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Oct 16, 2011

Who Is The Winner of Global Economic Crisis ? Hint : Not China !

  I was shocked by being told global financial crisis is a golden opportunity for China. For me, it doesn’t make any sense. That crisis just enhances the image of China in global stage only. It doesn’t present any opportunity. On the contrary, it presents threats, not challenges.
The spectacular growth during global recession was largely fueled by debt not by export earnings. Foreign media loves to put: The aftermath of the great meltdown was the rise and rise China and the fall and decline of the West. I don’t agree with that clause. No, it was a breakdown of China’s growth paradigm and the return of Western prosperity.  
China loses Western market to the West when the crisis came. It will take China long time getting back to old market. China high economic growth was the combination of cheap and abundant labor, large capital, state capitalism[1] and diverse, large export markets. The export markets are down. So, that formula is no longer working, at least for a big while.
China is forced to shift its growth paradigm prematurely. As we know, China, unlike the West, is old before it gets rich. In 12th economic plan, the State emphasizes on a moderate growth economy and a more harmonious society. Chinese consumers are being financially empowered to fit the consumption and innovation based economy.
As a result, the debt will be on the rise in the proportion of GDP. Strictly speaking, the meltdown is not an economic crises but a coup. The West deliberately created that crisis to take advantages of the consequences. And I’m writing a book about it. But I’m not sure when I will finish it.
Chinese government chose to invest in housing market, railway system, and road and so on to offset with export collapse. Take housing market, the supply now exceeds demand.  It’s going to be problematic for both short and long term. Housing market will burst at some point within this decade. From economic point of view, it seems unlikely. But from political viewpoint, it makes sense.
Most people living in Beijing don’t own a proper house. I think the Government wants its people to have one. When the housing prices fall, the average Chinese, thanks to their high saving rates, will buy houses. That’s why I still view that the coming crisis is a soft lending.
The word “spend” will be the mainstay of China’s economy. Getting Chinese to spend more is not that easy. People don’t spend unless they feel secure about their future. Social safety net in China is still in the early stage of development. It needs heavy investment to get the system looks safe.
With declining export market and increasing high demand for money to spend, the result is debt. For sure, monkey is temporally not a problem for China, given the fact it holding larger than 3 trillion dollars in Forex reserves.   In the coming years, it does.
The Fed easy money makes the Dollar becomes cheaper and cheaper. The US debt China is losing values. The same is also for true for Euro.  As if there wasn’t enough, the democrat and republican parties fought one another to debase the dollar. And QE3 is also coming. China is going to lose a lot of money. It’s so wrong to think the West will open their markets after they recovery from the crises.[2]
 America now needs investors more than ever. Investors are moving back to America. Giant companies, like Facebook, Google, generate a lot of wealth, but not a lot of jobs. Facebook employs a few thousand people only. That’s the consequence of technology revolution.
This article is not to defame China. I’m a Chinese Cambodian too. It’s, rather, a wakeup call. Chinese leaders are very well aware of this. But I don’t think most Chinese do. Cambodia has a huge stake in the rise and fall of China. Hopefully, our policymakers keep a close eye on what’s happing in China. China is not the winner but a country that used to capitalize from the crisis. 
 I’m Not saying that China is set to fail. It remains to be seen. The man who laughs last laughs best!!!

[1] Sate capitalism means free market with Chinese characteristics.
[2] Read previous articles if you are not sure.