The Chinese can weather an American recession.

by BruceMcF Mon Sep 17th, 2007 at 08:18:08 AM EST

This is just an elaboration of an earlier comment ... well, series of comments.

The thesis of the argument is that the Chinese economy can weather an American recession without going into a recession itself.

This conclusion is based on three, inter-related points:

the relative importance of the US export market for continued Chinese growth;
the ongoing decline of the US dollar against the Euro; and
the ability of the US economy to recapture domestic and overseas markets for manufactured goods in the face of an increase in the Yuan/Renminbi exchange rate.

... where the positions that thesis rests upon is:

not as important as we in the US like to think;
its going to keep on going down, and that is likely to accelerate in the event of recession; and
an extremely limited ability to recapture market share in the event of even a substantial rise in the Yuan/Renminbi exchange rate.

Promoted by Colman

Point One: Importance of the US export to Chinese growth

There are two parts to this. First, Chinese growth is not entirely export-led. There is a substantial amount of growth in the domestic economy, fueled in large part by an ongoing explosion of building activity.

Now, as we should all be critically aware, a building boom can continue as long as there is credit to finance the construction. With that credit, the construction activity itself provides a substantial income driver, and that income provides the growth in consumer incomes and business activity that then provides the means and motivation to make use of that credit.

The Chinese credit expansion is fraught with structural problems. But as we saw in the US, structural flaws on their own do not bring a boom to an end, until there is a realization of some systematic risk that realizes additional systematic risks that, when realized, realized additional systematic risks, and so on. We in the US are presently in the middle of the second or third wave of that uncovering of previously covered clusters of systematic risks, with growing worry that the next wave will involve uncovering the systematic risks associated with a recession.

However, the important point here is that the Chinese are exercising some modest restraint on credit, so in the event of a slackening of export demand, they have one or more "Greenspans" up their sleave.

The second part was brought into the discussion by someone else, when I said in a carefully qualified:

Our market is not as important to China ...
... as all that. It may be the most important single national market, but its certainly not a majority of Chinese exports, and exports are not the sole growth driver in the current boom.
So it depends largely on whether its a synchronized slowdown with Europe and Japan. The Chinese economy will certainly continue growing if its merely the US in recession ... its post-Olympics where I would be more worried about a slowdown in the Chinese boom.
by BruceMcF (agila61 at netscape dot net) on Fri Sep 14th, 2007 at 08:07:29 AM EDT

... and redstar replied:

Re: Our market is not as important to China ...
Depends on how you define National.
If memory serves, the EU is a more important trading partner now to China than the US is mine de rien...
by redstar on Fri Sep 14th, 2007 at 11:32:09 AM EDT

So the US is not a larger export market than the EU. If the recession is not a synchronized global recession ... the single most important qualifier to this entire thesis ... less than half of the export market will be hit, from the perspective of most Chinese industries.

And further, it seems likely that Chinese exports will not decline in proportion to a US economic slowdown. While the Chinese have climbed into higher end market niches, they have not abandoned their position at the bottom end of most markets that they sell into, and so for many Chinese exporters, a US recession will not mean a collapse in demand. And, further, declines in demands for normal goods (in terms of income elasticity) will be partially offset by increases in demand for inferior goods (in terms of income elasticity).

And at the same time, the Chinese do not have the same position in many markets for consumer durables than for markets for consumer staples. They certainly have a greater position than would appear from "Made in Chine" labels, since their primary stake in many consumer durables is as a component manufacturer. Still, in terms of total value added, the Chinese have a stronger position in American consumer staples than, for example, the Japanese or Koreans.

So an unsynchronized US slowdown will not represent the loss of the majority of the primary Chinese growth driver, but rather the loss of a large but minority share of one of several Chinese growth drivers.

OK, so far, this has been about the capability of avoiding a recession. However, forestalling a recession may well lead to making existing structural problems worse in the not so distant future. So, will the Chinese exercise this capability if they can?

Well, yes, certainly. If the Chinese have the capability of forestalling a domestic recession until after the Olympics, they will do so.

Point Two: The Decline in the US dollar

This is much shorter, but it is a point that needs to be made in the run-up to the third point. That is, modern foreign exchange markets for high income economies are dominated by capital account transactions. Depending on the currency, capital account transactions can represent more than 80% to more than 90% of total currency exchanges.

It is common in the modeling of exchange rates in traditional marginalist economics to argue as if trade (the dominant current account transaction) dominates exchange rate determination. And this makes sense under the presumptions of traditional marginalist economics, where foreknowledge is presumed perfect except where explicitly argued otherwise and money is presumed to be neutral except where explicitly argued otherwise. Neutral international money implies that capital account transactions are effectively barter taking place arbitraging real values over time and space, as opposed to current account transactions, which are effectively barter arbitraging real values over space alone.

However, out here in the real world, that is a load of nonsense. Capital account transactions are handing money over in return for an obligation by the recipient to do something ... presumably something representing monetary value ... at sometime in the future. And if the US slides into recession, the appeal of buying a financial promise from people within the US economy will drop, while the appeal within the US of buying a financial promise from someone outside the US will rise. This effect is only amplified by the ongoing US credit rating inflation over the past two decades, which weakens the credibility of US financial assets rated as representing "safe havens".

So the US dollar, its going to keep on going down, if a recession hits.

Point Three: The opportunity of the US to recapture lost markets

As the US dollar slides down, that implies, for international real commodities like iron ore, coal, oil, limestone, etc., a rise in US dollar price. And that would seem to represent the undermining of the argument in Point One ... because the boost from easing up on the (extremely modest) restraints on Chinese credit could easily be swallowed up whole by imported inflation in the raw materials required by the construction industry.

However, the Chinese have substantial leeway in a simple policy tool that can restrain that imported inflation. The Yuan/Renminbi is presently pegged to an exchange rate that is steeply discounted compared to the average that would prevail if the Bank of China pursued a dirty float. And the Chinese have already adopted a hidden peg system (the Singapore model), where they peg against a basket of currencies, with neither the peg nor the composition of the basket made public ... though it seems clear that when the policy replaced the open dollar peg, the basket was still overwhelmingly composed of dollars.

However, the Chinese are free to adopt a policy of steadily increasing the share of Euros in the peg, with a corresponding reduction in the share of the US dollar. And I expect that they have a margin to work within, because a modest increase in the strength of the dollar against the Yuan ... while the Yuan continues to depreciate against the Euro, and likely depreciates or holds relatively stable against currencies like the Pound Stirling and Australian dollar ... will not open the door for US manufacturers to retake big chunks of lost ground in domestic or export markets.

That is, the price advantage that Chinese industry required to drive US industry out of existing market positions is less than the price advantage required to hold onto those market positions. The new supplier relationships, new transport systems, unfamiliarity with the pitfalls of buying from Chinese producers ... all of those are in the nature of infant industry costs. Once the market position has been won, those costs decline ... and for some of the transition costs, they reverse, where dropping the existing Chinese supplier and replacing them with a US (or more likely Mex/American) supplier now faces similar costs.

And by the same token, if the US enters a recession, its trade deficit will automatically improve, reducing the current account surplus it requires to balance that deficit, and the Bank of China can afford to buy fewer US dollars and more Euros, as is required to implement the shift in the share of the currencies in the currency basket. And of course that shift further increases the ability of the EU market to have a trade deficit with China, which is more important to China's export producers if the US is in recession and the EU is not.

So the Chinese can afford, both in terms of their global export position and in terms of avoiding a global financial collapse, to allow the Yuan/Renminbi exchange rate to float upwards, to prevent imported inflation, in particular in raw materials, from spoiling the short term domestic building boom.

At least, that is, until the 2008 Olympics.

Conclusion

So that's why I think that China can weather a US recession. Mind you, I'm a regional development economist, so YMMV.

The Chinese can weather an American recession. | 25 comments (25 topical, 0 editorial, 0 hidden)

Yes, I'm here. (4.00 / 11)

Well, not really a tip jar, just posting an access point into the diary from my comment page, which is one of my two regular bookmarks into Eurotrib.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Sat Sep 15th, 2007 at 03:42:07 PM EST

Re: Yes, I'm here. (none / 1)

good piece, thanks.

what's the other entry page, the FP?

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Sat Sep 15th, 2007 at 04:59:45 PM EST
[ Parent ]

Yup ... after all, recent comments ... (4.00 / 2)

... is only one click away from there. But, oh my goodness, my comments page is a hover and a click, which sometimes leaves me writing a new entry or looking at my own ratings.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Sat Sep 15th, 2007 at 05:05:55 PM EST
[ Parent ]

Re: The Chinese can weather an American recession. (4.00 / 3)

the interesting strategy is most often the counter-intuitive one. i particularly appreciate Point 3 detail, as the trade is utterly alien to my business experience. also i was unaware of the "hidden peg" per se although i had read a bit about retail bank FDI over the last couple years. i assumed the chinese government demands equity in these assets as it does other "joint ventures."

would you please clarify these statements.

"Neutral international money implies that capital account transactions are effectively barter taking place arbitraging real values over time and space, as opposed to current account transactions, which are effectively barter arbitraging real values over space alone."

and

YMMV

Diversity is the key to economic and political evolution.

by Cat on Sat Sep 15th, 2007 at 04:47:15 PM EST

Re: The Chinese can weather an American recession. (4.00 / 5)

YMMV is Your Mileage May Vary.

IOW, I'm not a trade economist, even if I have once in a while played one on the Internets.

Neutral international money implies that capital account transactions are effectively barter taking place arbitraging real values over time and space, as opposed to current account transactions, which are effectively barter arbitraging real values over space alone.

If the supply of money does not affect "real" values over the long term ... that is "neutral" money ... then lending is just transferring money from now to the future to buy something then, and borrowing is transferring money from the future to the present to buy something now.

And in the standard model, that is something in particular ... that is, the price of, say, iron ore rises ten years from now, and therefore you change your borrowing/lending activity in the here and now, in order to buy more or less things that are made from iron ore.

International Money being neutral extends this from a single economy to the international balance of payments, so that a capital outflow represents people in the country responding to the change in relative prices between now and, say, ten years from now by deciding to buy something ten years from now.

Its a very pretty theory with very elegant mathematics.

Oh, and BTW, the Bank of China is also making moves toward devoting some of their purchases of foreign exchange reserves to buying financial assets that yield more than the conventional liquid balance in a major money center bank in the foreign exchange country of origin.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Sat Sep 15th, 2007 at 05:15:09 PM EST
[ Parent ]

Re: The Chinese can weather an American recession. (4.00 / 6)

Bruce,

You might also be interested in this, from the latest NLR, section on development of the home market in the PRC:

In the transition to capitalism in the West, an essential element was the development of the home market--the demand for goods produced by budding capitalist industry and agriculture. This required a transformation in a country's way of life such that needs came to be met through the purchase of commodities. A shift took place from household production to manufactured goods, in which migration to the cities played an essential part. This affected all social classes, but the most important site of consumption was the bourgeois home, as both the largest single purchase and the repository of consumer durables such as furniture and appliances. Purchases were further stimulated by rising incomes and falling commodity prices.
Exports to external markets also played a significant role. Britain's industrialization was vigorously stimulated by exports to Europe, the colonies and the United States. But in a country as large as the us--the world's largest integrated market for almost two centuries--most trade was inter- and intra-regional; American exports were never more than 5 per cent of gdp before the late twentieth century. France is another case where exports made a modest contribution to industry. In any event, successful export of manufactures requires a competitive level of cost and quality that is hard to acquire without experience, and has normally come only after domestic industry has been firmly established.
China's potential home market is vast. In the post-Maoist era, domestic consumption began to rise quickly, first with the jump in rural disposable income associated with decollectivization and the expansion of tves, then with growing urban demand from cadres and workers released from ration-card limitations. They were now paid in money instead of direct services from their danwei, and enjoyed rising wages in successful enterprises. Leading segments in the new consumer market of the 1980s and early 90s included televisions, bicycles, motorcycles, clothing, refrigerators and air conditioners. This new demand was met mostly by firms still under state or collective ownership, responding to market signals. But many of the companies of that era subsequently disappeared under the pressure of competition and overproduction, signalling an emergent capitalist economy. Since the mid-1990s, new goods such as mobile phones and automobiles have taken the lead in the domestic market as disposable incomes have risen. They are supplied increasingly by private companies, such as Ningbo Bird and Nanjing Panda Electronics. Foreign firms provide many high-tech goods, but seldom directly dominate domestic markets.
Demand continues to grow smartly. The absolute number of upper- and middle-class consumers in China--around a million affluent urban households and at least 40 million well-off, by one estimate--means an ample demand for domestic goods. Chinese urbanites, like Parisians and New Yorkers before them, are in the forefront of consumer culture, as their per capita real income, rising at an annual 5 per cent, increasingly outstrips that of the rural and small-town population. China is the second biggest car market worldwide, seventh in total retail sales and third in luxury goods. [19]
Urban China is rapidly moving into the worldwide mainstream of consumer culture. Global retail chains such as Ikea, Carrefour, b&q and Sogo dot the big cities, as do domestic chains like Gome, Wumart and Lianhua. Brash new shopping centres are appearing, such as Beijing's Oriental Plaza. Shanghai's Xintiandi is so successful that developer Philip Huang has been asked to create similar projects in twenty-three other cities. Because the government understands how vital cities are to the development of consumption, the State Council has favoured an urbanization strategy as a significant way of absorbing surplus production. [20]
China's push into private housing is likely to undergird the shift to a mass consumer society. Dwellings--mostly apartments, some condominiums, and upscale suburban housing tracts--are major outlays of income for the newly emergent upper and middle classes. And they must be filled with consumer products: private housing promotes consumption with a vengeance, while it fragments the remaining collective consciousness of the Maoist era. [21]
Export markets have been vital to China's development since the establishment of foreign-trade zones in the south soon after 1980. Moreover, foreign firms have led the way to modern production and the opening up of global markets. Korean, Japanese, German and especially Taiwanese and Hong Kong companies have set up shop, introduced new technologies and taught Chinese workers and bosses the latest in product engineering, factory management and global distribution. The linkage of global standards of production with China's millions of hard-working, disciplined and low-wage workers makes a formidable combination on the world market.
China has become a major force in international trade, closing in on Japan in total exports and undercutting domestic manufacture in North America, Europe and East Asia. The share of exports in gdp rose steadily during the first two decades of transition, from 5 per cent to 25 per cent--the same figure as Germany. After 2000, with China's entry into the wto, the figure leapt to 35 per cent--a level comparable to that of Korea. But most of this is driven by foreign-owned firms and joint ventures. Chinese firms depend most on the domestic market, where household consumption constitutes over 50 per cent of gdp. To view exports as the sole engine of development in modern China is therefore to repeat the classic mistake of liberals who see trade, rather than production, as the heartbeat of economic growth. [22]
Nor is China's export success a matter of low labour costs alone. Even the supply of cheap goods to Wal-Mart and similar global corporations requires a level of competence that ensures quality and reliability. A good example is byd Company, maker of over half of all mobile-phone batteries on the world market. It is a further leap to enter global markets as a fully fledged competitor in white goods or consumer electronics, as several Chinese companies are now doing. An instance of this is the evolution of Legend/Lenovo from a motherboard supplier in the 1980s, to a national computer champion in the 1990s, to a global computer-maker able to buy ibm's pc division in the mid 2000s; another is Haier, which now controls a quarter of the us market for small refrigerators.
In the face of international pressure on the exchange rate, growing American indebtedness and potential competition from even cheaper countries like Vietnam and Bangladesh, China's economic planners are anxious to reduce dependency on exports by expanding the home market. This has been inhibited by inadequate infrastructure, and distribution and logistics are still backward. But investment in infrastructure has now accelerated, China is quickly developing a sophisticated internet--including business-to-business supply links such as alibaba.com--and already has a road network, telephone mainline and electric power grid that are better by far than those of India or Latin America. [23]
In 2000, state investment was reoriented to focus on the poor inland areas of central and western China, and the new government of Hu Jintao and Wen Jiabao has declared its intent to alleviate rural poverty. A common interpretation is that these measures are designed to head off growing social unrest due to glaring inequality. It is true that state spending creates jobs and income in the short term, but measures such as rural electrification and road building are ultimately designed to incorporate poor areas still `off the grid' more fully into the circuits of capital, thus increasing the size of the home market and the effective demand for China's domestic industries.

Nice job on the diary and, needless to say, I agree with the thesis.

The Hun is always either at your throat or at your feet. Winston Churchill

by r------ on Sat Sep 15th, 2007 at 05:17:28 PM EST

well done (4.00 / 4)

my sense is that the main threat to the chinese economy is its vulnerability to oil shocks, especially in the countryside where everything has mechanized, and the mass transit that ties china's megalopolises together doesn't exist. combine that with the erratic weather of our new global warming paradigm, and pollution rendering significant amounts of water and soil useless for agricultural production, and china may end up with more economic stress from rural areas than foreign recession, in a manner not entirely unlike the dust bowl.

still, a refreshing look at the actual impact of the american economy. we tend to be like a frog in a well, as a nation.

by wu ming on Sat Sep 15th, 2007 at 08:01:53 PM EST

Re: well done (4.00 / 5)

I disagree, I think that the biggest threat to the Chinese economy is that there is a hidden pool of resentment at the current regime and the economic transformation that has taken place. And you have 80,000 + civil disturbances a year in China, many labor disputes.

The Chinese can't survive on growth alone, they need mega growth of the 5%+ variety to prevent a genuine worker's revolt and political unrest. That's the real danger. That even a slight downturn in the Chinese economy provokes serious social unrest.

And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg

by ManfromMiddletown (manfrommiddletown at lycos dot com) on Sat Sep 15th, 2007 at 08:30:32 PM EST
[ Parent ]

I think you two are agreeing noisily ... (4.00 / 6)

... here, an oil shock being a fundamental external shock that could leave China in a position where the central government is incapable of generating +5% growth for several years in a row.

And note that the leeway I noted with respect to the exchange rate is only leeway ... its not an open-ended ability to raise exchange rates without undermining the neo-mercantalist policy of discounting the external price of Chinese domestic resources.

Knustler has an especially grim view of China as the last country to get on the cheap oil express, just when the cheap oil express is coming to the end of its run.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Sat Sep 15th, 2007 at 08:44:22 PM EST
[ Parent ]

Re: well done (3.71 / 7)

Karl Polanyi (in The Great Transformation) states that civil disturbances in rural areas ("riots") were common in Britain before the advent of the market society in the 1800's. At the time, these were a relatively benign form of feedback to the rulers, indicating that a local problem required correction. After the transition to a market society, riots became a threat to business confidence, and hence a threat to broader interests. They were then regarded as a far more serious (and national) problem.

To the extent that Chinese society resembles the earlier British model (a resemblance which is partly a matter of mind-set), we may overestimate the seriousness of this problem.

Words and ideas I offer here may be used freely and without attribution.

by technopolitical on Sun Sep 16th, 2007 at 02:59:04 AM EST
[ Parent ]

Re: well done (none / 1)

To clarify, I should perhaps make that read "...overestimate the seriousness of this problem as a threat to the stability of the Chinese state."

Words and ideas I offer here may be used freely and without attribution.

by technopolitical on Sun Sep 16th, 2007 at 01:17:57 PM EST
[ Parent ]

Re: well done (none / 1)

Just a thought too that in general the problems of getting together the guys to form a rebel army is much simpler when you all live in the city, then when you're on the farm.

So as the underclass is urbanized, they live in closer proximity to the wealthy, and they are amassed more easily into a truely violent resistance.

And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg

by ManfromMiddletown (manfrommiddletown at lycos dot com) on Sun Sep 16th, 2007 at 10:02:38 PM EST
[ Parent ]

that assumes low rural popuation density (4.00 / 3)

of the sort that you get with extensive agriculture.

the chinese countryside, especially in the rice-farming south, has a higher density than most american cities. you can raise a riot pretty quickly, as has been happening with greater frequency in rural areas than urban ones of late.

it is true that if this were to link up with the cities, it'd be game over for the regime. it's easier to coexist with rural riots, as long as the food eventually makes its way in.

by wu ming on Sun Sep 16th, 2007 at 11:41:43 PM EST
[ Parent ]

Re: that assumes low rural popuation density (4.00 / 2)

I think high-density rural areas also has greater sense of community then is often found in cities. On one hand that can be a stiffling social control, but on the other it contains the seeds for starting a rebellion.

My old history professor claimed that revolutions are generally started by one of three groups:

Military. They have the guns and know-how.
Students. Having members from middle and upper class families the police and politicians are less likely to massacre them. Generally demands freedom, democracy and firing (or reinstating) professor X. Less revolts when there are more exams.
Peasants. The revolution-machine of the ages. Uses farming equipment. Does not revolt during harvest.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

by A swedish kind of death on Mon Sep 17th, 2007 at 10:35:38 AM EST
[ Parent ]

Re: that assumes low rural popuation density (4.00 / 3)

One thing about peasants.

Where peasants have the economic security that comes from living close to the land, and having less fear of starving in economic downturns, urban workers do not.

Peasants may thus be willing to get violent because there is less fear that they will starve if they reject the authority of economic elites.

And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg

by ManfromMiddletown (manfrommiddletown at lycos dot com) on Mon Sep 17th, 2007 at 10:43:41 AM EST
[ Parent ]

Re: well done (4.00 / 2)

Umm ... I thought the Chinese revolution of 1949 was the result of successful organizing of the peasantry. So history provides one counter-example to this reasoning, and in precisely the country under question.

by wing26 on Mon Sep 17th, 2007 at 08:15:21 AM EST
[ Parent ]

Re: well done (4.00 / 2)

It's always possible China will rediscover communism.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon Sep 17th, 2007 at 10:36:52 AM EST
[ Parent ]

Re: well done (none / 1)

Wouldn't that be ironic?

And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg

by ManfromMiddletown (manfrommiddletown at lycos dot com) on Mon Sep 17th, 2007 at 10:44:00 AM EST
[ Parent ]

oh, definitely, there is resentment and rioting (4.00 / 5)

and i'd actually go one further by saying that most of the economic growth, be it 5%, 10% or 15%, doesn't mean squat to the poor farmers and floating population who do the dirty work. in fact, not a few of those riots are directly because of what gets counted as economic growth, when farmland is seized for building new factories, or pollution renders areas toxic.

but there is a tipping point with such things, and i think the oil might be what does it. that and the evolution of some form of coordination between rioters. right now strikes me as nothing so much as the riots of the early 20th century, 1905-1911ish, when the cities were taxing the hell out of farmers while concentrating all new wealth and modern infrastructure in cities for elite use. resentment, but disconnected and without an ideology to put it together.

if ad hoc unions start emerging, i think things could get interesting. if they doin't, we might simmer on for some time.

but if people can't get gas to take crops to market, a lot of things could fall apart in short order.

by wu ming on Sun Sep 16th, 2007 at 03:10:43 AM EST
[ Parent ]

Re: oh, definitely, there is resentment and riotin (4.00 / 2)

It's clear that there are ad hoc unions emerging. Like during the 1930's in the United States when the CIO (Congress of Industrial Organizations)challenged the authority of the AFL (Amer. Fed. of Labor).

Of course the official Chinese trade union movement is state controlled, but even there I think that there has been significant infiltration of the state union movement much as Communists infiltrated the Francoist trade union movement in Spain.

And strikes are on the rise.

On Aug. 22, more than 5,000 workers at a mobile phone component factory in Shenzhen, southern China, struck against their bosses' attempt to increase their work hours without extra pay.
Earlier in the month, 800 miners struck for at least six days in the Tanjiashan coalmine in Hubei province against what they believed to be misappropriation by the management while the mine was privatized, undercutting the miners' redundancy payments...
Little wonder the standing committee of China's legislature--the National People's Congress (N.P.C.)--worked overtime on Aug. 26 to hear the first reading of a new labor law, which will strengthen the government's ability to "mediate" and "arbitrate," in a clear attempt to dampen the rising tide of workers' unrest.

I think that viewing the new Chinese Labor law in the context of these strikes suggests that the CCP is worried that political consequences are possible from these strikes.

And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg

by ManfromMiddletown (manfrommiddletown at lycos dot com) on Sun Sep 16th, 2007 at 12:33:55 PM EST
[ Parent ]

Re: oh, definitely, there is resentment and riotin (4.00 / 3)

I think that viewing the new Chinese Labor law in the context of these strikes suggests that the CCP is worried that political consequences are possible from these strikes.

You're right, but I think the fact that the National People Assembly issued in 2006 a report on the lack of implementation of the existing labour law and proposed a new labour law also shows there are tensions within the Chinese state apparel.

I also think the new labour law, which gives an important role to the trade unions in the negotiations will have a strong effect on the evolution of the Chinese trade unions: they will be obliged to defend the workers against the employers will probably lead them (or part of them) to distance themselves from the government, thus fostering the internal contradictions.

When, like it is currently the case in China, the society is undergoing radical sociological change (especially the rise of a middle-class) under an authoritarian regime, the emerging civil society, under the threat of repression, structures itself within the existing official organisations. This means that, today, seeds of independent trade unions probably exist within the official organisations. I think that these "seeds" will be empowered by the new role given to the trade unions by the new labour law.

"Dieu se rit des hommes qui se plaignent des conséquences alors qu'ils en chérissent les causes" Jacques-Bénigne Bossuet

by Melanchthon on Sun Sep 16th, 2007 at 03:06:01 PM EST
[ Parent ]

Re: The Chinese can weather an American recession. (4.00 / 4)

It is also my understanding that China (because of its size, diversity, luck) has had multiple asynchronous regional recessions, and has obviously weathered them quite well. This suggests resilience.

Words and ideas I offer here may be used freely and without attribution.

by technopolitical on Sun Sep 16th, 2007 at 02:51:39 AM EST

Re: The Chinese can weather an American recession. (4.00 / 2)

My own humble and admittedly entirely emotional opinion is that they are lucky rather than resilient. Well, at least those who are making money out of the whole vile process have been lucky. Most have not, as I understand it. That is, the majority of people in China have faced a worsening of their economic positions since Deng threw the whole thing open with this 'socialism with Chinese characteristics' crap. (All that 'lifting millions out of poverty' garbage we get in rags like the Economist is just that ... doesn't matter if you make 400 million people a bit better off and make 800 million even poorer than they were to start with.)

Despite the eloquent arguments in this piece, I think that China will go straight down the toilet with the end of US financial hegemony. As the US goes under, everyone on Earth with a few bob is going to panic like a bunch of chimps facing an ethologist's toy stuffed leopard, and that will be enough to ruin the party, fundamentals notwithstanding.

by wing26 on Mon Sep 17th, 2007 at 08:24:57 AM EST
[ Parent ]

Re: The Chinese can weather an American recession. (none / 1)

Reports say that workers are becoming scarce, and businesses complain about rising wages. In 2006, mobile phone use grew 40%, with 120 million mobile phones sold in that year.

All this fits together. Personally, I've seen several cities in China, and they're booming.

Words and ideas I offer here may be used freely and without attribution.

by technopolitical on Mon Sep 17th, 2007 at 07:49:47 PM EST
[ Parent ]

Re: The Chinese can weather an American recession. (none / 1)

Yes, I too have seen Chinese cities and admittedly there is something awe-inspiring, indeed actually terrifying, about the explosive growth. The question, though, is why that is happening and whether it can keep happening. The fact that the place is booming is not evidence that it will keep doing so.

As I understand it, most people in China are worse off than before, not better off. It is very easy to think everything is going great when you are presented with a couple of dozen megalopolises that have recently begun to make Hong Kong look like some kind of sleepy backwater. But it is important to realize that China is one of the most unequal nations on Earth now, and that although there is great wealth and spendour, there is also great suffering and degredation. China is a large place and there is plenty of room for equally impressive (or appalling) extremes.

Selling 140 M new mobile phones would, roughly, equal selling one phone to every three persons in the luckier 400 million of the population (discounting entirely the 800 million who are worried about eating rather than consumer electronics purchases). For people that are notably materialistic, indeed crassly so, this is actually a surprisingly low number, given a 'boom'.

Rising wages are a stock complaint of employers the world over, and particularly in markets where they've held the whip hand and paid pennies for as long as they can remember.

It is funny that we are beginning to see the construction bubbles in the West for what they are, but do not yet consider something similar may be happening in China.

by wing26 on Mon Sep 17th, 2007 at 10:05:07 PM EST
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The Chinese can weather an American recession. | 25 comments (25 topical, 0 editorial, 0 hidden)

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The Chinese can weather an American recession.

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