China feeling the pinch?
posted at 11:03 am on December 1, 2008 by Ed Morrissey
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Hu Jintao told China’s Politburo that the rough economic times will mean even rougher waters for China. With global demand for consumer products declining, the engine of China’s economic boom will start sputtering. If Beijing reacts by producing even more goods, they could amplify the problem rather than easing it:
Chinese President Hu Jintao warned at a weekend meeting of the Communist Party’s elite Politburo that China is losing its competitive edge as international demand for its products is reduced, according to official state media reports Sunday.
China’s growth rate has been forecast to be about 9 percent in 2008, down from 11.9 percent the year before and close to the 8 percent that economists say China must maintain in order to keep the labor market stable.
“China is under growing tension from its large population, limited resources and environment problems, and needs faster reform of its economic growth pattern to achieve sustainable development,” Hu said, according to the People’s Daily, the official Communist Party newspaper. He did not provide specifics.
“External demand has obviously weakened, and China’s traditional competitive advantage is being gradually weakened” as international demand is reduced, Hu told members of the Political Bureau of the party’s Central Committee, according to the state-run New China News Agency.
Chinas’ strength comes in exports, which provided steady growth during the global economic boom. Now that a substantial recession has hit the world’s economies, demand for consumer goods will drop, likely for some time. A recession will favor the lower-price goods in any market as people want to hunt for bargains when they buy, which would usually favor the less-expensive Chinese goods, but typically people will choose not to buy at all, except in necessities.
The Post reports that Hu has more on his mind than a cyclical business contraction. The Chinese manufacturing sector needs constant growth above a certain level to keep its population satisfied enough not to revolt against the oppressive central government. While China is still expected to grow its economy during this downturn, the question is whether it will be enough to keep up with demand for work.
Hard-liners and reformers have already begun arguing whether more state control will safeguard their Communist revolution, or whether more openness will prevent a counterrevolution. The last thing Hu needs is massive layoffs pushing millions of people into the street in the midst of political tension over the limits of reform. Without a high level of manufacturing growth, above 8% according to the Post, China cannot create enough jobs to meet demand.
Hu wants to play it down the middle, but he may not have that luxury. A little touch of capitalism and liberty goes a long way towards opening the eyes of any populace, as Mikhail Gorbachev discovered with his perestrioka and glasnost campaign while the USSR crumbled. In the short run, the Chinese people may have been satisfied to have work while the government slowly reformed itself, but unemployment and starvation will increase their impatience rapidly.
Economic turmoil can cull the non-competitive entities from the market. That’s true of political systems as well. The problem is in what replaces them.
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“Hard-liners and reformers have already begun arguing whether more state control will safeguard their Communist revolution, or whether more openness will prevent a counterrevolution.”
So Obama is arguing with Pelosi already?
Democrats in charge of all three branches = fiasco.
NoDonkey on December 1, 2008 at 11:07 AM
Those numbers will look a whole lot worse in 2009.
Vashta.Nerada on December 1, 2008 at 11:07 AM
As with any true facist state China holds the trump card, guns. For all the bells and whistles and fancy makeup China is still the far east’s Mommy Dearest. They wouldn’t think twice about mowing down two or three million replaceable workers.
Limerick on December 1, 2008 at 11:09 AM
The answer is staring him right in the face. He simply orders the central bank to pursue policies which allow his currency to rise. Dump US dollars, depeg from the dollar and raise interest rates.
Then, all the high-saving asian worker bees can buy their own products.
lodge on December 1, 2008 at 11:18 AM
China has the ability and will to bomb/shoot/poison a few million peasants into submission should they revolt, and STILL have enough more than enough worker drones to go around. Plus the survivors will be on their best behavior for a good while.
Dark-Star on December 1, 2008 at 11:20 AM
Hmmm let me think.
Our Economy is going bad.
We don’t buy anything made in the U.S.A. much anymore due to unions and inflation here.
China is living on what they export to us, and via the people and industry who have sent their businesses to them.
The United States is in a economic downturn.
Maybe I am cold hearted… or just don’t care. Why the heck should I give a crap about China other then they are playing kissy face with other Terroristic Nations? Or the fact they having been screwing up over and over by making and sending lead based products that the United States have not used in … Years?!?!
Screw China right now… they can go play kissy face with Russia and Iran and see how that works out.
upinak on December 1, 2008 at 11:22 AM
Aisans with money don’t buy Chinese goods. They know the quality is inferior, and the products are often adulterated. They don’t invest in Asian companies, either.
Vashta.Nerada on December 1, 2008 at 11:28 AM
This is the exact scenario Peter Schiff is talking about. How does China continue to grow? Depeg from the dollar take the loss and allow their currency to appreciate so that their citicens can buy the products they produce. They aren’t going to keep buying our t bills forever. Our day of reckoning is coming.
Theworldisnotenough on December 1, 2008 at 11:29 AM
According to my sources, China executed close to 50 million of its own people during Mao’s ascendency to power. Why should they worry about another 2-3 million if the workers should revolt?
DL13 on December 1, 2008 at 11:33 AM
What’s remarkable is relying in a constant economic growth rate of 8% or more in order to keep the country afloat. Most ‘healthy’ economies are happy with 4-5%, aren’t they?
I’m not an economist, but I don’t see how a ~9-10% growth rate is sustainable.
flipflop on December 1, 2008 at 11:35 AM
I think here Captain Ed had an article about a riot at a Chinese factory where workers were being laid off because of a downturn in demand.
China has had troubles their economic prosperity has covered up. They sit on a powder keg of 1.3 billion people, of whom 54 million men of marrying age have no possibility of marriage, that being the number of fewer women to men. Their economic system, combining capitalism and socialism is in part to keep them busy instead of plotting to overthrow the government.
However a little freedom goes a long way. Anyone who has read “Wealth of Nations” can see China is moving in a direction beyond the control of its administrators. Properity, small individual freedoms and the birth of an exchange economy drives the desires of individuals to control their own destinies. Like the kings of Europe who gave parcels of land to peasants in the exchange of their loyalty, the “invisible hand” is slowly moving China in a direction that can be slowed by not stopped. 10 years, 20, 50, it doesn’t matter.
I agree with Limerick that the leaders hold the trump cards in that they hold the guns. However, so did the Russians and the leaders of eastern Europe. They can hold back the tide, but sometime in the future China will be free, or more free than the government they have now. What we have to hope is they don’t take our half the world in their wake.
itsspideyman on December 1, 2008 at 11:36 AM
With all the products coming out of China killing pets and people, this has caused the U.S. to ban alot of products here. This has got to hurt China a bit. I won’t buy any food product that comes from China.
L
letget on December 1, 2008 at 11:36 AM
I think the worlds governments need to take a good long look at their economic policies…
Countries need to be economicly self sufficient (as much as possible)… Foreign trade should be a luxury, not a need.
Question is can America, faced with its own silly economic policies, labor laws, taxes, and environmental policies become more self sufficient?
Or do we continue to rely on an economic House of Cards… where we give other countries the ability to pull cards from our base…
Romeo13 on December 1, 2008 at 11:44 AM
Rush said on his show the other day, that Bush was told by Jintao that his biggest challenge was growth in order to control the movements of populations, and that riots would result when rural jobs dried up in China.
The downturn is sort of a perverse Operation Chaos, in that we’re not buying their goods leading to destabilization, but I can’t see anything good come out of it, as a “democratic coup” ain’t going to happen…
hippie_chucker on December 1, 2008 at 11:46 AM
My thoughts exactly. What happens when the pipe dream crumbles? Border expansion or crisis creation to instill nationalism and divert attention away from domestic problems. I think China is the biggest threat there is.
Alden Pyle on December 1, 2008 at 11:46 AM
Most of that 50 million starved to death, but yeah, he did execute a few million also.
Buy Danish on December 1, 2008 at 11:49 AM
We need to quit trading with China altogether. Let China sell their poisonous products to another Country. We need to start making goods that us to be made here. In the USA.
sheebe on December 1, 2008 at 11:50 AM
I would love to see China fall apart. Some of their military commanders have said they would like a war with us. But, then does Russia step in and take over?
cjs1943 on December 1, 2008 at 11:55 AM
Agreed, there is much to be concerned with over China. They have never been more than a convenient economic ally. (By the way upinak, they already play kissy face with Russia and Iran.)
When economic problems begin to cause systemic failure of a communist government, as was the case with the former USSR, people will rise up when the situation goes from bad to worse. Beijing knows this, and they also know there is another option, the military option. I think border expansion will be their preferred method; they can take whatever they need to feed their people. The only check to this thought process has been the US, and even that was a combination of our lust for cheap Chinese goods and nuclear arsenal.
So, there are two pieces there. If the economy worsens in 2009, and with the US “leadership” of Obama, what would be the restraining factor? This is somewhat sobering, but they would be able to use nationalist emotions to reclaim Taiwan and those resources. (There is good reason for this to be the first target)
Just food for thought.
Marine_Bio on December 1, 2008 at 11:56 AM
I agree but ahhh if it were only that easy. 95% of folks would/will buy imported if it`ll save them a dime, forget the fact that we don`t have the capacity (industrial or cultural) to maf. our own stuff anymore…sad.
NY Conservative on December 1, 2008 at 11:59 AM
We have no way to do so; we’d be starting at square 1 with no customer base. Our factories are shuttered. Our government has failed to protect American industries and the public is tunnel-blind to anything but cheap prices.
Dark-Star on December 1, 2008 at 12:00 PM
I would say that instead of a failure to protect industry, it is more the case of intentionally running the industry out using regulations and taxes. Not that different from the environmentalist hatred of all things oil industry related. It cuts across all industry.
Marine_Bio on December 1, 2008 at 12:06 PM
Keep in mind that no in finance actually believes the official numbers from the Chinese government, so it’s quite likely growth is hovering around that magic 8% number right now.
It’s likely that they’ll appeal to nationalism as a means to keep themselves in power, which means a whole lot of trouble coming for that part of Asia.
blue13326 on December 1, 2008 at 12:07 PM
http://www.youtube.com/watch?v=zI5hrcwU7Dk
’nuff said
Mr Snuggle Bunny on December 1, 2008 at 12:12 PM
You have a interesting idea, but they can’t do this. If they did, their exports will no longer be cheap by US standards. Wal-Mart el al will look for cheap goods elsewhere. Lots of hungry countries, Vietnam, Thailand, etc. China’s growth rate will fall to 3-5 percent. Their domestic market–even with your idea–is not enough to sustain their growth rate. They are not that rich. Also, the Chinese are voracious shoppers. I lived in Shanghai for a few months on a project—the higher values won’t do anything b/c the Chinese are already buying what they need now.
IR-MN on December 1, 2008 at 12:15 PM
forget the fact that we don`t have the capacity (industrial or cultural) to maf. our own stuff anymore…sad.
NY Conservative on December 1, 2008 at 11:59 AM
Sad but true. We have less than 100 Blast furnaces in the US, there used to be twice that many within 100 miles of my home.
Nathan_OH on December 1, 2008 at 12:17 PM
I don’t think Walmart will be looking that hard for cheap imports. Consumer spending is gonna fall off a cliff when people can’t get credit from their banks and unemployment starts to really hit home.
lodge on December 1, 2008 at 12:23 PM
I don’t wanna hear China’s troubles. They make every damn thing as it is and 99% of it is junk. They put themselves in that position, not being Capitalist but wanting what the Capitalists have and control their people too. Do them like we’re doing the Saudi’s right now. Scale back and let them eat crow a while. The U.S. would be more powerful with some of that work and material coming back home. China can kiss off.
johnnyU on December 1, 2008 at 12:25 PM
Not long ago many so-called finance experts in the US thought a 10% a year increase in real estate values was sustainable forever too.
angryed on December 1, 2008 at 12:27 PM
I personally would like to see the U.S. step up with some new products and services. Lets quit being the customer and start being the provider.
johnnyU on December 1, 2008 at 12:29 PM
Folks, this China bashing is silly. The Chinese didn’t put a gun to our heads to buy their junk. All they do is make the stuff. The decision to buy is ours and ours alone.
angryed on December 1, 2008 at 12:31 PM
^ The painful truth.
Dark-Star on December 1, 2008 at 12:36 PM
That is why China has been spending so much of its GDP on building up their military:
a) To combat the unrest that is growing in their country;
b) To invade Taiwan in a year or two to distract its unruly Chinese citizens from the collapsing Chinese economy. Nothing better than beating the nationalist drum very loud to keep people in line.
albill on December 1, 2008 at 12:37 PM
…then, in the wake of poisoned toys and pet food, and a general disdain for anything not Han Chinese, maybe they can turn a little attention to introducing a little health and quality control into their product lines….
…or, maybe, if we stopped buying Chinese manufactures, we might begin manufacturing in the US again….
…naaaaaaaaaaaaaaaaaaaaaaaaaaaaaah! The unions would never permit it….
Puritan1648 on December 1, 2008 at 12:37 PM
I have stated all along, the we have the strongest most vibrant economy in the world…even in our worst of times we drive the world economy.
China is much more dependent on us then we on them. We are the ones who are purchasing. If we each stopped trading with each other, who is more harmed? Since the balance of trade is so slanted towards China, the answer is obvious. And seeing as we are the ones that consume, even more obvious.
The only good news that will come out of the economic disaster, is that the U.S. is even more important to the world then these “leaders” would ever admit.
And as we move out of the disaster, we better have some agreements in place to protect us in the future.
right2bright on December 1, 2008 at 12:47 PM
I agree. Which is why people will never learn.
Cheap stuff has a far greater price than the more expensive stuff produced here at home.
Do you care where your meat comes from?
http://en.wikipedia.org/wiki/Country_of_Origin_Labeling
You should. USDA is already looking at stopping breaded shrimp from China until they can test it all for melamine (the breading has dried milk product in it).
Consumers need to support American products.
Do you understand that Canadian, Mexican, Australian etc beef producers do NOT have to play by the same rules as we do? In some countries, they can use banned drugs on cattle that we can’t use here. Then they can sell the meat to the US & wa la! It’s in your hamburger, mixed with meat from who knows where & you have no way of knowing what you are eating.
Support American industry & agriculture by buying USA products. It really makes a difference.
Or don’t whine when someday third world countries are feeding you their human excrement coated produce & you get sick from it.
Definitely, we all pay a price when you buy the cheap stuff.
Badger40 on December 1, 2008 at 12:51 PM
Does it matter that we buy our food from other countries?
“Mad Cow Disease” AKA “BSE”
http://en.wikipedia.org/wiki/Bovine_spongiform_encephalopathy
Infected animals attributed to the USA are animals that came from (born & raised & bought later) from CANADA.
BSE is not widespread in the US, or in people when we look at the devastation other diseases cause, but this is ANOTHER reason why you should be able to know where your food comes from.
Do YOU want to eat meat from countries that have disease problems?
Do you want our USDA to remain vigilant in restricting products into the US from at risk countries?
When you have a global economy, you run the risk of letting other people feed you.
Do you REALLY want the Chinese people, the Russian people, the Candadians, the Australians,Mexicans, Indians, etc….
FEEDING you?
Badger40 on December 1, 2008 at 12:57 PM
China has consistently resisted increases in the value of the RMB precisely because it’s economy is critically dependent on manufactured exports. They’ve only let it gain in recent years in response to tremendous pressure from trading partners, particularly the US, but Europe as well. China simply does not have a suffciently developed or prosperous domestic market to allow it to continue development otherwise.
DarkCurrent on December 1, 2008 at 1:03 PM
Those numbers still seem pretty good compared to other nations in their situation. Besides, it’s crazy to think any enterprise can sustain growth of 15%-30% YOY forever.
Look at how people flipped out when stock market darlings Dell and Microsoft in the late 1990s-early 2000s “only” grew 10% with profits in the billions of dollars. When compared to the 40% growth rates they’d had for years, a 10% growth rate was inexplicably viewed as a negative.
Nutty.
ScottMcC on December 1, 2008 at 1:07 PM
China faces tens of thousands of protests each year over corruption. Migrants from rural areas in particular are hard-hit, as they are often cheated of the wages they came to the cities to earn. I would only expect it to get worse if the recession lasts past a year.
irishspy on December 1, 2008 at 1:30 PM
Well put angryed. Every problem is an opportunity. The backlash by Americans has started. Anyone who thinks the consumer simply has to sit back and take it simply look at the daily price of oil.
itsspideyman on December 1, 2008 at 1:50 PM
“Do you REALLY want the Chinese people, the Russian people, the Candadians, the Australians,Mexicans, Indians, etc….
FEEDING you?”
Close off those markets and guarantee we’ll soon be paying $10.00 a gallon for milk and $40.00 for a t-shirt.
Which will be difficult, because if we close off foreign markets, 20% of us will be out of a job.
Sorry, don’t want to go down that failed road.
NoDonkey on December 1, 2008 at 2:22 PM
T-shirts are cheap bcs we’ve been outsourced by people in other countries who don’t get benefits & probably live on in one year less than I make in one month.
Milk is already over $5 a gallon for me here in SW ND.
I’m not saying don’t trade with other countries. But when you do nothing but CONSUME from other countries, with no level playing field (trust me-Mexican, Canadian, etc beef does NOT play by USA rules like I have to) you get to be nothing but a consumer nation, which is our problem now.
No nation every will survive this in the end.
People need to be educated & stop being so apathetic.
Trade agreements (at least in agriculture) are usually never “fair” on our side of things.
If we’re going to trade with another country that makes the same stuff we do, then we have to make it as = as possible & that has NOT been done.
So-do you want to eat food from China? Or the US? Who plays by safer rules? I say let’s adopt trade policies & rules that give Americans more of an informed choice.
I know there will still be idiots who don’t care if they’re eating poison.
I’m sorry-but if %20 of the American public are employed bcs another larger percentage are outdone by unfair trade deals, then maybe that %20 had better do something else a little more viable & honorable.
Badger40 on December 1, 2008 at 2:34 PM
How much milk are we importing from China?
right2bright on December 1, 2008 at 3:11 PM
Second look at tariffs!!!
abobo on December 1, 2008 at 4:03 PM
True. On the other hand, I routinely see apples and cherries from my home state for sale even at tiny corner fruit shops here in China. Anecdotally this is in sharp contrast to the blatant protectionism I remember living in Japan mid-80s to early-90s in Japan. I can even go to restaurants and order “US beef”, unlike Japan where it was illegal for most of the time I lived there. I also see “US Poultry and Egg Association” (or something similar) ads in taxis frequently. I’m pretty sure China get’s a large portion of it chicken feet from the US…
DarkCurrent on December 1, 2008 at 4:05 PM
Otherwise known as “How Hoover turned an economic downturn into the start of the Great Depression.”
Count to 10 on December 1, 2008 at 4:34 PM
You’re fantasising Ed. Won’t happen. Almost every revolution in Chinese history has been due to religion. By stressing economic revolt you ironically sound like a Marxist.
aengus on December 1, 2008 at 6:19 PM
What Chinese ‘revolution’ was ever due to religion?
DarkCurrent on December 1, 2008 at 7:14 PM
I wonder how much of that growth was due to adulterated or inferior products.
It was only a matter of time before people figured it out and stopping buying Chinese. What’s next, after capitalism, to placate the billions, war?
PattyJ on December 1, 2008 at 9:41 PM
People (Americans?) stopped buying Chinese? Why do I still see all these fully loaded freighters passing east by my windows every day?
DarkCurrent on December 2, 2008 at 3:21 AM
I thought China was going to be the next superpower which would surpass America by 2010, I thought the emerging economies would keep running the world’s economic engine regardless of America, so what happened? How is that with a mild recession in the US, China’s growth starts to sputter and its economy comes off its wheel?
promachus on December 2, 2008 at 10:38 AM
I don’t believe fresh milk, but products that contain milk, like chocolate, etc…
Remember the (I believe it was) Snickers bars contamination early this year?
That’s very interesting. I am to understand they buy a lot of foodstuffs from us. I am to also understand they bring inspectors to this country (the Japanese & S. Koreans sure do here in ND) to make sure what they’re buying meshes with any standards they might have.
We are supposed to be doing that ourselves. But your USDA doesn’t on a routine basis, if hardly at all.
They do not inspect American meat packing plants, either. All this has hit the fan in the last several years.
I only brought all of this up to point out that if we are going to buy ANYTHING, especially food, from another country, then those producing it should have to play by the same rules as American producers do.
Canada is still using some pesticides on food crops that have banned in the US for years. So you may be eating bread or noodles with wheat that has been sprayed with chemicals banned in the US.
Why is it these things are OK? Why don’t consumers KNOW about this?
I can’t use certain growth hormones in calves to promote growth (& I don’t ever want to do that), but some Canadians use banned drugs on their cattle & it comes HERE for our citizens to eat.
I find this stuff very disturbing.
And I do not believe for one minute that the Chinese govt. is telling us the truth about their production of exported materials. They’re a communist country that has been caught in lies before.
I thank God I know where my meat comes from-myself!
Badger40 on December 2, 2008 at 1:28 PM
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