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.