Walker's World: And if China slows ...

By MARTIN WALKER, UPI Editor Emeritus  |  Aug. 15, 2011 at 8:18 AM
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EDINBURGH, Scotland, Aug. 15 (UPI) -- Nobody really knows whether Europe and the United States are heading for a double-dip recession, stagflation or a currency collapse. But it is a safe bet that neither will be contributing much to global growth over the next few years, so China's future is going to be pivotal for us all.

The world has become accustomed to China's scorching annual growth rates of 9 or 10 percent in recent years along with massive savings from the country's regular trade surpluses. At last count, China's foreign exchange reserves stood at more than $3 trillion, which is more than the annual economic output of Italy.

But three interesting developments carry sobering implications for China's growth prospects over the rest of this decade. And that isn't good news for the global economy as a whole.

The first is the sensible decision of the Beijing authorities to close a large petro-chemical plant in Dalian, on the northeast coast, after some 12,000 protesters challenged riot police over the weekend. The plant, which makes the toxic chemical paraxylene, was hit by floods last week, sparking fears of mass poisoning.

The decision was understandable and wise but creates an interesting precedent in a society where hitherto the rule has been to support growth and industrial output at all costs. China's new middle class, equipped with its own versions of Twitter and Facebook, is starting to impose its own priorities on the economy -- and is prepared to confront the state authorities to get its way.

This isn't just NIMBY-ism, a case of local protesters saying Not In My Back Yard; in China, it is a much more profound challenge to the system. And a Beijing that bows to such challenges may find it steadily more difficult to maintain its authoritarian ways. Interestingly, Beijing backed down over an economic-environmental issue even as it has been waging a months-long clampdown against human rights campaigners and their lawyers.

The second interesting development was the announcement by Foxconn founder and Chairman Terry Gou, whose factories and assembly plants employ 1 million Chinese, that he plans within two years to have 1 million robots installed, replacing a very large number of employees.

This signals the way that China is becoming less and less a low-wage economy, as workers combine and agitate for more pay and better conditions. But is also signals how China, despite boasting the world's largest population of more than 1.3 billion people, is starting to face the prospects of a labor shortage.

The U.N. Population Fund, custodian of global statistics on demography, announced this month that China's population of young people, aged 15 to 24, will fall by 44.6 million by 2020. The number of young men in this age group will fall 18.5 percent this decade but the number of women by 23.9 percent. This is bad news for those electronics and clothing firms that have come to rely on the nimble fingers of young Chinese women.

This sharp decline in the number of potential young workers could be a good thing, if they rise up the value chain from low-grade assembly and manufacture to more highly skilled and better-paid work. China may or may not be able to achieve this but it is clear that the cheap labor that has fueled China's stupendous growth over the past 30 years is shrinking fast.

The third striking development that casts a big question over China's future has been the way in which top Chinese environmental officials are starting to sound like dissidents.

In China's thousands of years of civilization, the conflict between humanity and nature has never been as serious as it is today," Minister for the Environment Zhou Shengxian said in a speech earlier this year. And on his ministry's Web site, he is quoted as saying: "The depletion, deterioration and exhaustion of resources and the worsening ecological environment have become bottlenecks and grave impediments to the nation's economic and social development."

A lot of the reasons for Zhou's alarm are well known. China's own Ministry of Water Resources predicts that per capita water resources will drop below the World Bank's definition of scarcity levels by 2030. An OECD report finds 320 million Chinese drinking contaminated water every day and two-thirds of them falling ill as a result.

Officials in Chongqing, a main industrial center that sits on Yangtze River, say that just the costs of coping with the impact of water pollution on local farms and public health costs as much as 4.3 percent of the city's gross annual product.

"We must not any longer sacrifice the environment for the sake of rapid growth," said Premier Wen Jiabao earlier this year, announcing that the official growth target was being dropped to 7 percent.

Put all this together and we are looking a different and perhaps a better China. But it may no longer be the growth-at-all-costs economic powerhouse that has helped prop up the world economy for the past three years.

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