The last few months of 2008 saw most of the world, if not all of it, affected in some way by the financial crisis.
In the case of
China, most of us have read that the central government is launching a plan to
invest 460 billion Euros over the next two years to kick-start the economy.
This amount, representing about 15% of annual GNP and on a par with
figures announced in the US, is mainly intended to cover the construction of
new infrastructures including railroads, airports, highways and heavy industry.
Unfortunately, this was in many ways already planned before the crisis and does
not really answer many of the current concerns.
Skeptics indeed feel
that the plan will not really encourage consumers to start spending again, nor
help medium and small-size companies to improve their situation, which has
become critical in many areas of the country, especially in the manufacturing
industries. On the contrary, they argue, it would only help large state-owned
enterprises. The government’s argument is that it would actually create
employment for six million workers. This is in fact roughly the number of jobs
lost in the last few months and it is seen as essential to create new jobs to
alleviate this increase in unemployment.
Another perceived
flaw in the rescue package is the very small investment portion earmarked to
improve health and education services (2%). These services have become
important sources of expense for families, which partly explains the high
percentage of saving that Chinese have traditionally needed to maintain.
Thrift, of course, is a traditional Confucian value and has long been part of
Chinese culture. In fact the overall saving percentage is 25%, a level unheard
of in the western world. In the current difficult economic situation, many
Chinese will, without any problem, further reduce their spending.
For the last few
years, China’s GDP growth rate has been hovering around 10% and this level has
been critical in assuring employment for new entrants in the market and in
coping to some extent with the flow of migrants from the countryside to the
cities (200 million since 2001). It is forecast that the percentage of GDP
growth could eventually decrease to 7.5% or even 5%, which would in Chinese
terms be quite catastrophic.
Undoubtedly the
Government will need to announce new measures in the near future to counter a
further slowdown in the economy and in the all-important level of exports and,
last but not least, to avoid possible social unrest. Such measures could
include creating special banking institutions to help small and medium-size
companies, decreasing various taxes, and operating further cuts in interest and
lending rates. Part of the solution will also hopefully come from the economic
recovery in the US and Europe.
It would be tempting to say that the slowdown in the Chinese economy is
more of a problem than a relief for the West. On one hand, many western
companies are deeply involved in China and a slowdown in the economy and consumer
consumption can only damage these companies. On the other hand, thousands of
Chinese-based companies have closed down in the last few months mainly due to
the consumption slowdown in the West. These companies, Chinese and
foreign-owned, have for many years provided cheaper products to Western
consumers, thereby helping to keep living costs lower. The consequences of
these company closures could therefore have an impact on our lives. We can hear
nowadays in China that concentrating on exports was maybe a mistake and that
future efforts should rather focus on developing the domestic market.
China has in its long history endured many hardships and its population
has always shown a strong will to recover from them. Among the many Chinese
cultural characteristics, values such as stoicism, tenacity, a strong work
ethic, family closeness, loyalty and, last but not least, a dutiful adherence
to Confucian precepts should again do well for them. Added to the spirit of
entrepreneurship of the people, always seizing new opportunities, China will
continue to progress.
The current situation should also hopefully trigger needed improvements
in the social sphere, just to mention one area. The central government, while
still keen to maintain strong control of its population, is aware of the
situation and has introduced positive changes but with a population of 1.3
billion scattered over a huge territory, it is an unheard-of challenge. The
government is also keen to improve the conditions of the people in the
countryside who have been economically left behind. During the last Congress,
President Hu Jintao promised to address social fissures, a degraded environment
and rampant corruption. He also spoke extensively about his “scientific view of
development” supporting harmonious economic, social and political development.
One often hears criticism in the West of the Chinese government but one needs
to realise that China is at a different stage of societal evolution and barely
recovering from a very difficult political period. The overall progress made
has been outstanding and is the result of hard work and dedication to
traditional Chinese cultural values, which are unlikely to change for the
foreseeable future.
On January 26th,
China will celebrate the New Year (Yuan Tan) and the
year of the Ox will replace the year of the Rat. Following tradition, many
citizens will make trips back to their hometowns to celebrate with their
families. Last year, snow was a big cause of disruption in many parts of the
country. Let’s hope that this will not happen again and that the current
economic situation will still allow people to enjoy what is, for Chinese
people, a very important cultural event. I will actually be there to witness
it!
by Jacques Méon
