Without question, China has been handed a heaven sent opportunity, not to take advantage of the discomfiture of the developed world’s financial system which is simply counter productive, but to use the time out as wisely as possible to strengthen the internal Chinese economy itself.
This is when you establish the proper social support systems so clearly missing and establish a national Medicare system and provide more internal capital through the banks to encourage local village development. All those folks who just came back to the village prematurely are a fabulous resource if they are modestly bankrolled. Microcap is the flavor of the times.
A pause led by the expansion of the internal economy will hugely lower China’s exposure to similar financial shocks in the future. Steady internal growth will sponge up the surplus labor over about three years. After that the economy will be driven by the expansion of the internal consumer economy, already well entrenched.
In fact, since last year, China reached the point in which there were no more surplus workers to leave the villages, it has actually reached the point in which all able bodied people are gainfully employable in the modern economy and this will mean rising pay packets over the next decade and Chinese consumer demand driving Indian economic maturation.
In practice it has taken China thirty years to trace the same path traced by Japan in forty years. It is now entering an era of solid internal growth in which the benefits of the modern economy penetrates to every Chinese household. Economically China has reached the top of the development S curve and must now figure out how to maintain growth by reinvention just like the rest of the developed world.
5 Mar 09, 06:25 AM
Much of what the Chinese premier, Wen Jiabao, described this morning to the 11th National People's Congress as his country's programme to combat the evils of global recession would have sounded very familiar to a European or American audience.
What have become the new orthodox policy prescriptions for this time of crisis were all there: tax cuts; big increases in public spending; massive jumps in public-sector borrowing; more lending to business; anti-protectionist rhetoric; calls for improved regulation of banking and financial services.
It could almost have been Gordon Brown addressing the 3000 members of the National People's Congress in the Great Hall of the People under the giant red star.
Except for one glaring and important difference.
The Chinese economy remains - by the standards of the US or the UK - exceptionally strong.
It's true, as I've been pointing out over the past few days, that growth in China has been slowing down - and regions particularly dependent on exports, especially the south, have suffered mass closures of factories and painful rises in unemployment.
But many economists believe that the Chinese economy is still growing, even if they also say that the official statistics overstate that growth.
Thus Stephen Green at Standard Chartered reckons there was 1% growth between the third and fourth quarters of last year, and that there'll be a similar expansion in the first three months of this year.
For 2009 as a whole, he's forecasting GDP growth of between 6 and 7% - which is only a little less than China's official forecast of 8% (which Wen Jiabao repeated today).
That may be a long way from the low teens growth of last year. But it looks pretty amazing compared with the very painful recessions in Japan, the UK, Germany and the US.
And here's another frightening comparison between China on the one hand and the UK and US on the other.
Wen Jiabao announced that China's budget deficit this year will be 950bn yuan. That sounds like a big number - and it is an all-time record for China.
But, in relative terms, it's a flea bite compared with public-sector borrowing in the UK.
Converted to sterling, that 950bn yuan is equivalent to roughly £100bn.
Which is almost 20% less than what the UK government expects to borrow in 2009/10.
When those numbers are expressed as a percentage of GDP, there's an even starker picture of Chinese prudence versus what many would describe as British profligacy.
China's deficit is less than 3% of GDP, compared with 8% in the UK.
And, of course, the US public sector is arguably mortgaged up to an even higher hilt than Britain's.
When you add in the near-crippling indebtedness of businesses, banks and consumers in the UK and the US, well at that point China's financial strength looks almost awesome.
Also, as I've been emphasising, China's giant state-controlled banks have been much more cautiously managed than our commercial banks - and have neither the capital or funding constraints of ours.
None of which is to retreat from what I've been highlighting, which is that China faces formidable problems - in particular the challenge of maintaining social stability at a time when wages are being squeezed and millions are losing their jobs.
It's just that - in a way - we'd be fortunate to have their economic problems (if not their social ones).
So what are the big messages I took away from Wen Jiabao's two-hour address (perhaps we should, at the least, be grateful that Gordon Brown shows no sign of adopting Chinese speechmaking habits)?
Well he said some very striking things about allowing inefficient businesses to fail, about reducing the country's reliance on low-cost manufacturing of the basics, and about wanting to stimulate consumer spending.
All of that is both a threat and an opportunity for developed economies like ours.
There should be scope to increase our exports to China. But the competitive threat to the companies of developed economies will - if anything - intensify.
And over time (but it will take years) China's massive financial surplus - which was in part responsible for the glut of cheap money in the US and UK that fed our dangerous addiction to debt - should diminish.
For what it's worth, however, every Chinese person I've met over the past few days - from the lowliest factory work up to the Chinese Commerce Minister, Chen Deming - lays the blame for the global economic crisis on crazy risk-taking by American banks (Britain's aren't famous enough to register with them) and excessive borrowing in the US.
In that context, here's my favourite quote from my interview with Chen Deming, which pokes gentle fun at those who say China was at fault for saving too much and then lending that surplus to spend-spend-spend consumers in the west:
"Personally I can't agree with some people on their point that they [US households and businesses] borrow money from others, they overly spend this money and they make trouble for the rest of the world, but finally they blame those who lend them money for making these troubles. According to Chinese philosophy this kind of accusation is totally ridiculous and unreasonable."
I suspect that many of you would agree with China's equivalent of Peter Mandelson.
That said, China's leaders recognise that the country's prosperity is wholly dependent on ours.
So even if they believe that our mess is our own fault, they see that they have a powerful interest in helping us to clear it up.
In that context, it was striking that Chen Deming strongly disagreed with me when I described China as an economic superpower, perhaps because of a fear that as such China would have to take on the heavy burden of new responsibilities to the global community.
By contrast, today's rhetoric from Wen Jiabao's was all about a more open, outward looking China.
Wen Jiabao's China seems to want to play an important role in making the global economy safe for all of us - and is not revelling in our economic humiliation.