Unusual questions are worrying China as it gears up for the long and elaborate process of changing the top leadership.
The 18th National Congress of the Communist Party of China (CPC) will commence from October 2012. It will formally institutionalise changes in the Politburo including in the all-powerful standing committee and mark the end of the ?Hu-Wen? era in Chinese politics. But as the momentous event draws close, concerns over the downsides of China?s astounding growth story of almost 20 years are dominating public discussions.
Economic growth itself appears to have lost some lustre. Most agencies are increasingly converging to the view that China?s GDP growth in 2012 will be less than 8%. In a rare display of the shaky faith in the short-term prospects of the economy, Chinese banks have become net sellers of foreign exchange. The banks sold net foreign exchange of around $600 million in July. This turnaround from the usual phenomenon of Chinese banks being net purchasers of foreign exchange points to net capital outflows from the economy. FIIs have begun cutting parts of their portfolios in China. A 13% straight loss in the Shanghai Composite Index since early March and an even bigger dip in the Hang Seng index of Hong Kong dealing in shares of mainland companies, underline the worries of FIIs over growth prospects. Chinese banks might have to sell more dollars in the coming months for shoring up the renminbi if outflows continue.
Macroeconomic worries, rare in China, are accompanied by other unusual developments. The China Cosco?the country?s largest listed shipping company?has reportedly experienced a 50% expansion in its losses in the first six months of the year. The losses have been driven by poor cargo demand and high fuel costs. Affairs at the Cosco reflect sluggish demand for exports and the consequent low demand for raw materials at home, particularly key cargo commodities like iron ore. Then there is the unusual development of Motorola deciding to lay off 500 employees from Nanjing in Jiangsu province and another 700 from its operations in Beijing. The move has sparked off major protests from the laid-off employees. The protests will surely not be allowed to degenerate into the kind of bloodbath witnessed at the Maruti?s Manesar plant in Haryana a few weeks ago. But anxieties of several laid-off employees over the bleak prospects of locating new jobs are again striking. The extensive retrenchments by Motorola?a multinational that has reposed faith in China for decades?probably reflect the rise in wages of skilled labour and its adverse impact on competitiveness of enterprises. High labour costs are threatening to erode one of China?s biggest sources of international competitiveness.
The labour market is quite clearly the source of several of China?s current and future anxieties. In a country where an almost inelastic supply of labour at low wages helped in exploiting enormous advantages of scale in export-oriented production for several years, rising wages are a source of disequilibrium apart from being responsible for increasing income inequalities between the skilled and non-skilled. Salaries of skilled labour have increased sharply. This is one of China?s biggest worries as it tries to shift from labour-intensive low-value-added exports to skill-intensive high-value-added manufactures. Innovation outcomes in China have not been commensurate with the high expenditure on R&D. State-owned enterprises (SOEs), the biggest beneficiaries of the government largesse in R&D, have hardly innovated as much as required to maintain high productivity in spite of rising labour costs. The shift to high-value-added production and moving up the supply chain might be more onerous than originally envisaged.
The fear of the industrial transition not being painless is particularly driven home by the situation of migrant workers. The latter have been the backbone of China?s scale-intensive cheap exports. Economic restructuring would limit their role in high-value production. Would they have alternative livelihood opportunities? Will industries come up in the interiors and hinterland for absorbing workers with limited skills? How would these workers become part of the state?s ambitious social security apparatus when several provinces are becoming increasingly debt-strapped? These are questions begging answers at a time when a new generation of leaders is taking charge of the country.
Managing the migrating millions and ensuring their re-absorption and sustenance in the labour market will be one of China?s biggest challenges in the foreseeable future. Lack of adequate earning opportunities at home due to absence of enough non-farming occupations and occasional displacement inflicted by land-grabs of an aggressive real estate industry, will continue to encourage migration to cities. The civic infrastructures are overstressed by migration. Beijing metro trains are loaded beyond capacity, with beggars squeezing their ways through packed coaches. Cheap rides (2 yuan?irrespective of whether distance travelled is 2 km or 20 km) are incentives to easy entry but are not enough for sustaining the pressurised infrastructure. Sanitation and cleanliness are becoming tougher to maintain, with ?safe? meals becoming prerogatives of only high-end restaurants.
The buzz bugging China is not unusual because of its focus on problems. It is unusual for the apparent lack of answers.
The author is head (partnership & programmes) and visiting senior research fellow at the Institute of South Asian Studies in the National University of Singapore. amitendu@gmail.com. Views are personal
