.
The biggest problem facing China is the loss of jobs for migrant workers from the countryside. Due to poverty and government’s lack of investment in the agricultural sector, 300 million peasants have moved to the urban centers to find work during the past three decades -- 20 million pouring in each year. The current slowdown has hit the workers hard. Last month 6,500 employees gathered at the gates of a supplier to Mattel demanding back-wages; another 1,000 demonstrators at a factory in Guangdong where they were confronted by hundreds of riot police when they attempted to move on the local government offices. Adding to the highly combustible unemployed mix are college graduates. Of approximately 5 million college graduates last year, an estimated 12.1% have found jobs.
Not surprisingly, China's Premier Wen Jiabao has announced that sustaining economic growth to provide jobs is his government's “first priority.” China is using its substantial currency reserve to help stabilize American financial institutions in the hope that, once American economy is revived, consumption of Chinese imports will resume.
But this pattern of “China produces and the rest of the world consumes” is not sustainable -- particularly if Chinese leaders allow labor abuse and refuse basic services to China’s working people just to keep the prices of exports down.
President-elect Obama has called on China to engage in fair trade. Alarmed, China’s foreign ministry spokesman urged him two days after his election victory to continue to adhere to policies of free trade: “We must prevent trade protectionism which is no good for either side."
Alas, as most governments re-embrace Keynesian economic model of intervention to protect national interests in the face of the current global crisis, this passé rhetoric is turning China into the odd man out.
Peter Kwong, a professor of Asian American studies at Hunter College, is co-author of Chinese America: The Untold Story of America's Oldest New Community.
Copyright © 2008 Peter Kwong – distributed by Agence Global
----------------
Released: 10 November 2008
Word Count: 829
----------------
|
|
