How Is the World Economic Crisis Affecting China?

If you want an article that discusses economic factors in China contributing and being affected by the current economic crisis, then I suggest reading something written by somebody who has at least a small grasp on basic economics. However, the crisis is impossible to ignore no matter how deep your understanding is, so I can still make some observations about the current situation in China.

They say that Chinese markets often follow the US and Western markets and I think this is true for the current credit crisis in the US. A friend of mine said it best when she said “the dominoes are falling in our direction but have not quite reached us here in China yet” in reference to her garment business. China is not going to avoid the brunt of the storm, simply because of its role as a leading economy in the global economic web.



The effects are certainly already being felt, even if they have not yet “set in”. My friend just returned to China from visiting the US, and said his flight was 1/4 full and had virtually no businesspersons on board. Instead, most of the flyers that day were students and Chinese on their way home. As the owner of a manufacturing and sourcing company, this was obviously a depressing site for him.

Indeed, the crisis is most distressing in the export field, a major factor in China’s GDP and the driving force behind domestic development. Articles do not mention that large factories have been shutting down along China’s east coast; instead, they say entire industrial zones are closing down, or describing the closed factories as a percentage of thousands of enterprises.

This is a very big deal, and yet has not fueled the same pessimism that Americans currently have here in China. As another friend said, “Rich people will always find a way to make money”. This may be true, but the financial situation is now impossible to control. Besides the fact that Chinese financial habits are more “liquid” and thus cannot spiral out of control as quickly as the more “abstract” money that Americans have been banking on, I think the main issue is the media. In the US, it is very difficult to watch the news without feeling like eating a grenade. Of course Chinese media also feature extensive coverage of the world financial crisis, but not with the same urgency and focus on extremes that typically defines Western coverage. No matter how much Americans ignore it, it is undeniable that media portrayal has had an impact on their own economic outlooks.

Turning back to China, when are these feelings going to set in here? I think the answer is the middle of next year, when the world’s major players have not yet recuperated from the global crisis, and months of decreased exports from China start to bring major domestic players to their knees.

So should we all take our money and flee China? Western media might suggest this option, but let’s not forget the linguistic adage that the Chinese word for “crisis” includes the character for “opportunity”. This is an opportunity; China’s competitive advantages like cheap labor and a developed manufacturing infrastructure have not changed and will not change in the near future. Just like in America, there is a lot of fat to trim here, and poorly run companies will fail amid the crisis, but innovative companies will emerge stronger than ever afterwards. There is nothing to do but grin and bear it for now, take what the doomsday theorists have to say with a grain of salt, and look forward to rebuilding after the crisis abates.

Posted at 11:38AM Nov 26, 2008 by admin in Laowai Talk  |  Comments[2]