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Moscow and Beijing will not receive $60 billion
Chinese media yesterday reported good news, which led to a short-term increase in quotations on Asian exchanges. The Chinese economy is reviving, as indicated by an improvement in the purchasing managers' index (45.3 in January versus 41.2 in December and a record drop to 38.8 last November). This indicator is based on surveys rather than statistics, but it provides the quickest idea of economic trends. Sun Mingchun, an analyst at the Hong Kong branch of the Nomura financial group, said optimistically that this year China will begin rapid growth after the decline, the lowest point of which was the fourth quarter of 2008. The head of the Chinese central bank, Zhou Xiaochuan, noted that the policy of stimulating the economy “has produced the first results.”Deputy Director of the Institute of Asian and African Studies at Moscow State University Andrei Karneev emphasized to Vremya Novostey: “Due to numerous administrative barriers, China is protected from global market shocks better than other large economies. The Chinese authorities can make financial injections without fear of large-scale currency speculation.” Last November they promised to spend 4 trillion yuan ($585 billion) on infrastructure development.
Chief researcher at the Institute of Far Eastern Studies of the Russian Academy of Sciences Yakov Berger noted to VN that China quickly changed its economic policy last fall. Back in October, the authorities were fighting inflation and trying to “cool down” their economy, but already in November they began to “warm up the economy back”, making it easier for enterprises to access loans. According to the scientist, “the financial system of the People’s Republic of China is not threatened by the crisis, but production that worked for foreign markets received a painful blow.” Chinese experts have long warned that dependence on foreign trade was excessive: its volume was equal to 70% of GDP, although 30-40% is considered a normal proportion. Now, due to the crisis, foreign demand has dropped sharply.
This year will also be unfavorable for Russian-Chinese trade. Although in 2008 the two countries managed to trade a record $56.8 billion (18% more than in 2007), the picture was optimistic only until October. According to Russian trade representative in China Sergei Tsyplakov, in the fourth quarter of 2008, “the global crisis has already begun to seriously affect the development of bilateral trade.”
Andrey Karneev noted to VN that this year “one cannot expect that last year’s level of trade will be surpassed.” Russian raw materials supplied to China, primarily oil, are becoming cheaper, and sales of Chinese clothing and footwear to Russia are falling. Unfortunately, we cannot yet count on a rapid rise in oil prices and a concomitant strengthening of the ruble. It seems that plans to bring trade turnover to the level of 60-80 billion dollars by 2010, which were discussed by high-ranking officials of both countries at the end of October 2008, will have to be postponed for the future, focusing on maintaining what has been achieved.
The crisis will force Moscow and Beijing to look for new, more effective and transparent ways to develop economic cooperation. Russia will have to concentrate its efforts on the export of industrial products in order to be less dependent on fluctuations in prices for raw materials. Until recently, the Chinese tried to sell second-class consumer goods to Russia under “gray” customs schemes. But whether Russians will now buy such products is a big question.
The other day, the British weekly The Economist published a report from the city of Xinji in the central province of Hebei - the production of fur and leather products is concentrated there, 80% of which went to Russia and the countries of the former USSR. Authorities had hoped the city's export-oriented economy would grow 13% a year, but now sales are falling and factories are closing. It is extremely difficult to send goods from Xinji to other countries because their quality does not meet the requirements of Western markets. The Chinese authorities are currently helping the light industry by exempting them from export taxes. But manufacturers from Xinji were unable to take advantage of this benefit, because due to the “cunning methods” of sending goods to Russia using “gray” schemes, they “have no receipts to claim compensation.”
Jacob Berger believes that under the influence of the crisis in China, new industries may emerge that provide economic growth: high-tech manufacturing, information technology and financial services, aimed not only at the external, but also at the domestic market. But first, the country needs to cope with the threat of a surge in social tension.
Recently, the authorities reported that due to the crisis, 20 million migrant workers from the countryside were left idle, and soon they will be joined by another 5-6 million job seekers who enter the labor market every year. The situation is aggravated by problems with the employment of university graduates: this year there will be 6.1 million of them, while last year 1.5 million young educated city residents did not find a job. And their discontent may turn out to be much more dangerous than the protests of the peasants.
At the end of 2008, Chinese economic growth fell to 6.8%, but the authorities promise to maintain it at 8%. Andrei Karneev noted to VN that if GDP growth is above 5%, then China “will be able to survive the situation even with tens of millions of unemployed.” Export-oriented factories in the southern provinces are unlikely to resume production at the same scale in the foreseeable future. But for those who worked there, the authorities can create new jobs in the field of infrastructure or “simply pay them benefits.”
Against the backdrop of the approaching 20th anniversary of the tragic events in Tiananmen Square (in June 1989, the authorities forcibly suppressed anti-government protests), Chinese liberals can take advantage of growing social tensions and demand that the government expand freedoms. However, according to VN’s interlocutor, the PRC leadership “understands perfectly well that in a crisis, exotic experiments with democracy will be an unaffordable luxury.” Without rejecting the idea of expanding citizen participation in politics, the Chinese authorities will come up with various “institutional and organizational innovations” so that the development of democracy does not lead to uncontrolled developments.