By Mike Wootton – When you are the factory of the world, a severe economic downturn among your buyers has a major effect. This is the case with China now, and it is why it has just announced a spending package of over $580 billion. China needs to keep its people occupied because if they are not occupied and able to earn money they will cause trouble. So far this year 67,000 businesses in South China have closed down, and the rate of migration from Shenzhen and Guangzhou back to the countryside is keeping the railways very busy indeed.
China’s recent ‘spectacular’ economic growth has been largely founded on its manufacturing and exporting, as I have said before it’s quite a challenge these days to find any small consumer items that are not made in China. There are however counter arguments to the relative importance of China’s exports to its GDP growth—it is said that because now much raw material is imported to China for manufacture into other exportable goods that the dependency on exports is not as high as it appears, and that therefore a slowdown in the US/World economy would not affect China to the degree that may be imagined. It is said that investment and domestic demand are the main drivers of China’s economic growth. But, for there to be more investment and growing domestic demand there need to be growing export markets—to keep people in jobs so that they have the money to spend to grow domestic demand, as well as to build/expand more production facilities to make the things that are to be exported. I therefore still believe, despite the counter arguments that a downturn in the US/World economy will be significantly detrimental to China’s future growth prospects.
So what has all this got to do with the Philippines? Well what it has to do with the Philippines is that a slowdown in China manufacturing for export may create opportunity for Philippines manufacturing for export. The reason for this is that China is planning to inject over $ 580 billion into internal spending (infrastructure projects, healthcare etc) in order to create jobs for those who lose their jobs as a result of the World economic downturn. The Chinese government does not want idle hands which cannot earn a living in the new China economy, as those who do not have jobs will not now be taken care of by the state as used to be the case, and being Chinese may just start fomenting civil unrest—in fact civil unrest is a continuing facet of China’s social structure these days, and recently it is on the increase.
So with a reasonably high likelihood of civil unrest in China and the diversion of skills/labour away from manufacturing for export to domestic infrastructure work, investors may view China as less attractive than it has been viewed earlier. With the closing down of so many export oriented small and medium sized businesses in China the capacity, in more than just skills, will be reduced, equipment and manufacturing facilities will be less available. There will also be I suspect some disillusionment amongst “the people” (laobaixing) with the new China model, and a preference to go back to state generated employment, which is after all what spending lots of money on infrastructure projects, is—back to the (good) old days!
Now is the time for the Philippines to start seriously selling itself as a manufacturing location in Asia with the much vaunted English speaking and skilled workforce that it has. For some time now the attractiveness of China as a foreign investment destination has been preeminent, the World economic down turn has put uncertainty into that, so come on Philippines start marketing in earnest, it’s a really good opportunity to create some good opportunity for Filipinos at home.
Mike can be contacted at mikewottoon@gmail.com
Find more like this: Economy
