China's Economy and the Crisis

Posted by: Dexter Roberts on March 18, 2009

There are two interesting pieces in the media this week looking at how China’s economy may change in response to the world financial crisis. On March 16 Keith Bradsher writes in the New York Times that China will emerge from the current crisis much stronger. In particular, he points to Beijing’s plan to move up the value-added chain, creating stronger Chinese companies that can compete more successfully on the mainland and abroad. A similar theme is picked up by Ariana Enjung Cha in a March 17 piece in the Washington Post, which focuses on the flurry of overseas deals amounting to tens of billions of dollars that big Chinese resource companies have been doing of late. Chinalco’s ongoing $19.5 billion bid for a larger stake in Rio Tinto is the biggest recent example. Of course, China’s enviable financial situation, with its banks largely unscathed by the world economic crisis, is providing the money to allow this new push by Chinese enterprises.

I do think however that these reports are more than a little over-optimistic. In some ways it’s as if the articles are parroting China’s oft-expressed wish list of how it plans to transform its economy. One example: yes, Beijing plans a massive retraining of its migrant workers (as the Times reports) so they have the skills to take higher-end service economy jobs going forward. But no doubt that will be extremely difficult. Indeed, a recent UNDP report on China focuses in on the tremendous inequalities, including shoddy education and poor health care, still facing China’s more than one hundred million migrant workers. Simple job retraining will not quickly reverse those problems nor create a model worker for the Chinese enterprise of the future.

At the same time, China’s desire to make acquisitions overseas surely won’t be easy. A key problem very likely will be a protectionist backlash against Chinese companies moving into overseas markets, something Beijing is already worried about. Certainly, at this stage, there is no guarantee that the Chinalco deal for Rio Tinto will ultimately be approved by nervous Australians. For a past example of how a deal can go awry, look no further than CNOOC’s failed acquisition of Unocal in 2005, something the Washington Post piece also brings up in its coverage. And then of course, there’s Chinese protectionism directed at foreign investors—just look at Coke’s now stymied plans to acquire Chinese juice maker Huiyuan.

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Reader Comments

George

March 18, 2009 07:26 AM

Like those guru predicting the stock market, very few people can get their thinking on China right...In early 2000s, so many scholars in the west including US were so sure the imminent collapse of China due to its financial and bank systems...Now look back, they have not learned from their mistakes...

jcage

March 18, 2009 02:46 PM

Dexter
"I do think however that these reports are more than a little over-optimistic. In some ways it’s as if the articles are parroting China’s oft-expressed wish list of how it plans to transform its economy. One example: yes, Beijing plans a massive retraining of its migrant workers (as the Times reports) so they have the skills to take higher-end service economy jobs going forward. But no doubt that will be extremely difficult. Indeed, a recent UNDP report on China focuses in on the tremendous inequalities, including shoddy education and poor health care, still facing China’s more than one hundred million migrant workers. Simple job retraining will not quickly reverse those problems nor create a model worker for the Chinese enterprise of the future."

The same could be said of China in 1978 when China started to experiment with Capitalism. Now, 31 years later China has pretty much transformed itself despite all the doom and gloom on China. China still got a long way to go before it can fix all its problem. The program retraining for million of unemployed if China hope to keep moving up the value chain! Giving up now is not an option for China or any other countries in this economic situation!

chenleilili

March 19, 2009 05:21 AM

from this article,the writer seems to doubt the efficiency of the policies done by China.any country has its own problems.at least China can confront these issues and start to solve them. anything is better than ostrich policy.

Bob

March 20, 2009 02:15 AM

There has always been truck loads of western doubters in the last 30 years about China's transformation. No one ever clsims China can be transformed overnight. It has been done one person at a time, and will continue to be that way. The direction is clear, the momentum is clear, the focus is clear, and the patience and perseverence abound. That is something doubters seemly never understand no matter how long they live in China.

Steve

March 20, 2009 04:30 AM

you just bring Coke issues out of proportion. It is not about protectionism, it is about monopoly. Surely, U.S. will not allow the take over plan too.

Tommy P.

March 20, 2009 11:57 PM

"The direction is clear, the momentum is clear, the focus is clear, and the patience and perseverence abound. That is something doubters seemly never understand no matter how long they live in China."

Nobody doubts this. The question is over whether or not the picture in China is currently as rosy as it is being painted. If we are willing to criticise overly pessimistic reports about China, why can't we criticise overly optimistic reports? In fact, I would posit that those who can find the more realistic middle ground understand China far more than you claim to, placing yourself as unreservedly you do in the realm of "non-doubters who understand".

"you just bring Coke issues out of proportion. It is not about protectionism, it is about monopoly. Surely, U.S. will not allow the take over plan too."

Now you see, this is not entirely true. There has been a huge backlash within China to the possibility of a Coke takeover of Huiyuan. Therefore one can find basis for a political reason to the decision to reject the takeover. Moreover, the market share that Coke would obtain in China's juice sector is beneath China's threshold for what constitutes a monopoly. Furthermore, the juice industry is not vital to national defense. This is why the excuse given for the rejection of the deal has resulted in so much discussion. The rejection was a protectionist measure presented under the guise of an anti-trust measure. It is not hard to see how this would complicate the image of Chinese takeover's abroad.

chenleilili

March 23, 2009 05:21 AM

to Tommy P ; i support China to reject Coke takover of HUIYUAN,because in China both Coke and HUIYUAN hold big market share in their own markets.If Coke could takeover HUIYUAN,there would squeeze the living space for other juice producers.The outcome of the China's rejection is China ends the HUIYUAN's ambition of monopolizing the juice market in China by the help of the Coke,who is the loser,not Coke but HUIYUAN,because Coke's market is still there and more improtant is for Coke not need to pay a lot of money during the economic crsis .In fact ,the price of HUIYUAN now is much lower .I thinke Coke does welcome the rejection.

黄旭

March 25, 2009 05:01 AM

US CAN PRINT MORE PAPER MONEY TO ROB THE WHOLE WORLD OF,ESPECIALLY CHINA,WHO HAS THE MOST DOLLAR RESERVE

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BusinessWeek’s team of Asia reporters brings you the latest insights on business, politics, technology and culture from some of the world’s biggest and fastest-growing economies. Eye on Asia’s bloggers include Asia regional editor Bruce Einhorn, Tokyo reporter Ian Rowley, Korea bureau chief Moon Ihlwan, Asia News Editor and China Bureau Chief. Dexter Roberts, and Hong Kong-based Asia correspondent Frederik Balfour.

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