The news is full of China’s $586 billion internal stimulus package. Some deluded souls actually think that it will turn the rest of the world’s economy around. Don’t bet on it. And don’t bet on the Chinese displacing the U.S. as the world’s superpower anytime soon.
Old China hands have been predicting a Chinese stimulus, including John Pomfret of the WashPo. On October 22, he noted:
Any time the official New China News Agency files a piece with the headline: “Experts: China’s economy has ability to recover from slowdown,” it’s time to worry about China’s economy. You’ve already heard the news, no doubt.
Five straight quarters of slower growth. China’s National Bureau of Statistics announced this week that the nation’s economy grew at an annual rate of 9 percent in the quarter ending Sept. 30, the lowest since 2003 — when the SARS epidemic turned the economy upside down. Exports are shrinking so fast that some economists are predicting the sector will not grow at all next year.
More ominously for “social stability,” however, are the lay-offs. More than half of China’s 7,000 plus toy makers are out of business. More than 67,000 small- and medium-sized enterprises have gone belly up in the first nine months of this year, according to a report in the China Business News this week. There are an increasing number of reports about labor unrest among those turfed out of work.
Obviously, China, too, will put together a stimulus package. More investment in infrastructure, lower interest rates. China just lowered taxes and mortgage interest rates on real estate purchases, which should (again) stoke its on-again-off-again housing market. But it’s clear that China won’t escape economic tough times.
Given the secretive ways of the Chinese government (remember their dissembling on the SARS epidemic in 2003?), a public statement like this indicates more than general malaise. Rather, it shows the leadership’s deep worry about a labor force that is increasingly unemployed and which must be kept busy.
In his November 4th column, Pomfret noted that China needs at least 9-10% annual growth just to take care of new people coming into the labor force. Below that, and we’re going to see a lot of unhappy Chinese without jobs and a domestic economy that can’t begin to buy up the goods that would otherwise be exported. Quoting Nouriel Roubini (the only guy who predicted the current financial meltdown), Pomfret states categorically that the Chinese are in for a very hard landing indeed.
But the larger issue is whether China will avoid imploding like it does every hundred years or so. Pomfret wrote an interesting contrarian piece in the WashPo in July (reprinted here) in which he dismissed paens of praise for the coming ‘Chinese Century’. As Pomfret observed, ‘too many constraints are built into the country’s social, economic and political systems. For four big reasons — dire demographics, an overrated economy, an environment under siege and an ideology that doesn’t travel well — China is more likely to remain the muscle-bound adolescent of the international system than to become the master of the world.’
Take just the demographic piece, which is an eye-popper:
But there’s a hitch: China’s demographics stink. No country is aging faster than the People’s Republic, which is on track to become the first nation in the world to get old before it gets rich. Because of the Communist Party’s notorious one-child-per-family policy, the average number of children born to a Chinese woman has dropped from 5.8 in the 1970s to 1.8 today — below the rate of 2.1 that would keep the population stable. Meanwhile, life expectancy has shot up, from just 35 in 1949 to more than 73 today. Economists worry that as the working-age population shrinks, labor costs will rise, significantly eroding one of China’s key competitive advantages.
Worse, Chinese demographers such as Li Jianmin of Nankai University now predict a crisis in dealing with China’s elderly, a group that will balloon from 100 million people older than 60 today to 334 million by 2050, including a staggering 100 million age 80 or older. How will China care for them? With pensions? Fewer than 30 percent of China’s urban dwellers have them, and none of the country’s 700 million farmers do. And China’s state-funded pension system makes Social Security look like Fort Knox. Nicholas Eberstadt, a demographer and economist at the American Enterprise Institute, calls China’s demographic time bomb “a slow-motion humanitarian tragedy in the making” that will “probably require a rewrite of the narrative of the rising China.”
Read it all.
Even official Washington has been aware of these issues for some time, albeit in a more understated way. The United States-China Economic and Security Review Commission (yes, there really is such a thing) outlined the same problems in Chapter V of its 2006 Annual Report to Congress.
As I discussed in my recent posting on deflation, authoritarian regimes, when cornered, tend to become erratic. I fear this happening with Russia and I certainly fear it with China.
And by the way – the price of oil closed yesterday at $56 and change per barrel on the down escalator.
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