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The crisis and China

Friday 23 January 2009, by Robert Paris

China’s economic growth slashed to 6.8 percent

Thu, 22 Jan 2009.
“China is in a recession regardless of what the highly massaged official numbers claim” – Roubini


China’s economic growth rate fell sharply in the fourth quarter of 2008, to 6.8 percent, pulled down by fading investments and an absolute drop in exports. That was the weakest quarterly growth rate in seven years and a pronounced slowing from the previous quarter’s 9 percent growth.

The figures, released today by the National Bureau of Statistics, have fuelled further speculation about the real state of the Chinese economy and its prospects for the coming period. On a quarter-on-quarter basis China’s output was negative (-0.3 percent on an annualised basis) – the first quarterly contraction in 16 years. Given that many capitalist economists and politicians until recently put their hopes in China to rescue the global economy from a severe downturn or depression, the new numbers coming out of China are extremely significant.

Coming after 13 per cent growth in 2007, the latest figures present the most complete picture yet of just how severely the global capitalist crisis has hit China’s export-dependent economy. “China’s economy suffered a hard landing in the fourth quarter,” said Lu Zhengwei, a Shanghai-based economist with China’s Industrial Bank.

Soaring unemployment

In the last two months China has experienced thousands of factory closures and massive layoffs in manufacturing and construction. Unemployment in the cities recently hit a 30-year high, and in addition to this government agencies estimate about 10 million migrant workers have been thrown out of temporary or unsecured jobs. Some government researchers put migrant job losses far higher, at around 20 million in 2008. Many more job losses are expected in the next few months, and indeed the period immediately after next week’s Lunar New Year celebrations may see a surge in layoffs and closures. Especially hard-hit are migrant workers who have left their homes in the generally impoverished countryside for jobs in the big cities. Many are returning home for good in the current New Year rush.

China’s slowing economy is part of dramatic regional ’freeze’ within the wider context of the global recession. Figures released today also show that Japan’s exports collapsed by 35 percent in December, while South Korea’s GDP shrank 5.6 percent in the final quarter.

Roubini: "massaged GDP figures"

Nouriel Roubini, the much-quoted New York University professor, said China’s official year-on-year economic growth figures are “highly misleading” because they do not fully capture a sharp slowdown in output during the fourth quarter. Declining electricity output and contracting manufacturing suggest growth may have been negative, he says. China’s electricity production declined more than seven percent from a year earlier in November and fell about three percent in October, the first declines since February 2002, according to Bloomberg News. China’s exports fell 2.8 percent in December, the most in almost a decade, as the global recession struck.

To support its manufacturing companies, the Chinese government has over the past six months reinstated or increased tax breaks on more than 3,700 export items, including consumer goods like toys and garments. The rebates help make Chinese exports cheaper, but the effect has been limited given the fall-off in consumption in the U.S., Japan and Europe. British bank HSBC estimates China’s exports could contract by as much as 19 percent in the first quarter of 2009.

Earlier this week, Premier Wen Jiabao warned that 2009 would be “the most difficult year for China’s economic development so far this century”. The ruling ’communist’ dictatorship are bracing themselves for an upturn in protests and popular unrest. With its economic ’miracle’ a thing of the past, China’s leaders are facing their toughest test for many decades.

What’s needed, however, is the urgent creation of an alternative in the form of a mass movement for democratic rights and public ownership and control of the economy – starting with any firm that closes its gates or announces layoffs.

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