China: A look back and a look ahead
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TEXT OF INTERVIEW
Kai Ryssdal: This has been a big year for the Chinese economy. Having escaped the global recession mostly intact, it passed Japan to become the second largest economy in the world, behind the United States. It’s had double-digit growth for most of the past 10 years. And yet, not all is entirely well.
Our Shanghai correspondent Rob Schmitz is on the line to talk all things China as 2010 comes to a close. Hey Rob.
Rob Schmitz: Hey Kai.
Ryssdal: So listen, before we get started, do a little compare-and-contrast for me. You lived in China 15 years ago, you got back six months ago for us — talk to me about the big changes you’ve seen this year.
Schmitz: Well, I’ve seen changes since I’ve been here. For the past 10 years, in addition to growing its economy exponentially, I feel like China’s been in a campaign mode. First, it was the Beijing Olympics in 2008, and then Shanghai’s World’s Fair this year. All of that’s over now, and those countdown clocks that you’d see all over the place, letting you know how many days before the next event, those are all in storage. There’s not another big event to look forward to. There’s this big vacuum that hasn’t been filled. I sort of feel like China’s in a transition period right now. The economy’s still going strong, but this lack of a big national event to prepare for has, in some ways, given people a chance to take a look around and see how they’re doing individually, as opposed to how the country’s doing.
Ryssdal: And what do you think people are saying?
Schmitz: Well, I was in the cab the other day and the driver was excited that I spoke Chinese, which happens a lot.
Ryssdal: Which is great.
Schmitz: And he was curious about what I thought of Shanghai. Now, if you ever want to know what the Chinese really think about China, all you have to do is tell them how great you think China is. I said something painfully obvious, like “Boy, the economy is developing really quickly here.” And that started a tirade against China that lasted the rest of my cab trip. The cabbie complained about how Shanghai spent too much money on the World’s fair; how despite all these fancy new buildings you see all over the city, most people like him aren’t seeing any of that new money.
And there’s something to this. When you break down how the economy has grown in China over the years, you’ll see that while household income has risen, it hasn’t risen as much as China’s GDP has. So essentially, you’ve got all this extra money in China that isn’t going to people like that taxi driver.
Ryssdal: Right, so the economy’s growing faster than everybody’s income. So where’s the money going then, all that extra money?
Schmitz: The bulk of China’s economic growth goes into things like those new fancy buildings the cabbie was talking about. Investment-led growth plays a big part in China’s economy — building things, a high-rise suburb or a bullet train line. The other big part of China’s economic growth is something we can all see under the Christmas tree, exports. Growth from investments and exports make up around two-thirds of China’s overall growth. Consumption, or people buying stuff, makes up only about a third. And for the first time this year, policymakers in Beijing are starting to publicly admit that this a problem.
Ryssdal: And that’s because the Chinese government now thinks the economy’s unbalanced, right?
Schmitz: Yeah, I mean, that’s the buzzword among China’s economists these days, an unbalanced economy. Here’s why they think it’s a problem: If most of China’s money is in the hands of those who investment in export, i.e. the government developers, factory owners — that means less money is going to China’s working class. I mentioned household income before, it wasn’t rising as fast as GDP in China. Well, that’s the reason that the Chinese are slow to consume; they can’t afford to. In the meantime, more money’s going to real estate development and state-owned enterprises, and that’s being funded through loans, and we’re talking about a lot of lending. All this debt has come equal a fifth of China’s entire GDP. In order to sustain this kind of economic growth, CHina’s in sort of a trap; it needs to keep investing. So, here’s the danger, the value of those investments won’t always go up. If and when the value of those investments go down, China’s government’s banks will take a hit.
Ryssdal: Well, let’s take the phrase “command economy” literally here, even though we all know that China’s not really a command economy. What’s the government doing about it?
Schmitz: Well, I think most economists would say not enough. What they say China should be doing boils down to three things: Raise interest rates, raise wages and raise the currency. China’s already starting to raise interest rates, and the reason that’s important is that it slows down borrowing for these massive investment projects. Raising wages is going to hurt employers, but it’ll give hundreds of millions of workers more money to buy stuff. And the big one is, of course, the currency. China’s currency is undervalued and that makes imports in China more expensive for the Chinese to buy. And a more valuable currency would increase the value of Chinese exports, and that would help drive down China’s massive trade surplus with the U.S., something a lot of people would think would be great.
Ryssdal: Rob Schmitz, a look back and a little bit of a look forward from Shanghai. Thanks Rob.
Schmitz: Thanks Kai.
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