Fallout: The Financial Crisis

Predictions for China in 2009

Scott Tong Dec 30, 2008
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Fallout: The Financial Crisis

Predictions for China in 2009

Scott Tong Dec 30, 2008
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TEXT OF INTERVIEW

Scott Jagow: We continue now our series of year-end interviews. Except we’re not looking back on 2008 — we lived through it — we’re looking ahead. Today’s topic is China. And we’re joined by our correspondent in Shanghai, Scott Tong. Scott, remind us, where does China’s economy stand right now?

Scott Tong: Well, China’s getting walloped like the rest of the world is. Just a couple months ago, the optimists were wondering if China could be the savior of the global economy, that it could keep buying things like iron ore and energy and Buicks, and Chinese people could still keep going to Starbucks and keep the global economy going. Nobody is saying that anymore. A lot of job losses, there’s a big rumor going around that a company that makes the most iPods and laptops in the Universe may lay off 60,000 workers in southern China before long. So it’s hitting hard here.

Jagow: Wow. And what are the scenarios for China’s economy in 2009?

Tong: Let me give you the good one first, Scott. That is that by next spring, China’s massive stimulus package, which is basically a whole lot of infrastructure spending, starts to kick in. And as China builds more roads and bridges and buildings, it will import a lot of more of the raw materials it needs to do that. That could bring up commodity prices and energy prices and investors could get more confident around the world. Now the bad-case scenario is if the slowdown hits China much more and some people are talking about a hard-landing scenario, you could have social instability. I mean, China sits on this political fault line, the government is an unelected government, and basically when people are happy, nobody tends to complain much here. But you never know — if growth slows down to a small number, which for China would be 5 percent growth, we don’t know what happens.

Jagow: And of course, we can’t talk about China without talking about the U.S. and China. Where does that stand?

Tong: Well, China was the world’s lender and the lender to the United States, and that helped to blow up the housing bubble, at least indirectly. And that relationship, of course, is over now that that bubble is no longer. So now, the U.S. and China have to sort out a new relationship between the two of them and on their on. Because just as the United States’s economy can’t just depend on consumption and buying cheap things from China, China has to get away from exporting its way to economic growth. The way this thing could go badly for U.S.-China relations, though, is if Beijing tries too hard to rescue some of the exporters, either by cheating on the currency or choosing other trade tactics that other countries would consider protectionist, you may have a trade war that starts to brew. Who knows how that’s gonna play across the world, especially with the new Obama administration coming in.

Jagow: Our correspondent in Shanghai, Scott Tong. Happy new year.

Tong: All right Scott, happy new year to you, thanks.

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