China can’t go into a recession. Its GDP has grown at close to 10% for half a decade. It is the largest supplier to the world. Its new middle class consumes products and services so voraciously that much of China’s manufacturing capacity is taken up by the needs of hundreds of millions of its own people.
But, the pace at which economic change can happen now has increased exponentially. A bank can go form being OK to failing in a week. A major industry such as the auto sector can go from being financially secure to being at the brink of bankruptcy in a matter of months. A century-old business like newspapers can begin to disappear in less than two years.
China’s manufacturing index, the CLSA PMI, dropped for the fifth consecutive month. According to Reuters, manufacturing is 43% of the economy in the world’s most populous country. Things are bad enough that the foreign press is starting to run photos and video of Chinese middle class workers heading back to the rural areas where they used to live.
Reuters says that "For Chinese policymakers worried about social stability the most alarming news may have been the employment sub-index, which showed factories shedding jobs at the fastest pace on record."
The Chinese government has put together its own economic stimulus package which totals more than $600 billion. Like the plans of the US government, there is absolutely no assurance that the plan will work to increase production or consumption. As a matter of fact, there is a strong case against it.
The US is still the richest country in the world measured by consumer spending. If the administration and Congress can get the average citizen back into the habit of buying goods and services, the economy is likely to recover. China depends much more heavily on selling the fruits of it production abroad. A long and deep global recession puts it in a position of being an economic supplicant.
China is in a recession already. It may have been going on for a quarter or more. The effects on the country are certain to be an unsteady social system which is likely to delay any recovery. And, the longer the global recession lasts, the less likely it is that the Chinese central government can spend its way out of the problem.
Douglas A. McIntyre