An economic shift in the desired direction

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By William Daniel Garst (China Daily)
Updated: 2009-06-25 07:19

The global economic downturn has called into question the conventional wisdom on financial deregulation and innovation. This same conventional wisdom, embraced so lovingly by China-bashers in the West, has been used to criticize Chinese exports and economy.

Western critics have long argued that China's rapid economic growth has been fueled mainly by rising exports of cheap goods. They allege that these exports undercut prices of North American and European products, causing the loss of large numbers of high-paying jobs in the manufacturing sector. In the US, China is seen as boosting its exports unfairly by keeping the yuan undervalued against the dollar.

Such complaints always ignore how Western consumers have benefited from cheap Chinese goods. And now they seem to have overstated the importance of Chinese exports, too.

In fact, UBS bank economist Jonathan Anderson recently tabulated that exports account for a surprisingly modest share of China's overall GDP. If GDP and exports both are estimated in value added terms - earlier calculations typically measured exports as gross revenue and GDP in value added terms, which is like comparing apples and oranges - the "true" share of exports in China's GDP is just under 10 percent.

This figure is slightly higher than Japan's, but much lower than that of Singapore and other genuine export-led economies. This explains why China's growth slowed by less than 1 percent during the 2000-2001 global economic crisis.

The current global downturn, no doubt, has slowed China's growth rate from double digits to 8 percent. Plunging exports have shut down many factories, and many new entrants to the employment market, including college and university graduates, are finding it difficult to land a job.

Despite all this, and compared to the rest of the world especially the developed economies, China's economic performance is still excellent. The US economy contracted by more than 6 percent at the end of 2008 and beginning of 2009.

Official government estimates put China's unemployment rate for this year at 4.6 percent. Even if the figure understates the unemployment level, it's still much below 9 percent of the US. The jobless rate is even higher in some European economies.

China's GDP and unemployment rate reflect another often overlooked bit of economic data. The exports sector actually accounts for just one-third of the jobs in the manufacturing industry, or 6 percent of the country's total workforce.

In fact, China's economy is driven not by exports, but by investment. Investment accounts for 40 percent of its GDP, which is four times higher than the real share of exports. And only 14 percent of this investment is tied to exports. Most of the rest, more than half, is in infrastructure and property.

The economic crisis has hit residential and commercial property both (thanks to a slump in the property market, I found a nice and affordable apartment in Beijing's Sanlitun area). But still plenty of construction is going on in Beijing and other major cities.

Moreover, the fall in property investment will probably be more than offset by continued government spending on infrastructure. Beijing, for example, will get several new subway lines in the next two years. The huge spending on public transportation in the capital and other big cities will not only provide jobs, but also ease traffic jams and improve air quality.

The spending on infrastructure raises another fact that China-bashers tend to overlook. Instead of trying to export its way out of the economic crisis, China is making a genuine effort to boost domestic demand. For example, its stimulus $586 billion package is 13 percent of the country's GDP, while Barack Obama's is just 2.5-3 percent of the American GDP.

Finally, China is trying to boost domestic consumption and lower the savings rate by rebuilding its social security net. Beijing certainly needs to do more, especially in healthcare, but it has made a good start.

The economic crisis should force China-bashers in the West to rethink about the country's economy. The focus on cheap Chinese goods would be myopic and create pressure for trade restrictions that would harm not just China, but Western countries as well.

The author is a Sinologist, and teaches at Jintai Academy and Peking University. He is also a writer, editor, corporate trainer with the Great Wall Drilling Company, a subsidiary of China National Petroleum Company.

(China Daily 06/25/2009 page9)