Tuesday, November 18, 2008

Economic Woes Threaten Chinese Government

Joshua Kurlantzick at The New Republic (good lord, never dreamed I'd be linking this outfit) examines how the global financial meltdown has effected the growing Chinese middle class, and they are not very happy.

"As the global financial crisis hits Western consumers' wallets, orders for the Delta's products have dried up. And angry factory workers, many owed back pay, have taken to the streets. In one recent incident, some 300 suppliers and creditors "descended on the River Dragon complex [a factory where the owners vanished] looting warehouses in the hopes of salvaging something," As USA Today reported.

This unrest is likely to spiral. As the Chinese economy sours for the first time in years, the government this week announced a $586 billion stimulus package. But in some ways, much more is at stake: While, in the U.S., a financial failure would simply mean another dent in George W. Bush's reputation, in China it could mean the breakdown of the entire political order."

While political unrest in China has been widespread in rural areas, (often instigated by widespread pollution and local government land grabs) the growth areas along the eastern coast have been largely silent in return for the jobs and growing incomes fed by the booming export sector. With up to 40% of the Chinese economy involved in the export sector, the economy has taken a huge hit as foreign consumers have closed their wallets, leading to shuttered Chinese factories and widespread layoffs. Some 10,000 factories closed over the summer of 2008 and up to 20,000 more could shut down operations by the end of the year. In addition, the Shanghai stock market has dropped almost 70%, from over 6000 to 1800, and the Chinese banking sector is thought to have over a trillion dollars worth of bad loans outstanding. Home prices in some cities have dropped by half.

"the economic downturn is hitting Chinese home prices and urban jobs, too. Those urban middle classes, the key base of support for Beijing, now find their only asset, their first home, is collapsing in value, while their sons and daughters cannot find jobs right out of college. In several major cities, home prices have dropped by more than 50 percent in just the past year. Perhaps unsurprisingly, urban middle class protests over land prices and land evictions are rising in cities like Shanghai too."

In attempts to forstall the unrest, the Chinese government has announced a $586 billion dollar stimulus package, handing out payments to unemployed workers. It can certainly afford the cost, with its $2 trillion in foreign exchange reserves.However, it migth not be enough, and a Tianamin style crackdown would be difficult with the much larger middle class today as opposed to 1989. Unless the economy turns around fairly quickly, the government could face its first sustained protests. Keeping them separate and local will be paramount for the government to maintain control; if a national movement starts, it could get very, very ugly. While I'm no fan of the regime, I'd much rather see an incremental movement toward democracy than a violent explosion, which could likely wind up dashing even more hopes as we've seen in other former dictatorships such as Russia.

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