These days the question I got most is, "Is China's growth slowing down? How bad is the situation there?"
Things are getting ugly, but will be fine.
The global slow-down is having a direct impact on China's export, which accounts for approximately 35% of its GDP. A few regions that would be affected most are Guangdong, Zhejiang and Jiangsu provinces, which have the most processing and manufacturing orders from overseas companies of toys, apparels and shoes. Many factories are being shut down or have been shut down and workers, most of them originally from rural areas, lose their jobs and have to either go home or to look for new jobs.
Another impact of the global slow-down will lead to the decrease of the amount of foreign direct investment in new manufacturing facilities and the demand for new workers will drop.
Reduced foreign direct investment and contraction of domestic demand may lead to the bust of real estate bubble, causing people to lose money in real estate market, on top of the loss from the stock market, which dropped from over 6000 to around 2000 in Dec.
If GDP does not grow at double digits, the Chinese government worries that there are not enough jobs to be created for people, including college students that will lead to social turmoil. In 2007 China churned out 4.95million college students, more than the country can absorb because most needed are skilled works for the manufacturing facilities that turn out products for export. Higher unemployment rate will increase the gap between the rich and the poor and lead to the resentment toward the government.
At the same time, there are two bright spots in China. One, China sits on 1.9 trillion foreign reserves. By the end of September 2008 China replaced Japan for the first time as the largest foreign holder of US treasury securities with a total of $585 billion, vs Japan $573 billion; two, the personal saving rate in China by 2005 was 46%.
In face of the challenges, it is time for China to look beyond the statistics and indicators and restructure its economy. The good news is it can afford for reforms and changes.
China shall focus on the following things to arise from the global crisis and turn it into its own benefits:
Invest in health care system and pension system so that Chinese people feel less pressure to save money and become more comfortable to consume.
Invest in in-lands' infrastructure; those low-valued manufacturing can then be relocated to the in-lands instead of being moved to other countries. At the same time, invest in education in rural areas to create more skilled workers.
Provide more incentives and support to companies that create high-value added products and services which can compete in global markets.
Provide financial support and education to those export-oriented companies to help them restructure their business to target domestic markets.
Invest in environmental protection related business to create more jobs.
Invest in research and development of clean energy to reduce China's reliance on oil.
Provide more support such as easier capital access for private sectors so that they can grow faster and create more jobs.
