Rana Foroohar
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May 26, 2009 03:41 PM
I’m spending the week in Guangdong, the southern-most province of China and the first to open up to outsiders in the 1980s. It’s the world’s factory, where most of the stuff that’s Made In China gets made – and that’s why I’m here, on an East-West Center fellowship studying the effects of the financial crisis in Asia.
The Pearl River Delta is not a tourist haven. In fact, the only foreigners in my hotel seem to be Americans and Europeans with newly-adopted Chinese orphans, or Middle-Easterners that have come to cut business deals. I’m guessing the fact that the bath water in even the 5 star hotels smells funny has something to do with that. Also, I was a bit put off at lunch in a local restaurant the other day when one of our hosts suggested we pre-wash our own dishes at the table because they are sometimes contaminated with Hepatitis B. Oh well, I’d been eating too much anyhow.
Anyway, when I’m not feeling slightly ill from God-knows-what chemicals that I’m being exposed to, I’m learning a lot. This place is more chaotic and in some respects more dynamic than Beijing or Shanghai. It feels a bit like parts of Turkey or Morocco. Street merchants abound, hawking every possible type of fruit, vegetable, fish, nut, white good and electronics from little shops. Everyone hangs their underwear and washing out to dry on their balconies. Jars of pinkish snake wine -- with large snakes floating in them--line the street (that’s quite uniquely Chinese).
Guangzhou, the capital city where I am now, is built around a river, and it sort of meanders and winds every which way, with no clear planning or organization. The Pearl River Delta is the area you keep reading about in the papers, with the millions of laid off migrant workers and the boarded up factories. It’s unlikely that I’ll see any of those, as the Chinese foreign affairs folks have aggressively packed the itinerary full of visits to sparkly high tech parks and back office call centers (one of which services AIG, btw).
This is actually instructive, because while it may not represent the total reality of Southern China, it shows the future that Chinese leaders envision for Guangdong. This area has been the epicenter of China’s growth, where factories specializing in low-level manufacturing belched smoke and churned out cheap stuff to be sold in Wal-Mart. Beijing knows that in order for China to move to the next phase of its economic development, they need to move on from the cheap goods model– unemployment is way up as exports to the West have tanked, and even the Chinese, who expect much less in terms of environmental standards, are concerned about the pollution (btw, lots of economists think environmental degradation is the biggest longer term impediment to Chinese growth). The idea now is to use the pressure of the financial crisis as a chance to move the lower end factories to the less developed Western part of the country where people are still seriously poor and in need of any kind of jobs, and encourage higher end manufacturing and services here along the richer coastal areas.
It’s not clear to me yet if the strategy is working. For starters, while the Chinese are historically quite good at making change at tough moments (they joined the WTO in the wake of the Asian financial crisis back in 1998), the global recession could make it tougher to move beyond being the World’s Factory. The officials I’ve been meeting with talk a lot about they aren’t allowing any new polluting industries in, even if they create jobs. But they wouldn’t clearly answer whether it’s getting tougher to bring lawsuits against existing polluters or labor law violators (something that China watchers are worried about). As always in this country, real numbers are hard to come by. But what happens here will be crucial in determining China’s economic future – and ours. I’ll blog more of my observations on this front over the next few days.
Rana Foroohar
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May 26, 2009 10:38 AM
When the financial crisis first began, one big worry was that China
would be hit hardest amongst the Asian countries because of its huge
dependence on exports to the West. In fact, China is doing pretty well,
thanks to an enormous government stimulus package – it will likely grow
6-8 percent this year, which is less than before, but about as good as
it gets in this environment.
Instead, it’s the rich neighbor to the East – Japan – that’s done
worst. I was in Japan last week when the government released truly
shocking first quarter GDP figures – Japan’s economy shrank nearly 16
percent on an annualized basis. No rich country has shrunk that much
since the 1930s, maybe even further back (I’m working on getting that
historic context, will post as I do).
What happened? Very simply, about half of Japan’s economy is dependent
on manufacturing (a much higher percentage than most other rich
nations), and in particular, on car and consumer electronic exports to
the U.S. Given that, it’s no surprise that production has fallen
completely off a cliff – Toyota, for example, had to shut down all its
plants for 41 days to slash inventory. Sony is laying off 10,000 people
– so much for Japan’s “job for life” model.
The entire country spent last week wringing its hands about all this.
Why did we depend so much on the U.S.? How can we grow the China market?
What’s the next big industry we can develop? (On that front, green
technology and more efficient agriculture are amongst the ideas being
bandied about).
While all these things are worth discussing, I don’t think Japan’s
problems will be so easily solved. A couple of years ago, Newsweek’s
Tokyo correspondent Christian Caryl did a fabulous Newsweek
International cover story on why the Japanese – with all their tech
prowess – didn’t invent the iPod. The simple answer is that they are
stuck in old paradigms – the same political party has been running
things for 50 years, companies can’t move on from their 1980s business
models, demographics are dismal, and people are terrified of embracing
new ideas (gadgets aside) and newcomers (immigrants make up less than 2
percent of the population, and aren’t encouraged despite a rapidly
aging society).
I must say that while I love the Japanese aesthetic, as well as the
country’s art and music, I wasn’t sorry to leave last week. This
probably says more about me than the Japanese, but I had a constant,
subtle feeling of being an awkward gaijin always on the verge of making
some etiquette error. I find that culturally, I’m much more comfortable
in China. I’m now in the Pearl River Delta area, aka The World’s
Factory. Yesterday, I interviewed a bunch of students at Sun-Yat Sen
University in Guangzhou, and when I asked one of the students her
impressions of the Japanese, she said that she felt they had a lot of
rules, and that she didn’t know how to follow them. It put me in mind
once again of the similarities in character between Americans and
Chinese. Despite our obvious political differences, we are both
generally brash, arrogant people from big empire countries, and on the
upside, have fewer barriers to movement within our societies than
either Japan or Europe.
Japan is still America’s oldest and best ally in Asia, but will be
interesting to see how these similarities and differences play out as
the U.S. moves closer to China diplomatically.
Katie Paul
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May 26, 2009 10:27 AM
Newsweek biz columnist Dan Gross wonders what the deal is with sovereign wealth funds (SWFs), those enticing, terrifying state-owned investment funds that came into vogue in Asia and Arabia about two years ago. Why enticing? Why terrifying?
The global financial class viewed them with a mix of fear (Oh no! The Arabs and Chinese are going to buy all our strategically important companies!) and optimism (Holy cash cow! A new source of financing and clients for investment banks!). The fact that SWFs operated with all the transparency of a sheet of tinfoil only enhanced their appeal and apparent power. In January 2008, SWFs were the talk of the World Economic Forum at Davos. After all, if the potent economic trends that had made them powers in the first place were to continue, SWFs would only get bigger. (This was another example what I've dubbed "pro forma" disease, the tendency to extrapolate a few years of impressive growth endlessly into the future-i.e., since housing prices doubled in the last five years, they'll do so in the next five.)
Naturally, that didn't go quite as planned. SWFs had money in the same stuff everybody else did, so they're in bad shape like the rest of the finance sector. But does that mean we should write them off entirely? Read the rest here.
Katie Paul
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May 26, 2009 09:43 AM
As Goes California So Goes the Nation?: Paul Krugman, optimistic as always, worries that it might be so. He points to the shrinking and increasingly extreme ranks of the Republican party to explain why it will be especially difficult for the state to climb out of the fiscal hole--a scenario he can easily foresee playing out at the national level.
Back to the Future: Unemployment may be higher than 8 percent and GDP growth less than 2 percent, Bloomberg is predicting, heralding in a new era of frugality in America. That would be less terrifying if one of their sources hadn't likened it to a scene out of Leave It to Beaver. “Life wasn’t so bad for the Cleavers. They weren’t up to their eyeballs in debt and they weren’t a three-car family with a 5,000-square-foot McMansion.”
Still Free Falling: Home prices are still tumbling and show no sign of stopping, according to new data released today.
Death to Pennies!: Wired writer David Wolman makes the case for a cashless society. The gist: "Physical currency is a bulky, germ-smeared, carbon-intensive, expensive medium of exchange. Let's dump it."
