The Tangier Lobster Co. of Nova Scotia, whose seasonal workforce ranges from 14 to 22 employees, is determined to boost Chinese exports to compensate for a drop in sales to a U.S. mired in economic malaise.
And Stephen Harper seeks a greater degree of Canadian economic sovereignty with his relentless promotion of the proposed Northern Gateway pipeline, connecting Athabasca’s tar sands with booming markets in Asia. Oil sales to China would help break our dependence on the U.S. as sole buyer of our petroleum exports.
Yet, while it’s difficult not to marvel at a rapid industrial revolution in the world’s largest country, I fear we exaggerate China’s potential.
Consider:
• After a decade of double-digit GDP growth, China’s economy will grow by just 6 per cent to 8 per cent this year. Eventually, China’s leadership will have to deflate a property bubble and prop up household income lost in the Great Recession without unleashing ruinous inflation. And the world will not indefinitely tolerate China’s manipulation of its currency, kept artificially low and a thief of jobs in Southern Ontario and the U.S. Midwest. Economically speaking, China presents one of the most difficult of management challenges.
• China is hurtling toward demographic disaster. A consequence of the 33-year-old “One Child” policy, says the U.N., is that the ratio of working people to dependents will almost halve between now and 2065, to a mere 1.0. What that means, says economist Leith van Onselen of Australian investment letter Macro Investor, is that “China will get old before it gets rich.”
• Social unrest is an everyday fact of life. The annual number of riots, strikes and protests – what the Politburo euphemizes as “mass incidents” – have doubled in the past five years, to 180,000, or almost 500 a day.
• A leading cause of unrest is a growing gap between rich and poor, which already exceeds that of the Philippines and Russia. The top 10 per cent of Chinese income earners collect about 23 times what the poorest 10 per cent earn. Also, China lacks social supports, spending just 5 per cent of GDP on unemployment insurance, pensions and other protections. (Canada spends 12 per cent, Germany 22 per cent.)
• Offshore investment that has powered China’s economic dynamism is on the wane. In March, foreign direct investment was down again, by 6 per cent – the fifth straight month of decline. Why? Not because of the Great Recession. The cause is complaints among foreign investors about rising labour costs; China’s unapologetic failure to protect intellectual property rights; sclerotic and corrupt bureaucracy; and capricious government interference with Western businesses in China, notably by state governments acting by fiat. As the world’s largest creditor country, China doesn’t need offshore investment funds. But it remains dependent on the offshore technology that comes with the foreign cash. Judging from a Shanghai Composite stock index that is 70 per cent below its 2007 peak (the Dow Jones Industrial Index is off just 6 per cent over that period), foreign investors have grown wary of Chinese business practices that afford few protections to outside investors.
• Rampant censorship and forced adherence to conformity, plus Beijing’s continued tolerance of so many state enterprises of mediocre calibre, powerfully discourage the innovation in industry and all walks of life that are a prerequisite to sustained, widespread prosperity.
Beijing has taken to exhorting Washington to get its debt under control, just as Japanese industrial leaders in the heady 1980s warned American and European industrialists to adopt Japanese business practices or perish. And China has begun accumulating Western trophy assets, including Lenovo Group’s purchase of a humbled IBM’s PC business, and, last week, of Calgary-based oil producer Nexen Inc., just as Japanese interests snapped up Rockefeller Centre and Columbia Pictures in the 1980s.
But in 1991, Japan’s property and stock-market bubbles burst. More than two decades of economic stagnation have followed. Today it’s Apple Inc. and Daimler AG that rock, no longer the once infallible Sony Corp. and Toyota Motor Corp.
The difference is that Japan was a wealthy country when calamity struck, and with an elaborate social safety net was able to cushion the blow for its citizens. That will not be the case for China if its economic model goes awry. China remains home to the world’s largest poor population, numbering in the hundreds of millions of people.
China does hold far more promise as a constructive global economic player than before its liberalizing reforms begun 30 years ago. But it’s not yet a place on which to bet the future of one’s own country.
Original Article
Source: the star
Author: David Olive
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