Global Trends by Martin Khor
Monday 22 December 2008
The theory of
“decoupling” of Asia from the world recession is disproved as
What a difference
a few months make! When the
Last week, I attended
a conference in
It is clear we cannot
organized by the
In fact, Chinese policy makers and thinkers are going through a re-thinking of their economic and social policies, as the global crisis has hit the country much more seriously than perhaps anyone had predicted.
A large part of
But recent months
have seen the closure of export-oriented firms. Around 670,000 small
firms have closed this year and 6.7 million jobs vanished, many in
The Ministry of Human Resources last week reported that 4.85 million jobless migrant workers had returned to their hometowns and villages by the end of November and more than 10 million migrants are now out of work.
The situation may even be worse. Dr. Geng Xiao, Director of the Brookings-Tsinghua Center in Beijing told me that in his estimate 20 million jobs have been lost as the industries based along the Chinese eastern coast that were producing textiles, shoes, toys, steel and construction materials have closed.
This reflects the
slump in exports as well as in consumer spending. In November, for
the first time in many years,
In the domestic economy, vehicle sales were up by only 7.7% in November while the sales of building materials were 33% down in November and private housing sales in January-November were 20% below the same period a year ago.
Small and medium sized enterprises were already in trouble at the beginning of this year. Their already profit margins were hit by cost increases caused by rising raw materials prices, the appreciation of the local RMB currency, implementation of new labour laws including minimum wages, new tax and export rebate policies, and shortages of land supply and credit.
By mid-year, economic analysts were already talking about “the end of low-cost textile exports.” Policy makers were aiming at phasing in higher value-added industries.
Then the financial
crisis turned into a real-economy recession in the
At least four foreign
experts at the conference last week predicted that the export-led model
is over for
Most explicit on this point was Financial Times columnist Martin Wolf, who said “the old export-led growth model has now hit the buffers and the time for radical change is now.”
Almost all agreed
that the way forward is for
How to get Chinese households to spend more is a complex question, given the rise in unemployment and the economic uncertainty, and the penchant of the Chinese to save for a rainy day. This is a long-term solution. In the short run, it is easier to boost government consumer spending, such as through house construction.
In November, the
government announced a fiscal stimulus package of more than US$600 billion
over two years, including for infrastructure, low-cost housing and schools.
This was hailed around the world as a contribution to boosting world
But it is unlikely that the fiscal stimulus will be enough to prevent a significant slowdown that will shave many percentage points off the economy’s usual 10-plus percent growth.
The global crisis
may in fact cut the growth of
This will affect
other developing countries through reduced demand in
thesis is thus being turned around its head. Things will get worse
for developing countries like