The Slumbering Giant

China makes me nervous. The article below points out just one of the issues that bother me. This is one big sleeping giant that is waking up.


China's Rural Poor Will Be Most Hurt By Econ Downturns

WASHINGTON (AP)--China's currently booming economy over the last quarter century has brought wealth to hundreds of millions but left one out of five Chinese in extreme poverty, living on less than $1 a day, a joint Chinese-U.S. report released Tuesday said.

It is that 20% of China's 1.3 billion people who will be most affected by the economy's health in the next 15 years, said the study, titled China's Economic Prospects 2006-2020.

"Despite unprecedented progress in reducing the most severe poverty, about 70% of the population still survives on very low incomes, defined at the World Bank standard of $2 per day," the study said.

Most of those Chinese live in rural areas, where the opulence that grew from an average economic growth of 9% a year for the most part has bypassed, it said.

"With about 45% of the work force still engaged in low-productivity agriculture," it said, "the Chinese economy needs to create hundreds of millions of jobs in higher-productivity sectors to enable these workers to earn their way out of poverty."

China's accession to the World Trade Organization in 2001 generally benefited the economy, the report said, but again mainly for urban dwellers, not those of the countryside. It said accession increased employment by about 13 million jobs, or 1.4%. The government estimates 300 million were needed for full employment, which it said proves that "trade alone cannot solve the country's employment challenges."

The study came to its findings by considering three scenarios: current trends continue; world trade continues to grow, and China improves its resource allocation; and risks become more dangerous, with trade tensions increasing and government policy changes that reduces the quality of modernization in the economy.

- Continued current trends would maintain an annual growth rate of about 8% over the next five years. Based on 2002 constant prices, that would mean a $3.6 trillion gross domestic product in 2010, which still would be less than that of Japan in 2002. Per capita GDP would be about $2,670, comparable to current incomes of Brazil, South Africa and Turkey. Growth would slow slightly after 2010, and the GDP by 2020 would be $7.5 trillion and per capita GDP about $5,300, comparable to incomes in Poland and Hungary today.

- In the other two scenarios, the rural poor would be most damaged by the pessimistic scenario, the study said. As trade disputes and government policies had increasingly greater impact, fewer opportunities would exist for agricultural workers to find jobs in cities, and their earnings in the countryside would stagnate, it said. China would be importing fewer agricultural products, and agricultural production would decline in China and hit rural incomes.

"China's continued development will require a reasonably benign international environment if recent rates of growth are to be maintained," the study said. "However, policy choices by the Chinese government will determine whether living standards rise throughout the country, whether productivity increases to smoothly compensate for the aging of the population and whether the economy evolves in a balanced and sustainable manner.

The study's authors are Sandra Polaski, a senior associate at the Carnegie Endowment for International Peace; and Li Shantong, a senior research fellow, and He Jianwu, a researcher, at the Development Research Center of the State Council of China.

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"Free-market-like" initiatives within this communist country are fueling the majority of the growth in their economy. However, the government attitude to these initiatives is often capricious. China is searching for its path to the future and it walks a fine line between old and new thinking. Every country throughout history that has made this transition has gone through periods of extreme political unrest. A significant downturn in the Chinese economy could easily result in widespread rioting and potentially, civil war. It is certain the Chinese government is considering solutions in such an event that would include heightened military activity -- not just against their own people, but against neighboring countries as well. Such activity would provide employment for the population both directly through military service and through increased economic activity within their military/industrial complex. Thrown into this mix is the Chinese dependence on foreign energy sources. With the political unrest in the Middle East, I'm certain they are already considering, or have, contingency plans for intervention to insure their energy supplies are uninterrupted.