This is China! blog

Suzhou local TV news recently had a broadcast about how many migrant workers are adapting to the loss of their factory jobs by hawking wares around Suzhou’s Walking Street, Guanqian Jie. They set up tables along sidewalks that sport everything from wallets, shirts, hair pins to mobile phones, while patrons perused racks of clothing, pants, sweaters, and dresses. I was struck by the quick adaptation and resourcefulness of the migrants, and had to admit a certain level of admiration for getting down to the business of making a living.

The report put me in mind of a recent China Economic Quarterly report on the current downturn in GDP numbers for the country:

Finally, no one should assume that a period of severe economic stress poses any serious threat to the stability of the government. The state has ample resources and highly developed skills at directing them where they are most needed. Despite the current problems, most people are materially far better off than at any point in the past, and these gains are almost certain to continue albeit at a significantly slower pace. The worse-hit group today, migrant workers, is also the group of people most accustomed to dealing with difficult and changing circumstances, most attached to an ideology of self-reliance, and least interested in or capable of political organization.

Fat Dragon, in the March 2009 issue of the China Economic Review, echoes the same sentiment, which I am inclined to agree with:

…The next few years will be tough for migrant workers and the Chinese economy. But don’t expect a revolution if the economy doesn’t hit the magic 8%.

Wonder if I can find a good deal on some short-sleeved shirts?

I recall once local tax officials of a small city along China’s east coast being most disconcerted when they walked into a Western factory to find its equipment no longer in place, its operators no longer operating. Instead, tax officials found a long table with a handful of assembly workers piecing together simple mechanisms. The manufacturing equipment had long been moved out. Clearly, they knew it was going to be difficult to gain the tax revenues they had projected would be paid by the manufacturer.

Now, with the Central Government pushing its highly touted stimulus plan to give a boost to infrastructure development and to domestic consumption, local governments are expected to pitch in. However, local governments have found themselves cash-strapped as well: company closures, a lack of land sales, and most of whatever funds they cull going to Beijing to be disbursed to poorer areas (they don’t call it “central” government for no reason).

The Wall Street Journal recently reported:

China’s tax system funnels most revenue to the central government, with provincial and muncipal authorities left to handle the bulk of spending on services such as education and health. While Beijing sends money to poorer provinces, most local governments still rely on extraordinary fundraising measures to make ends meet. Land sales have been a big source of money but have started to dry up as the property market declines.

Now, local governments will be moving into new territory with the issuance of bonds to subsidize the expenditures Central Government has proposed.

National governments usually end up being responsible for debts accumulated by local authorities, which is one reason why Beijing plans tight controls to keep local officials from borrowing beyond their means.

I don’t think Central would be happy paying some of those debt-backed KTV bills.

Tom Orlik of the China Translated blog wrote a fine article in this month’s issue of China Economic Review, published by the Beijing-based economic think-tank Dragonomics. The title of the article is Yangtze River Delta: Stalled Dynamo, in which he describes and contrasts the economic development models of Jiangsu and Zhejiang provinces. He asked me some of my thoughts for the article, a couple of which made it in as quotes:

…But for lots of foreign firms, going much further inland is like entering a different country,’ says Dodson.

Well, Dodson last week felt like he was traveling to another country when he had to go to Hefei, the capital of Anhui province, to take care of some non-investment-related business at the provincial government level. It had been a couple years since I’ve been back to the city, which I remembered as being highly polluted, most of the roads of which were dug up.

Though the roads in the city for the most part seemed put back together, the traffic was way more crazy and hazardous than I remember. Clearly, I have become too comfortable in little ole’ Suzhou and big ole’ Shanghai. And the taxi drivers were far from congenial: perhaps it was the starting meter rate of 6 RMB that had them all pissed off (Suzhou’s is 10 RMB; Shanghai’s is 11 RMB).

Western friends had told me their experience with Nanjing provincial government for the tasks I needed to complete typically took them a half-day; mine took 2 days. And whereas in Nanjing those guys could achieve everything they needed in a single building; I had to travel to three service centers in different parts of the city.

That means I breathed in way too much of Hefei pollution, which is amongst the highest of any of the cities to which I’ve traveled in China – ever.

The mother of a girl of eight years old – both Hefei locals – told me her daughter has not been able to eat anything solid for several weeks now and gets sick very easily. If I was a betting man, I’d say: a change of scenery might be in order. Would do the girl – and the stressed out family – a world of good.

Or maybe Hefei can take a cue from its neighbor in next door Jiangsu and simply clean up its act.

As Chinese as Spring Festival itself used to be the high proportions of manufacturing operators that would simply not return to their employers after the holiday. Chinese workers would collect their bonus before setting off for their hometowns – usually a “thirteenth month” of pay – take the train or bus on a long journey to the places of the birth to return to their families. Many of them would take the earnings they had scraped together and the remittances they had been sending back to their families to start new businesses in many instances: small restaurants, cotton industries, even small manufactures.

During lunch last week I asked the HR Director of a local Western manufacturer what percentage of his floor staff did not return to work this year. “All but one,” he said. I was genuinely startled. Turnover rates for operators alone were as high as twenty- and thirty-percent just as recently as two and three years ago. I told him my recollection.

“Job security,” he answered simply. “There’s too much instability right now and the economies in their hometowns are not so good.”

A Scottish manager confirmed the same surprising phenomenon: all but one operator had returned to their green operation, which employs hundreds. And an Irish manager of an American company told me all operators had returned to their stations after the Festival.

You know things are tough economically when entrepreneurship is the farthest thing from the Chinese mind.

“We hate you guys,” Luo Ping, a director-general at the China Banking Regulatory Commission (CBRC), complained last week on a visit to New York. “Once you start issuing $1-$2 trillion … we know the dollar is going to depreciate, so we hate you guys, but there is nothing much we can do.”

Of course, official Chinese  newspapers the next day said Luo was just kidding.

Geoff Dyer recently wrote a lengthy analysis and commentary on the addictive relationship China and the United States have developed between each other vis a vis where and how China invests its foreign reserves. Problem is, the Chinese are not happy about the rates of return they are getting from investing in T-bills:

“China’s near $2,000bn (£1,380bn, €1,560bn) in reserves, the world’s largest, are often viewed outside the country as a great strength – an insurance policy against economic turbulence. But within China, they are increasingly seen by the public and even some policymakers as something of an albatross – a huge pool of resources not being used at home that will plunge in value if the US dollar collapses. Why, people ask, should such a relatively poor country bankroll such a rich one?”

It’s a very good question, indeed. Of course, the Chinese government was looking to sock its earnings away for a rainy day, as is the Asian habit. But, effectively, they built a house – in rather a hurry, I might add – without first building a floor. Or rather, the “floor” is more like a series of bamboo poles criss-crossing a very big, deep hole where a foundation should actually have been seeded.

That is, instead of re-investing all those hard-earned yuan back into their own society, they tucked their winnings in the only currency considered sturdy enough to serve as a reserve currency: the almighty dollah. Likely, if gold was still THE standard, they’d be investing in gold instead. The result, then, is a country that despite break-neck economic development since 1999 has little to no social safety net, a growing disparity between poor and rich that has surpassed even the USA’s greedy gap, very little infrastructure in its vast interior and an accelerating number of unemployed – both educated and uneducated.

It’s been clear the last eight years in particular that despite productivity gains in industry the average Chinese worker has seen little of it pass to his pocket – oddly, much like average American’s pocket since the early 1970s. The American middle class, though, turned to easy credit as a fix, to plug the hole in their unmet expectations for a better life. The Chinese, though, haven’t even that chimera of debt; instead, many find their lives economically unreeling into the past more quickly than it seemed to have sped forward.

Clearly, now, it’s time for the pusher to stop pushing and for the addict to clean up its act. Neither government policy quite frankly looks that great when viewed through the prism of the disappointment and even desperation of the majority of people in both countries.

It’s time for both countries to stop pointing fingers and to give their citizens sound, stable floors based in solid economic and humanitarian fundamentals so people in both societies can actually realize AND keep the good lives their grandparents worked so hard for their descendants to realize.