In a strange piece of spin, the New York Times says today that the financial crisis will wind up being good for China. It’s an unconvincing position to say the least. It’s true that, unlike the West, China has no trouble with currency exchange or stock markets, which are state regulated, or bank failure, because all of the banks are state owned. Or, to put it another way, the worst case scenario in the West is already the status quo in China.
The Chinese trade surplus is down almost 90%, but apparently that’s ok, because the Chinese government is allowing their semi-private companies to shop more easily for foreign acquisitions. Foreign acquisitions at a time like this are a dubious proposition, and could just as easily wind up being deadweight losers as undervalued investments. Unemployment is down, wages are down, clothes are piling up in the factories, white collar workers are unemployed and may wind up a source of significan unrest. The Times says that this is “causing personal pain but reviving China’s advantage in labor costs.” I’m sure the laborers are pleased about that.
But! Unemployed laborers can now be part of a vocational retraining program to prepare China’s workers to better participate in the global economy. Call me a cynic, but that sort of language makes me think of the PRC’s last vocational training program.
Overall, it looks grim to me. China’s export dependence means that recovery will not happen there until it happens in the West. Their centralized economy is less agile at dealing with hardship, and the potential for social unrest is high. But on the bright side, maybe pressure from the unemployed will be able to achieve some liberalizing reform that was impossible during the good times. Like Hu Jintao said, “Challenge and opportunity always come together — under certain conditions, one could be transformed into the other.”
