China and the Economic Downturn

China is now starting to feel the global economic downturn. No real shocker in that, it's a globalized world and things like this spread in that kind of world. It is worth keeping an eye on since I have always believed that if the Chinese economy suffers that situation will create the largest potential for political change in China (what kind of change I cannot say).

China has corruption and an opaque system working aganist it. These will obscure the real scope of any problem until they are too late or blow up completely. But their government can act relatively quickly it has shown, but this is a new ballgame as it's economic engine of exports has fallen. The advantages the government can work with are 1. it knows the dangers of a slow growth rate 2. it has huge foreign currency reserves to work with 3. the property market is not about to free-fall nor is consumer spending.


The economic growth in China is important because this is the basis of the government’s claim to legitimacy. The social contract there is essentially: stay out of politics and don’t try to change things and in exchange we will keep the economy growing, which gives you chances to make money and move up. Of course, if the economy begins to falter (and there have been some reports of this http://www.msnbc.msn.com/id/27527443/) the worry is that the people will be very unhappy since the one promise of the government is now gone. As the article states, the government is now paying workers when the bosses run off in the wake of a failed company. This is quite new, in the past it was tough luck for the workers as this was a semi-regular occurrence in many areas of China that the owners screwed the workers out of a salary and ran off with the money themselves.

To be sure, I am NOT saying this will bring down the government or even create noticeable change in the government. What this has the potential to do is create a spark that feeds doubts about the competence of the technocrats in the government and could lead to demands for more openness. I still firmly believe that political change in China will take place at a slow pace and in measured steps. But economic problems have the potential to push the pace of change at a faster rate. Food for thought.