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China leads economic rebound

Scott Tong Sep 8, 2009
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China leads economic rebound

Scott Tong Sep 8, 2009
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TEXT OF INTERVIEW

Kai Ryssdal: There was an economic theory that was pretty popular a number of years ago that went something like this. Since a lot of developing economies really have developed, that is, improved their manufacturing or broadened their exports, their prosperity has effectively de-coupled from the big Western countries. If our economies went south, de-coupling said, Asia and Africa ought to be all right.

The Great Recession of 2008-2009 has largely put that theory to rest. But in China, at least, economic recovery seems to have de-coupled quite nicely. They are getting better way faster than we are. Our Shanghai bureau chief Scott Tong is here to help us understand how and why that’s happening. Hey Scott.

SCOTT TONG: Hey, Kai, how are you?

Ryssdal: I’m all right. Listen, do me a favor and channel your inner economist for a minute and remind us how we know that China is doing so well.

TONG: Well, let me just give you one number: 8 percent. That is the government’s goal for the growth in the Chinese GDP for this year. And you know what, bank economists who earlier this year thought that was not going to happen suddenly are saying, you know 8 percent suddenly looks pretty good. They’re surprised given the weakness that the world and China were seeing earlier in the year. But there are a lot of numbers that look pretty good. Manufacturing, new orders, corporate earnings, auto sales, you put it all together and most serious economists are saying this is a pretty decisive rebound compared to what is happening in the rest of the world.

Ryssdal: Well, given what’s happening in the rest of the world. How did this happen?

TONG: Well, the one thing China does very well is it pours concrete. Last year, when exports fell off a cliff, and America soccer moms stopped buys sneakers and stuff from China. The government said we’re going to lay out this $600 billion stimulus package, and most of that is going to be bank lending for infrastructure. We’re going to build bridges, and apartment buildings and lay train tracks. I mean, Kai, the rail project in China is three times the length of the transcontinental railroad in the United States. Now the question is can you have too much. Well, the central government the last few days said, whoa, let’s ease off a little bit of the bank lending. We may have over capacity, we may have made too much cement, and too much steal, so we’re going to back off a little bit.

Ryssdal: Right, and the Shanghai stock markets didn’t like that at all, did they?

TONG: Well, the market lost 20 percent in August, as this chatter was going out there, and the rest of the global markets followed Shanghai down for a couple of days.

Ryssdal: Well, that brings up the question that is often applied to the American Federal Reserve, which is to say their job is to take the punch bowl away when the party gets started. That is, change monetary policies so nobody gets too excited. Is that what’s going on in China?

TONG: Well, in China what folks drink here is this concoction called ‘bijou,’ so the worry was they’re taking away the ‘bijou.’ Most economists actually think the stimulus indeed is going to wear off over time. But there are other parts of the Chinese economy that will take up some of the slack over time. Property market looks like it’s coming back, consumer spending may see an increase before long, and exports may come back a little bit as well. So on balance, most people think this recovery is as secure as we’re going to see right now in the world.

Ryssdal: There was a school of thought as this recession deepened that perhaps China was going to be the one to pull the world out of the recession. Is that what’s happening here?

TONG: It depends, Kai, what part of the world we’re talking about. I mean, China is certainly getting bigger and bigger and more important. Now, the dumber money says, OK, China can lead everything in the world. The smarter money says let’s think about what China actually is. A lot of people think of China as the factory to the world. I’ll suggest that it’s more the steel mill to the world. And what do steel mills need? They need raw materials, right? So that helps Brazil and Australia that have iron, ore and coal and that kind of stuff. Steel mills need energy, which means China is going to buy a lot of things from Russia, Venezuela, Indonesia, and the Middle East. And they need heavy equipment, and companies in Japan and Germany and the United States make that kind of stuff. Those are parts of the global economy that China can affect.

Now, what China can’t do is be the consumer to save the world. It’s not going to save Starbucks or General Motors. There just aren’t enough rich Chinese customers to be able to do that. China can help some, and most people think that’s what is happening right now.

Ryssdal: Scott Tong in our Shanghai bureau. Scott, thanks a lot.

TONG: OK, thanks, Kai.

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