In Downturn, China Sees Path to Growth
By KEITH BRADSHER
Published: March 16, 2009
_r=1&ref=asia
GUANGZHOU, China - The global economic downturn, and efforts to reverse it, will probably make China an even stronger economic competitor than it was before the crisis.
China, the world's third-largest economy behind the United States and
Japan, had already become more assertive; now it is exploiting its
unusual position as a country with piles of cash and a strong banking
system, at a time when many countries have neither, to acquire natural
resources and make new friends.
Last week, China's prime minister, Wen Jiabao, even reminded Washington
that as one of the United States' biggest creditors, China expects
Washington to safeguard its investment.
China's leaders are turning economic crisis to competitive advantage,
said economic analysts.
The country is using its nearly $600 billion economic stimulus package
to make its companies better able to compete in markets at home and
abroad, to retrain migrant workers on an immense scale and to rapidly
expand subsidies for research and development.
Construction has already begun on new highways and rail lines that are
likely to permanently reduce transportation costs.
And while American leaders struggle to revive lending - in the latest
effort with a $15 billion program to help small businesses - Chinese
banks lent more in the last three months than in the preceding 12
months.
"The recent tweaks to the stimulus package indicate a sharper focus on
the long-term competitiveness of Chinese industry," said Eswar S.
Prasad, a former China division chief at the International Monetary
Fund. "Higher expenditures on education and research and development,
along with amounts already committed to infrastructure investment, will
boost the economy's productivity."
The international economic slowdown is also doing some things that
Chinese authorities had tried and failed to do for four years: slow
inflation, reverse what had been an ever-growing dependence on exports
and pop a real estate bubble before it could grow even bigger.
The recession in most of the large economies in the world is inflicting
real pain here - causing a record plunge in Chinese exports, putting 20
million migrant workers from within China out of their jobs and raising
the potential for increased and sustained social unrest. But as
President Hu Jintao told the National People's Congress last week,
"Challenge and opportunity always come together - under certain
conditions, one could be transformed into the other."
To that end, Chinese companies are shopping for foreign businesses to
acquire. The commerce ministry announced late Monday that it was greatly easing the government approval process for Chinese companies seeking permission to make foreign acquisitions.
The ministry is now leading its first mergers and acquisitions
delegation of corporate executives to Europe; the executives are looking
at companies in the automotive, textiles, food, energy, machinery,
electronics and environmental protection sectors.
The government initiatives coincide with some immediate benefits of the
slowdown for China. For instance, air freight and ocean shipping costs
have plunged by as much as two-thirds since last summer as demand has
fallen.
Blue-collar wages, which had doubled in four years in some coastal
cities, have fallen for many workers this winter, causing personal pain
but reviving China's advantage in labor costs.
Unemployment has pushed down the piece rates that factories pay for each garment sewn or toy assembled. Overtime has practically disappeared.
Lao Shu-jen, a migrant worker from Jiangxi province who works at a blue
jeans factory here, said that he earned $350 a month late last year but
would be lucky to earn $220 a month this spring.
"There are a lot of blue jeans" piling up in the back of the factory
with no sign of buyers, he said.
Highly qualified middle managers, in acutely short supply a year ago,
are now widely available because of layoffs. They are likely to stay
that way - although white-collar unemployment could pose a threat of
social unrest. Limited job opportunities contributed to the Tiananmen
Square protests 20 years ago.
Some jobs are still available now. Four days after a shoe factory closed
here for lack of orders, laying off several hundred workers, there were
four ads on the factory's front gate from other shoe factories seeking
to hire skilled workers.
Unskilled laborers face the greatest difficulty finding jobs. But with
subsidies from Beijing, provincial governments have embarked on
large-scale vocational training programs of the sort that the United
States has discussed but not actually tried.
Guangdong province alone, here in southeastern China, is quadrupling its
vocational training program this year to teach four million workers
engaged in three-month or six-month programs.
The main comparable program in the United States, under the Workforce
Investment Act, has been training fewer than 250,000 a year, although
President Obama's stimulus program provides funding that could double
the number of American workers in training programs.
The Guangdong training programs are half in the classroom and half in
the factory, usually the business that plans to employ the trainees. By
increasing productivity, training programs can hold down corporate labor
costs per unit of production for years to come.
China's huge training programs may also help preserve social stability
by keeping the unemployed off the streets, although Chinese officials
deny that is their intention.
Multinationals are cutting back less in China than elsewhere - and some
are even expanding.
Intel is shutting down semiconductor production lines sooner than
previously planned at older, smaller operations in Malaysia and the
Philippines as it opens a large, new factory in Chengdu in western
China.
IMI Plc., the big British manufacturer of items as diverse as power
plant valves and brewery equipment, has just announced an accelerated
shift of operations to China, India and the Czech Republic, after
cutting its global work force by 10 percent since December.
And Hon Hai, the 600,000-employee Taiwanese company that is one of the
world's largest contract manufacturers of products like the Apple iPhone
and Nintendo Wii game console, has just increased employment by nearly 5
percent in China even as it cuts overall employment by 3 to 5 percent.
Yet China's economy still has weaknesses. Little is being done to shift
the economy away from a heavy reliance on capital spending and toward
greater consumption. The social safety net of pensions, health care and
education barely exists, so Chinese families save heavily.
Strict government policies on labor and the environment, intended to
address serious shortfalls in both and imposed a year ago when China
felt more confident of its economic strength, are prompting low-tech
industries like toy manufacturing to move to other, less stringent
countries.
Top labor officials insisted during the National People's Congress that
they would resist suggestions from some Chinese executives that the new
standards be relaxed.
By KEITH BRADSHER
Published: March 16, 2009
_r=1&ref=asia
GUANGZHOU, China - The global economic downturn, and efforts to reverse it, will probably make China an even stronger economic competitor than it was before the crisis.
China, the world's third-largest economy behind the United States and
Japan, had already become more assertive; now it is exploiting its
unusual position as a country with piles of cash and a strong banking
system, at a time when many countries have neither, to acquire natural
resources and make new friends.
Last week, China's prime minister, Wen Jiabao, even reminded Washington
that as one of the United States' biggest creditors, China expects
Washington to safeguard its investment.
China's leaders are turning economic crisis to competitive advantage,
said economic analysts.
The country is using its nearly $600 billion economic stimulus package
to make its companies better able to compete in markets at home and
abroad, to retrain migrant workers on an immense scale and to rapidly
expand subsidies for research and development.
Construction has already begun on new highways and rail lines that are
likely to permanently reduce transportation costs.
And while American leaders struggle to revive lending - in the latest
effort with a $15 billion program to help small businesses - Chinese
banks lent more in the last three months than in the preceding 12
months.
"The recent tweaks to the stimulus package indicate a sharper focus on
the long-term competitiveness of Chinese industry," said Eswar S.
Prasad, a former China division chief at the International Monetary
Fund. "Higher expenditures on education and research and development,
along with amounts already committed to infrastructure investment, will
boost the economy's productivity."
The international economic slowdown is also doing some things that
Chinese authorities had tried and failed to do for four years: slow
inflation, reverse what had been an ever-growing dependence on exports
and pop a real estate bubble before it could grow even bigger.
The recession in most of the large economies in the world is inflicting
real pain here - causing a record plunge in Chinese exports, putting 20
million migrant workers from within China out of their jobs and raising
the potential for increased and sustained social unrest. But as
President Hu Jintao told the National People's Congress last week,
"Challenge and opportunity always come together - under certain
conditions, one could be transformed into the other."
To that end, Chinese companies are shopping for foreign businesses to
acquire. The commerce ministry announced late Monday that it was greatly easing the government approval process for Chinese companies seeking permission to make foreign acquisitions.
The ministry is now leading its first mergers and acquisitions
delegation of corporate executives to Europe; the executives are looking
at companies in the automotive, textiles, food, energy, machinery,
electronics and environmental protection sectors.
The government initiatives coincide with some immediate benefits of the
slowdown for China. For instance, air freight and ocean shipping costs
have plunged by as much as two-thirds since last summer as demand has
fallen.
Blue-collar wages, which had doubled in four years in some coastal
cities, have fallen for many workers this winter, causing personal pain
but reviving China's advantage in labor costs.
Unemployment has pushed down the piece rates that factories pay for each garment sewn or toy assembled. Overtime has practically disappeared.
Lao Shu-jen, a migrant worker from Jiangxi province who works at a blue
jeans factory here, said that he earned $350 a month late last year but
would be lucky to earn $220 a month this spring.
"There are a lot of blue jeans" piling up in the back of the factory
with no sign of buyers, he said.
Highly qualified middle managers, in acutely short supply a year ago,
are now widely available because of layoffs. They are likely to stay
that way - although white-collar unemployment could pose a threat of
social unrest. Limited job opportunities contributed to the Tiananmen
Square protests 20 years ago.
Some jobs are still available now. Four days after a shoe factory closed
here for lack of orders, laying off several hundred workers, there were
four ads on the factory's front gate from other shoe factories seeking
to hire skilled workers.
Unskilled laborers face the greatest difficulty finding jobs. But with
subsidies from Beijing, provincial governments have embarked on
large-scale vocational training programs of the sort that the United
States has discussed but not actually tried.
Guangdong province alone, here in southeastern China, is quadrupling its
vocational training program this year to teach four million workers
engaged in three-month or six-month programs.
The main comparable program in the United States, under the Workforce
Investment Act, has been training fewer than 250,000 a year, although
President Obama's stimulus program provides funding that could double
the number of American workers in training programs.
The Guangdong training programs are half in the classroom and half in
the factory, usually the business that plans to employ the trainees. By
increasing productivity, training programs can hold down corporate labor
costs per unit of production for years to come.
China's huge training programs may also help preserve social stability
by keeping the unemployed off the streets, although Chinese officials
deny that is their intention.
Multinationals are cutting back less in China than elsewhere - and some
are even expanding.
Intel is shutting down semiconductor production lines sooner than
previously planned at older, smaller operations in Malaysia and the
Philippines as it opens a large, new factory in Chengdu in western
China.
IMI Plc., the big British manufacturer of items as diverse as power
plant valves and brewery equipment, has just announced an accelerated
shift of operations to China, India and the Czech Republic, after
cutting its global work force by 10 percent since December.
And Hon Hai, the 600,000-employee Taiwanese company that is one of the
world's largest contract manufacturers of products like the Apple iPhone
and Nintendo Wii game console, has just increased employment by nearly 5
percent in China even as it cuts overall employment by 3 to 5 percent.
Yet China's economy still has weaknesses. Little is being done to shift
the economy away from a heavy reliance on capital spending and toward
greater consumption. The social safety net of pensions, health care and
education barely exists, so Chinese families save heavily.
Strict government policies on labor and the environment, intended to
address serious shortfalls in both and imposed a year ago when China
felt more confident of its economic strength, are prompting low-tech
industries like toy manufacturing to move to other, less stringent
countries.
Top labor officials insisted during the National People's Congress that
they would resist suggestions from some Chinese executives that the new
standards be relaxed.
