What Will China Do?

There's been a lot of speculation, in the press & elsewhere, about what the governments of every major country will do to respond to the current global economic crisis. Not only are specifics eagerly sought and eagerly speculated upon, but there is also (it seems to me) a lot of noise under the surface regarding two other aspects of the current situation. The first is about whether governments really understand what's going on. The answer to this one is two-fold, and they are both pretty straight-forward. No one knows what will happen over the next year and a half and governments are no different. Is this a severe recession with Global Characteristics? Certainly, it is. Is that all it is, or will things take a turn for the worse and will we irretrievably move away from "the world as we have come to know it"? And here is where things get tremendously speculative because, unless you can find Merlin the Wizard, or some soothsayer in a cave in Tibet, everyone is just guessing. For some its an educated guess. For others, its a wild stab in the dark. But no one I know can tell the future. And I've been to some of those caves in Tibet; they aren't talking about the global economy there. While there's a lot of guessing going on (although we might be better off calling it "scenario building"), the uncertainty remains high and the predictions are unreliable at best.

The second subject of background noise regards whether or not governments know what to do and (if they do) whether they have the will do what needs to be done. Here is where it gets a bit dicier. Certainly, there's a lot of policy debates in process. And a number of major decisions have been made. But: it ain't over yet! Like a very long and slow-paced movie, the story takes a long time to develop. Even if governments aren't quite sure what will happen next, they are certainly trying to figure out what to do to right the ship. They really have no choice. But it also seems to me that policy makers are feeling their way and searching for the right solutions for the major challenges before them. As we've seen in Washington, London, Berlin, Paris, Ottawa, and elsewhere, politics intrudes. That's the nature of a democracy.

The second & closely related question has to do with political will. Presuming the effective steps are known, do the governments of the world's major nations have the political will necessary to do what needs to be done? In my opinion, this is the major question. There is no doubt at all that, given the scope of this crisis, some -- and in all likelihood, a great many -- of the things that will be required will be difficult and sometimes unpopular.

Of one thing there is no doubt in my mind: when it comes to China, the Chinese government has the political will to take the steps it will need to take to build momentum towards economic recovery. Whatever it takes. No doubt in my mind.

None at all.

Nero Returns!

You know the image: Nero, the Roman Emperor, who is famously remembered as focusing on his lyre as Rome burned to a crisp. Whether History (at least as we popularly remember it) does him justice, the myth is being re-enacted today in Washington. It all makes it it very difficult for all of us American expats who have so self-righteously preached to the Chinese for years that they should look to the U.S. model for China's future.

While I still hold on with one hand to the mantra of free and open markets, the banner has gotten a bit tattered of late. Open markets have their limits, and if you don't understand that, you've been asleep for the last few years. The Chinese have not missed that point, altho I'm not too convinced we always see the same limitations. Nevertheless, the main points have not been missed. The Chinese government is, of course, no stranger to the skills of managing economic growth. If anything, they're too good at it. Too much growth, after all, can be a bit hazardous, too. Maybe not as hazardous as too little, but the risks are unmistakable.

Many of my Chinese friends are looking on in bafflement today as the debate rages on in Washington about the details of the pending stimulus package. They aren't alone. Many expats are also a little baffled, but for different reasons. What they don't see the value of is the political give & take of a democracy. Here in China, the debates are usually behind closed doors and mostly pretty short-lived. And, once over, the debates are . . . well . . . over. Already, the effects of the Chinese government response to the economic chasm we're all teetering on the edge of is being felt. Whether China will avert the worst is unknown; no doubt, this will be a tough economic year. But no one here thinks the government is not concerned or that, if early efforts are inadequate, further action won't be taken. They will do whatever it takes. And they will learn their lessons well. Probably, they already have.

Meanwhile, back in Washington, the Democrats have watered down the fiscal package in order to attract Republican support. In the U.S. House of Representatives, it didn't work -- not one Republican supported the original House stimulus plan. In the Senate, support was minimal. In each case, the final bills became more skewed towards tax breaks. I like tax breaks! Everybody does; nobody likes to pay taxes. But anybody who thinks people worried about losing their jobs (and already having lost much of their retirement savings) will buy a new car because the taxes are now lower is an idiot. Likewise with real estate purchases. If you're worried about your family's economic viability, your first thought is NOT about buying a new house. Unless you're independently wealthy or just scammed the taxpayer out of billions in undeserved bonuses, in which case tax savings is, maybe, a pressing concern. And, if you think about it, in order to pay income taxes, you've got to have an income. The unemployed don't pay income taxes.

I read a note posted by an old acquaintance last week. He is convinced that this whole thing will be over by the end of 2009, no matter what the U.S. government does. In one sense, he's right: the U.S. will get thru 2009. And then it'll be 2010. Time marches on, no matter what. Its what happens in the meantime that's the issue. If the U.S. is to avoid running the American economic locomotive into a brick wall, Congress will have to be both decisive and effective. There is no guarantee that the U.S. and World economies will be better in a year. More likely, if nothing is done, they'll be considerably worse. The Chinese can see that very clearly, as they can also see the inevitable linkages between the two economies. What is much harder to explain to them is why some Americans, who they think should know better, seem to be working so assiduously for broad American failure and for their own narrow self-serving interests. Even Chinese friends here who dislike the "powers that be" here readily point out that, in this crisis, the Chinese government is doing the right things. Why don't all American politicians want to do what clearly needs to be done?

I have no answer.

Factory Workers Go Home for the Holidays

I had an interesting talk this morning with a friend from southern China. Altho he owns a factory, he has lots of ties to the migrant workers themselves. Of course, in his case, what you may think of as a factory may not match the reality. He runs his Guangdong province factory in about 300 sq. meters ( about 3230 sq. feet), with 5 workers, one supervisor - a brother - and a bunch of knitting machines; not exactly General Motors, altho he makes more money than GM these days. He says he's doing fine still, altho he has worries. Of the many laid off factory workers, he had this to say: For the most part, from what he's seen & heard, workers are angry at factory owners who they feel (in many cases, justifiably) have cheated them. In some cases, as widely reported elsewhere, factories have been shut down with no warning and migrant workers haven't received all their wages. Nevertheless, altho they've been laid off, they are mostly taking it in stride and just going home to their villages hundreds (or more) kilometers away. Since they had planned to return home, as they do every year, for Chinese Spring Festival/Lunar New Year anyway, the hardship is not major. They are leaving a month or two before they'd planned. The traditional Chinese New Year holiday this winter falls in late January and workers may often take from 10 days to 45 days off before returning to their work places. Any anger they feel, according my friend, is not directed at the government at all, but at their employers. In addition, altho wages are often meager for migrant workers, they are able to save considerable percentages of their pay, so the financial hardship is cushioned.

Of course, once the Spring Festival period is over, these workers hope to return to their migrant residences & resume work. If they can't, they can be expected to look for new jobs.
And if they can't find work, how will they react? Come March and April 2009, feelings may not be quite so stoic.

It All Depends on Where You Sit!

Listening to people talk about today's economic debacle is very interesting. The Pragmatists seem to be saying, "To hell with Theory; let's do what it takes to save ourselves!" (meaning, jobs, investors, Wall Street, Main Street, bondholders, politicians . . . Whatever section they may be sitting in). At least they're not just thinking of themselves.

Then there are the Moralists who want to stay true to the sentiments of Andrew Mellon, former Treasury Sect'y (1921 to 1932, an auspicious moment in economic history) who famously said, "Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate . . . People will work harder, live more moral lives." In today's terms, that translates as "No bailouts! Let the miscreants suffer for their misdeeds!" Many of the Moralists, of course, seem to have enough resources to weather the storm. Some may even benefit from it. And some, regrettably, seem to me to be living in an alternative universe, oblivious to the ruination they welcome.

And never mind who gets crushed in the aftermath!