China – thoughts

As the Western world wallows in recession, there are many commentators who are looking to China (and India) to be the growth engines that will kick-start the global economy back into life. However, the assumptions that are made about China’s ability to drag the rest of the world back into growth are, in my opinion, hopelessly optimistic. 

The reality is that, even as China experiences continued growth during the recession, the nature of their export-led economy is causing severe mass unemployment within the manufacturing sector, and is actually perpetuating the widening wealth gap between rich and poor.

Many manufacturers in China have zero channel distribution mechanisms within their own country, and were totally reliant on exports, predominantly to the USA, so their businesses have simply crumbled, even though domestic demand is on the increase. This is leading to unemployment for millions of blue-collar and migrant workers (young and old), forcing them to return to rural areas from the major urban centres.

And we’re talking about big numbers here – estimates put the number of migrant workers in China at 200m people, so this is a significant shift of labour away from the indutrialised heartlands.

The point about the decimation of China’s export economy is that there is incredible pressure on the Government to provide jobs for the people, even though the country has moved towards a laissez-faire model. There is expectation on the part of the population that the Government will invest in infrastructure,  invest in urbanisation programmes, and invest in the service economy, in order to create jobs both for University graduates and migrant workers, and to counteract the invisible hand of the global downturn.

Importantly, the key here is that the focus for the Chinese Government is to provide jobs for Chinese workers, and to develop mechanisms to increase domestic demand for domestically produced goods and services. There is no focus within China on increasing imports, or on driving up foreign investment, as part of this plan, meaning that the short-term impact on the economies of the West will be negligible.

In the medium- and long-term, of course increased domestic demand in China will benefit the rest of the world, simply due to sheer weight of numbers (almost one-quarter of the world’s population is Chinese). But China is not going to be the country that holds out a helping hand to everyone else right now, at the hour of need. The internal pressures on the Government to create jobs, stimulate demand and provide a certain standard of welfare are simply too great.

And this pressure brings me to the heart of the matter regarding China. The country is experiencing some genuinely difficult teething troubles as it moves from being a Communist state-run country to a free market. This downturn has highlighted some of the tensions that still exist between these disparate ideologies, both in terms of economic structure and social harmony.

As I’ve detailed above, there is expectation on the Government to provide from an economic perspective, and the Government have responded to that call with increased investment in infrastructure and services. However, the tensions at a social level as China reforms from a state-run model are arguably more tense, particularly in the area of freedom of speech.

China has, over the last 12-24 months, seen an exponential explosion in the area of social media. Chinese people of all ages have adopted the internet as their own, a space through which they can share news, content and information, and connect with friends, without state supervision. This lightning-fast adoption of social platforms as a main pillar of information gathering and sharing is largely as a result of the history of information-repression that has existed in China for many, many decades.

And here, more than anywhere else, is where we see the tensions between the ideologies of Communism and Capitalism come into play. In the weeks surrounding the 20th anniversary of The Tiananmen Square massacre, on June 4th 2009, there are numerous examples of the Chinese Government undertaking a concerted effort to repress any information about the events of 20 years ago.

Blogging portals were down, including this one – WordPress – which now explains why I couldn’t access it while I was in China. Flickr was down. Hotmail was down. Facebook was down, and I had to trick the computer by putting .m. in front of the Facebook URL to get to the mobile site. Twitter users found a way to circulate information around the censorship blocks but soon found that they were down too. People received copies of The Economist and The Financial Times with the pages relating to Tiananmen ripped out. Foreign journalists at the actual event were kept out by police.

These examples demonstrate a disgraceful repression of information that have absolutely no place in the modern world, where social networking sites and the internet have changed the way in which we all consume news and process/share knowledge.

But more than that, they represent the extreme tensions that exist within the country. The Government wants to be a leader in the modern world, and China undoubtedly will be a super-power, but yet they continue to try and suppress information that is perceived to be anti-Chinese in some way, or that paints their country in a bad light. These are not the actions of an enlightened leadership.

It is these tensions between Communism and Capitalism, plus the inevitability of a reformulated world order with China (and the other BRIC countries) gaining in relative importance versus the waning super-powers of America and Europe, that makes the country such a fascinating, intriguing place to be at the moment.

We may not agree with some of the actions of the Chinese Government, in terms of protectionism or social repression, but it is a unique country that is evolving and adapting to the pressures of the modern era in a very different way to any other country.

China will be at the forefront of the next phase of globalisation throughout  the 21st Century, but the nature in which they will lead is still in the balance. The global economy may not get too much help over the next 2-3 years, but the choices that the Government makes in that period, in resolving the economic and social tensions inherent within China right now, will be critical to everyone for decades to come.

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