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Friday, May 23, 2003

China, Internal Demand and Job Security

I'm having an interesting exchange with T-Salon at the moment. Basically I'm arguing my 'China is Going to be Like Nothing You've Ever Seen Argument'. T-Salon says yes, and no. The reasons are interesting (there's commenting so go on over and join in).

Yes, you are quite right that China has an important economic and political role to play in the world. Indeed, it is already playing an important role in both economic and political realms. Andy Xie, Stephen Roach and mainstream American media have described China's enormous economic role in the global economy quite well. In terms of politics, what is seldom mentioned in the media, other than international security, is that China has an important role to play in global issues such as climate change, natural resource management, public health, etc due to China's gigantic population. The dual realities in China, recent success in becoming more OECD like on coastal area while large part of its hinterland remains underdeveloped indifferent from many Africa nations, made it a leader in both "developed" and the "developing" world. China is also on its way to become a very powerful political broker between "developed" countries and the "developing" countries.

What I am not sure is whether China will become the sole world leader as in the case of the UK at the beginning of 19th century or in the case of the US in 20th century. There are far too many complicated and interwoved problems that have been accumulated over time. Any one of them may prop up and have a devastating effect on the entire system.

The chinese economy is very perception (not fundamental) driven, in my view. There is still no sizable and sustainable internal demand. FDI and confidence are keys that are making it looked as if it is well. I have a feeling that the foriegners and bankers (like Stephen Roach for example) are not frank enough about the ground reality. I suspect they all paint a rosy picture for people outside China in a hope that more foriegn money will flow in, so that the problems would wane away by itself. The ground reality I saw, as of end of 2002 in Hangzhou (2nd tier city), Shanghai (1st class chinese city) and around Zhejiang province (relatively well-off coastal province), is that export sector was great. Other businesses are quiet. Consumer price deflation is a norm for most consumer products, food including. There is also excessive capacity (many high tech parks, 16 lanes roads & highways in the middle of nowhere are empty.) and many people don't feel job security...
Source: T-Salon

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