Export-driven road hits snag

By Li Hong (chinadaily.com.cn)
Updated: 2009-01-07 15:54

China's policy makers and policy advisers need to take time out at the onset of 2009, amid a churning storm of worldwide economic downturn, and figure out what a genuine economic "role model" the burgeoning Asian giant wants other developing countries to mimic. Now, I believe it is something other than the once-trumpeted wealth-making pattern of the "Four Asian Tigers," which almost solely relied on exports to reach an economic height, and from then on, stagnated, if not declined.

If Japan had a land expanse as large as India, China or Russia, it would most probably have carved a growth model deviating itself from an export-brought boost. The side-effects of the export-driven model are difficult to avoid. When the United States gets a cough, Japan sneezes.

The onslaught of the global economic crisis, which began on September 15, 2008 when Lehman Brothers went bust on Wall Street, is grisly on China's side, leaving tens of thousands of manufacturing businesses, from toys, shoes, garments, electronics and appliances, shutting their doors because American and European families have cut back on their spending. It is reported that legions of migrant workers have become unemployed, many packing their bags or already on their way back home, as the Chinese Spring Festival, the country's most celebrated time of year, approaches.

It is righteous for the government to think of creating jobs for the sake of maintaining economic growth or social tranquility. One cannot deny the colossal pressure building on Beijing to deliver jobs once the festival ends in about a month. However, the aging policy of dangling out more export rebates, or even devaluing the exchange rate of China's currency, the yuan, to make China's goods more inexpensive in the global marketplace (as recommended by a chorus of pundits), will lead China nowhere.

Although fatter rebates and government-directed cheap currency could make the lumbering factories in China's coastal provinces regain life, and create low-tech processing jobs on the rusty assembly lines again, it won't change China's image as the world's top manufacturing plant, or "blood and sweat factory," as some critics say. Moreover, it won't bring substantial wealth to the migrant workers and their families in the poor countryside, except maybe a few thousands more dollars and euros in the country's reserve.

On the other hand, a rising number of American economists are complaining that Chinese exports to their shores, though aiding cash-strapped ordinary American families and helping the Federal Reserve maintain a low inflation rate, have added to "American Imbalance," and driven America deeply into debt.

The American economy, estimated to downsize by five percent from October to December at an annualized rate, is certain to create an expectation among the public of a permanent depression, forcing businesses and consumers there to snap their wallets shut. It is reported that families on the other side of the Pacific have chosen to save, after two decades of spending freely at will. Thriftiness, long a tradition of the Chinese, though probably depriving America of an immediate spending-out-of-recession, will eventually do America and the world good.

Well, you cannot borrow from credit cards and from other countries and live a lavish life forever. Prior to the eruption of the current round of the financial crisis, many renowned economists asked the Bush administration to heed the two "deficit bombs" – the budget deficit and trade red ink. Structural imbalance hollowed America, depleting its ability to extend a helping hand to the needy when a crisis materializes.

China could start to rethink things and take on a new route. It is suggested that the nation should gradually get rid of low-value processing jobs, while creating permanent jobs in building sectors, high-tech and high-value industries, and in top-caliber services.

Infrastructure in China, including expressways, bullet train lines, undersea tunnels, across-river bridges, inter and intra-city mass transit systems, airports, dams, nuclear power plants, wind mills, apartments and villas, need vigorous investment from the government and the private businessman. This will provide numerous building jobs for the coming 30-50 years. The sector will also maintain China's economy on a consecutive growth of as many years as well, I believe.

Then, Beijing could work out a plan to strengthen and rejuvenate key industrial sectors, such as steel, machinery, petrochemical, automotive, telecom and Internet. Jobs in these high-value areas will be created, and if the time is right, these sectors will make up for the temporary loss of processing jobs and export dollars. More importantly, they will help China gain a solid edge in future competition.

Since becoming Prime Minister in March 2003, Wen Jiabao has spearheaded investing in human resources, establishing tens and hundreds of vocational schools throughout China to teach Chinese rural and urban youth, and arm them with technological know-how. Meanwhile, college enrollment has increased two-fold and an increasing amount of overseas talent is being lured to China. All this will pave the way for an economic resurgence after the current economic downturn, mostly incurred by diminishing exports, is over.

In a sense, I am an advocate of a stronger Chinese currency. The trial reform of restricted swatch of the yuan, with the Korean won and other Asian currencies, is in the right direction. The reform should be extended.