When the Tide Goes Out, No Boats Rise

I want to add a quick post here, albeit only for my own personal sense of completeness. Contrary to virtually every analyst everywhere, I've long stated that I did not feel China was an unquestioned shoe-in to emerge as the next great world power. As early as 2004 ("All Dressed-Up, But Nowhere to Go...") I argued:

"China is an old country, certainly, and is already filled to the brim with people. Their modern economic growth has been the result of nothing other than their success at leveraging the last few bucks out of the Industrial revolution. What China has to its credit is cheap labor. That's the "resource" they've efficiently exploited during this last gasp of Industrialism. But they won't have the fossil-fuels needed to support the future they seem to be building toward. In fact they won't even have the "resource of money" they'd need, since the Dollar explosion is already fizzling and it's not going to be replaced by the Euro or Yuan (and there is certainly not enough gold in the world to fund their future). The Chinese are undoubtedly having fun getting all dressed up, but they've really got nowhere to go...."

So I've been curiously following lately how well the Chinese economy is weathering the current financial crisis. Sure, the Hang Seng has been cut in half, but what's transpiring in the real nuts 'n' bolts economy? I've just come across the first well-stated report on the subject, and it only confirms my feelings so far. From The Guardian 10/31/08: Chill winds blow through China's manufacturing heartland

"Now the global financial and economic crisis is proving the final straw for exporters already punished by rising costs and a stronger currency. In the last year, chill winds have blown through the baking Pearl River Delta. Sixty-seven thousand small and medium-sized businesses in China collapsed in the first half of 2008, many in these manufacturing heartlands, says the national economic planning body. Toy firms have been particularly badly hit, thanks to safety scares and product recalls. Textile firms, with wafer-thin margins, are also reeling. Next came tighter credit for many foreign-owned firms, such as Hong Kong's Smart Union. And then, in the last two months, a sharp drop in US and European demand as consumers reined in spending. A local trade association predicts that by the end of January, Dongguan and its neighbours Shenzhen and Guangzhou will lose 9,000 of their 45,000 factories. "Many factories are looking at completely empty order books," warned Stephen Green, head of China research at Standard Chartered, who believes the export sector will be stagnant and could even shrink next year. Green predicts that China will grow 7.9% next year — well below the double-digit figures enjoyed over the last half decade — while others suggest it could fall closer to 7%. That sounds enviable to western countries facing recession. But with the working age population still growing, China needs at least 8% growth to maintain the current employment rate. And the fall-out will be highly concentrated in provinces such as Guangdong."

Historically, economic collapses have seen shifts of power and influence toward more advantaged countries. But then, historically, economic collapses have always been relatively isolated events. "Globalization" isn't just a buzz-word large corporations use to justify throwing-off their nation-state shackles. It also means there are no buffer-zones anymore when things go fundamentally wrong.

Which is also not to say no phoenixes will arise from the coming ashes...obviously some, perhaps many, will. My personal hope, however, is that they'll be birds of a feather we haven't already seen so many times before.

[UPDATE 11/14/08: a new piece in the NY Times now quoting:

“There’s very serious damage being done down there, I don’t deny it, and I think it’ll get worse because we haven’t seen the full impact of the economic downturn in Europe,” said Arthur Kroeber, managing director of Dragonomics, an economic research and advisory firm based in Beijing. “I think next year we might see export growth in the country as a whole go down to 0 percent.”

Comments

[slow crash]

Thanks for the new post. It's good to have you back, even if only once or twice a year.
Any thoughts to updating the "Timeline for Unfolding Crisis of Mankind"? Actually, it's been pretty accurate. But I'm wondering if the current credit crunch will change the timeline, (ie another great depression).