China's jet engines of growth risk stalling

PUBLISHED : Friday, 31 October, 2008, 12:00am
UPDATED : Friday, 31 October, 2008, 12:00am

It would be a mistake to overestimate how much China can or will pitch in to the global financial crisis; it has a lot of monstrous problems of its own. And it still has bad memories from listening to shaky financial advice in the past from the west. The government may make a few seemingly helpful moves in the economic world just to avoid appearing truculent or uncaring. But it probably won't do much.

Right now, China's growing gigantism is driven primarily by the sheer size, magnitude and willpower of its population. That's why its total national domestic economic product places it easily in the world's top economies. But there is another statistic we need to keep in mind: its per capita wealth doesn't even make the top 100 lists of the world. China, in this sense, is both rich and poor.

China's political stability is dependent on its continuing economic growth. In recent years that rate of expansion has hit double digits. This is not only impressive, but also vital. Like a lumbering Boeing 747, the Chinese economy took forever to take off but, once aloft, requires vigorous forward air speed to stay on track: any rapid or sudden loss of velocity and forward momentum could bring the whole thing crashing down.

The height of China's post-Mao-Zedong glory was undoubtedly this summer's Olympics Games, but they may remain the symbolic high point for some time. In the current world economy, with western demand for its exports waning dramatically, Beijing will be hard put to keep growth so high. A 7 per cent growth rate - or even a little less - might be a more realistic forecast. At what rate might the gigantic jet stall and lose altitude precipitously? No one can say.

Many experts outside China are convinced that the nation will continue to enjoy a smooth forward-moving flight path. But not Charles Wolf Jnr, an expert in international economic policy at the RAND Corporation, in southern California. Dr Wolf addresses the dilemma of China - and Japan - in his new collection of essays, 'Looking Backward and Forward: Policy Issues in the Twenty-first Century'.

China's 1.3 billion people are what worries Dr Wolf most. RAND research puts China's actual unemployment rate at something like 23 per cent (Current US unemployment is about 6 per cent, on a base of 'only' 300 million people).

'The strains and stresses that will result from the persistent masses of China's unemployed and underemployed labour are difficult to assess but hard to overestimate,' he writes. 'China's problems are a deeper, more long-term, and potentially more serious challenge to economic and social stability than is the temporarily high temperature of its economy.'

Beijing's capacity to develop better public policy for its own people will also add to world economic stability. The Chinese government needs to erect quickly a new national safety net to avoid political chaos. China may be approaching a national emergency, and it will take a great deal of its reserves to fix it.

Tom Plate is a veteran US journalist