China to the Rescue? Not!

Hong Kong.

I had no idea that many of those oil paintings that hang in hotel rooms and starter homes across America are actually produced by just one Chinese village, Dafen, north of Hong Kong. And I had no idea that Dafen’s artist colony — the world’s leading center for mass-produced artwork and knockoffs of masterpieces — had been devastated by the bursting of the U.S. housing bubble. I should have, though.

“American property owners and hotels were usually the biggest consumers of Dafen’s works,” Zhou Xiaohong, deputy head of the Art Industry Association of Dafen, told Hong Kong’s Sunday Morning Post. “The more houses built in the United States, the more walls that needed our paintings. Now our business has frozen following the crash of the Western property market.”

Dafen is just one of a million Chinese and American enterprises that constitute the most important economic engine in the world today — what historian Niall Ferguson calls “Chimerica,” the de facto partnership between Chinese savers and producers and U.S. spenders and borrowers. That 30-year-old partnership is about to undergo a radical restructuring as a result of the current economic crisis, and the global economy will be highly impacted by the outcome.

After all, it was China’s willingness to hold the dollars and Treasury bills it had earned from exporting to America that helped keep U.S. interest rates low, giving Americans the money they needed to keep buying shoes, flat-screen TVs and paintings from China, as well as homes in America. Americans then borrowed against those homes to consume even more — one reason we enjoyed rising wealth without rising incomes.

This division of labor not only nourished our respective economies, but also shaped our politics. It enabled China’s ruling Communist Party to say to its people: “We will guarantee you ever-higher standards of living and in return you will stay out of politics and let us rule.” So China’s leaders could enjoy double-digit growth without political reform. And it enabled successive U.S. administrations, particularly the current one, to tell Americans: “You can have guns and butter — subprime mortgages with nothing down and nothing to pay for two years, ever-higher consumption and two wars, without tax increases!”

It all worked — until it didn’t.

With unemployment now soaring across the U.S., said Stephen Roach, the chairman of Morgan Stanley Asia, Americans — “the most over-extended consumer in world history” — can no longer buy so many Chinese exports. We need to save more, invest more, consume less and throw out most of our credit cards to bail ourselves out of this crisis.

But as that happens, we need China to take our discarded credit cards and distribute them to its own people so they can buy more of what China produces and more imports from the rest of the world. That’s the only way Beijing can sustain the minimum 8 percent growth it needs to maintain the political bargain between China’s leaders and led — not to mention pick up some of the slack in the global economy from America’s slowdown.

However, if I’ve learned one thing here, it’s just how hard doing that will be. China’s whole system and culture nourish saving, not spending, and changing that will require a huge “cultural and structural” shift, said Fred Hu, chairman for Greater China for Goldman Sachs.

In China, for instance, to buy a home you have to put at least 20 percent down, and the average is 40 percent. If you try to walk away from the mortgage, the bank will come after your personal assets. Moreover, China can’t just shift production from the U.S. market to its own consumers. Not many Chinese villagers want to buy $400 tennis shoes or Christmas tree ornaments.

Also, China has no real Social Security, health insurance or unemployment insurance. Without that social safety net, it’s hard to see how Chinese don’t end up saving most of their stimulus. “You open up the newspaper every day and you hear about this factory shutting down or that supplier going belly up,” said Willie Fung, whose company, Top Form International, is the world’s leading bra maker. “You can never be too careful in this financial climate.”

As such, “the world should not have a false hope that China can cushion the global downturn,” by stimulating its domestic demand in a big way, said Frank Gong, head of China research for JPMorgan Chase. “The best thing China can do is keep its own economy stable.”

It’s good advice. China is not going to rescue us or the world economy. We’re going to have to get out of this crisis the old-fashioned way: by digging inside ourselves and getting back to basics — improving U.S. productivity, saving more, studying harder and inventing more stuff to export. The days of phony prosperity — I borrow cheap money from China to build a house and then borrow on that house to buy cheap paintings from China to decorate my walls and everybody is a winner — are over.

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Author: THOMAS L. FRIEDMAN
Original Source: New York Times
Date Published: December 21, 2008
Web Source: http://www.nytimes.com/2008/12/21/opinion/21friedman.html
Date Accessed Online: 2008-12-27

Geography of China in Maps

Physical Map of China:


Political Map of China:Average Rainfall across China:


Climatic and Geographical Regions of China



Great Map of China's Geographical Climatic Regions

Religulous (Documentary, 2008)

Religulous ：

Bill Maher's take on the current state of world religion.

Available in streaming through Watch-Movies.net: Click Here to Watch Religulous

After 30 Years, Economic Perils on China’s Path

SHENZHEN, China — The ruling Communist Party threw itself a big party on Thursday. The country’s leadership marked the 30th anniversary of the reform era that transformed China into a global economic power and, in doing so, changed the world.

At a triumphant ceremony at the Great Hall of the People in Beijing, President Hu Jintao invoked Deng Xiaoping, who consolidated power in 1978 and began “reform and opening.” Mr. Hu emphasized the party’s unwavering focus on economic development. “Only development makes sense,” said Mr. Hu, quoting Deng.

But beyond the oratory, Mr. Hu and other Chinese leaders are now facing a new era in which Deng’s export-led economic model, as well as his iron-fisted political control, face unprecedented challenges. Global demand for Chinese goods has slumped, unrest is on the rise in the industrial heartland, and China is scrambling for a new formula to preserve stability and ensure growth.

The downturn is so swift — exports fell last month for the first time in seven years — that Beijing is being forced to abruptly shift priorities. Until recently, Mr. Hu had been trying to curb excesses like rampant pollution and income inequality that posed environmental and social challenges to long-term development. Now, those priorities seem eclipsed.

Instead, leaders are restoring tax breaks for exporters and pushing down the value of China’s currency to encourage exports. At the same time, they are casting about for ways to spur domestic demand and wean China’s economy off its dependence on foreign markets swept up in the global financial crisis.

Politically, Chinese reformers had hoped the symbolic weight of the anniversary and the nation’s post-Olympic glow might propel some measure of political reform to address official corruption and help defuse rising social tensions.

But as Beijing worries about strikes and mass layoffs even in some of its most prosperous areas, official tolerance of political dissent has seemingly narrowed. This month, a prominent dissident was detained after writing an open letter calling for greater democracy. An editor at one of the country’s leading newspapers was reassigned after publishing articles deemed too politically provocative. “We must draw on the benefits of humankind’s political civilization,” Mr. Hu said in his Thursday speech, according to Reuters. “But we will never copy the model of the Western political system.”

If any place symbolizes China’s reform era, it is Shenzhen, a city conceived from Deng’s imagination — and one now in the cross hairs of the economic downturn. Thursday’s celebration was timed to a 1978 political meeting, the Third Plenum, which anointed Deng as China’s leader and introduced “reform and opening.” Two years later, Deng pointed at a sleepy fishing village in coastal southern China, near Hong Kong, and ordained it the country’s first “special economic zone” to experiment with foreign investment and export manufacturing. Today, Shenzhen is a city of more than 10 million people ringed by thousands of factories.

A factory district just outside Shenzhen, Fuqiao Industrial Park, is a snapshot of the economic troubles rippling through the region. Several small factories in the park have closed in recent months. At Wang Jinda Industries, the lettering had been scraped off the entrance after the owner closed last week. Two customers had arrived for a shipment of goods only to find an empty factory.

Meanwhile, some factories that remained open were struggling. Workers at a large printing factory said the owners had stopped recruiting new workers in September while many others had quit. Several workers said wages had dropped significantly as the owners were reducing the length of shifts. A few workers accused owners of deliberately trying to drive down wages to force workers to quit. “Everybody is worried,” said Lin Baozeng, 26, a cashier at a canteen inside the industrial park. Her daily lunch crowd has dwindled to about 100 migrant workers from 500.

“If the economy is bad,” Ms. Lin added as her 3-year-old daughter played nearby, “how can I afford to raise my child?”

As yet, gauging the scale of factory closings remains difficult in Shenzhen and surrounding Guangdong Province, the country’s main export engine. Guangdong was already making a concerted effort to move up the manufacturing value chain at a time when rising labor costs and greater government regulations were making some smaller, cheaper exporters unprofitable. But the recent export slowdown is having an unanticipated impact. More than 7,000 small- and medium-sized factories have closed in recent months. Shenzhen’s mayor said 50,000 people in the city alone had lost their jobs in the last few months.

And there are mounting signs that the problems could be far broader. Over all, China’s economy will continue to expand next year, but some economists say the rate of growth could fall as low as 5 or 6 percent, far slower than the double-digit pace of the preceding several years.

State media have reported that 4.85 million migrant workers have returned to the countryside early before next month’s annual Lunar New Year holiday. Some inland provinces have already announced subsidies for unemployed returnees. On Thursday, the country’s official news agency, Xinhua, reported that 6.5 million migrant workers may be jobless next year.

Beijing has recently restored some export subsidies that had been repealed as part of earlier efforts to rebalance the economy toward domestic demand. Huang Yasheng, a management professor at the Massachusetts Institute of Technology, said such subsidies made short-term political sense, given the huge numbers of jobs provided by factories, but did not address China’s long-term economic challenges. “I see the export supports as a crisis measure,” Mr. Huang said. “They really have no other way to maintain employment.”

Mr. Huang said the government’s focus on exports and expanding the role of state-owned corporations since the 1990s had meant too little of the country’s wealth had trickled down to ordinary people. He said household incomes had lagged well behind overall growth, meaning that hundreds of millions of ordinary people still had relatively little spending money — a major problem when the government is trying to rapidly increase domestic consumption. “It’s a huge challenge,” said Mr. Huang, author of a recent book, “Capitalism with Chinese Characteristics.”

China’s immediate answer is a stimulus program focused on infrastructure like railways and ports. State-owned banks are being ordered to make credit easily available, and business taxes on real estate sales were waived this week. Such steps may be crucial to buttressing the Chinese economy and preventing a deeper global recession. Yet some Chinese officials are wary of the potential impact of another phase of state-led industrial development.

The government stimulus program enacted in response to the 1997-98 Asian financial crisis enabled China to avoid the recessions suffered by neighboring nations. Yet it also propelled the enormous investment in heavy industry that is a major reason China is now the world’s largest emitter of greenhouse gases.

In an opinion article in the online edition of People’s Daily, Pan Yue, the outspoken vice minister of the Ministry of Environment, blamed Western excess for the global crisis and warned that China risked ruin if it blindly pursued Western industrial models.

“China’s reform and opening has achieved in 30 years the economic gains of more than 100 years in the West — yet more than 100 years of environmental pollution in the West have materialized in 30 years in China,” Mr. Pan wrote. “The present global economic crisis shows that if China continues down the old road of Western industrial civilization, it will only come to a dead end.”

China is a far more open and dynamic place than the country Deng first unleashed three decades ago. Much of that change has come from ordinary people pushing for more space in society, just as much of China’s economic success has come from the entrepreneurial energy and hard work of its work force. Yet Communist Party leaders have been careful to hoard political power: independent unions and political opposition remain illegal.

Earlier this year, Shenzhen’s leaders seemed eager to position the city as a pioneer of political reform. Shenzhen officials published a reform plan that advocated some local elections and greater leeway for local legislatures and courts to make decisions. But those plans, later tempered by provincial leaders, now seem derailed as officials are focused on maintaining social stability.

Some influential Chinese say more should be done. Yu Keping, a scholar at a leading Communist Party research institute who has advised top leaders, published essays this week in leading Chinese newspapers about the need for greater democratization to combat corruption.

In an interview with The New York Times, Mr. Yu called for “breakthrough reform.” But he also said that change must come incrementally, given the need for social stability, with an initial emphasis on better governing and rule of law. “We need to promote democratization in China,” Mr. Yu said. “On the other hand, we need to promote social stability. If we had an election right now, we might end up like Thailand.”

In fact, the limited momentum toward modest political change could well be sidelined by economic problems, some experts say. “A real huge question is how the economic downturn is going to affect any sort of political reform,” said Joseph Fewsmith, a Boston University professor who studies Chinese politics. He said officials might deliberately slow efforts to carry out a new rural land reform law approved this fall to grant farmers the ability to transfer their land rights.

“People worried about social stability are going to proceed very, very slowly,” Mr. Fewsmith said.

Zhang Jing and Huang Yuanxi contributed research.

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Author: JIM YARDLEY
Original Source: New York Times
Date Published: December 19, 2008
Web Source: http://www.nytimes.com/2008/12/19/world/asia/19china.html
Date Accessed Online: 2008-12-20