Opinion: Is China up to saving the world?

At a time when the world economy is tanking, people are pinning their hope on emerging economies such as China and India, which have been where most of the world economic growth came from in the past few years. So what is it like looking from a Chinese angle? The least I can say is that it's quite a big contrast with what you would see if this was a Western country.

In China, fixed asset investments, consumption, and export are termed "the three horses that pull the troika of economy". With the world economy going south, exports are obvious losing their puff. As for consumption, Chinese consumers surely have much stronger spending power than they used to. However, their consumption-to-income ratio is still lagging far behind its Western or even the Japanese counterparts. There are good reasons why Chinese are reluctant to consume "“ the social security system is still very primitive. It costs an arm and a leg to send your kids to a decent school; the medical care system is inadequate and you are pretty much on your own when in serious trouble. As for retirement, people who are still working would definitely try their best to avoid being like the current retirees, who are living on meager pensions. That's why people are desperate to sock away their incomes and to accumulate wealth while they can. Who knows when rainy days will come.That's why China has to rely on foreign consumers to keep the business cycle going although it has become the dominant player of manufacturing goods. The 4 trillion yuan (NZ$1.1 trillion) stimulus package that Chinese government recently pledged to inject into the economy will mainly go to infrastructure "“ again in the domain of investment. It could be a very good time for the Chinese to patch up their social security systems so that on the one hand the stimulus won't be focused on a single area (i.e., investment), and on the other hand people would have less to worry about when spending.

The other day, I heard on the BBC that some listeners had complained that media in the West had "talked" down the economy "“ consumer and business confidence suffered when the media were jammed with bad news and economic Armageddon predictions. Well, you never get the same vibe from Chinese media (or more properly, propaganda tools) here. It would be political suicide if your newspaper or TV channel became too pessimistic about what's to come. Generally speaking, the officials and economists here are still upbeat more or less, although they freely admit that the economic environment won't be as rosy as it used to be. Recently, the famous declaration in FDR's inaugural speech has been quoted quite often "“ "the only thing we have to fear is fear itself". The fear is certainly easier to curb here in China when what you read, hear, and watch is filtered.

Average people are not as their officials. This is partly because of what the government has made them believe, and partly because it does take about one year for the impact of world economic shocks to be really felt in China. However, there are plenty signs that Chinese economy is in much more serious trouble than first appears. Pumping 4 trillion yuan into the economy is certainly a boon for the country and the world. The flipside however, indicates the desperation. It's no longer news anymore that the coastal exporting manufacturers have been closing down in large numbers. The real estate market has stagnated for months and is on the verge of a free fall. The ruling elites are extremely nervous seeing millions of migrant workers heading back to their hometowns after losing their jobs. Local governments even offer to pay workers unpaid wages owed by their employers.

The Chinese government has shown in the past its strong capability to turn around the economy when the situation is dire. It pulled it off in 1989 after the Tiananmen Square crackdown, when the West imposed an economic embargo on China. It made it again in 1997 during the Asian financial crisis. Quite a number of doomsayers in the West and inside China have been predicting the demise of Chinese economy together with its authoritarian regime. They've been very wrong so far. China's economy has been the engine of the world economic growth for years.

The Chinese government also has a much stronger incentive to steer the economy successfully on a fast track, because that's pretty much the sole source of its legitimacy. In the West, governments are normally changed (rightly or wrongly) via elections when things are not going well. In China, there are simply no similar options. The disruption would be much greater if the population were discontent with the living conditions and therefore the government. So let's hope that the Chinese government can once more wave its magic wand.