Is China's Recession Worse Than We Thought?

By Irwin Greenstein

A small article in Friday’s China Daily reported a startling number that revealed the true depths of China recession - giving investors pause for any near-term recovery in the country’s blistering economic growth of years past.

An estimated 600,000 migrant workers have left China’s southern Guangdong Province due to unemployment in 2008, the China Daily said.

Most of these people are migrant workers who left their farms for higher paying jobs in factories. Now, Guangdong Province Vice Governor Huang Yunlong says that the financial crisis has brought Guangdong “the most difficult year after the 1998 Asian financial crisis,” as he was quoted in China Daily.

Notably, Guangdong has been at the forefront of China’s economic reform. Since 1978, its annual GDP has surged by an average of 13.4%, which is 3.5 percentage points higher than the nation’s average. The province now has more than 996,900 registered companies.

But just as the province became the crown jewel of economic reform, it could quickly turn into a hotbed of labor riots. If so, the unrest could accelerate the trend of manufacturers moving to lower cost providers such as Thailand, Vietnam and Cambodia - further undermining China’s ability to rebound.

Only a few days ago, Reuters reported that China could face “surging protests and riots in 2009 as rising unemployment stokes discontent” after an article appeared in the state-run Outlook Magazine, issued by the official Xinhua news agency.

This could be the tacit message from Beijing that it is bracing for major unemployment riots as tensions rise over diminishing jobs and pay checks.

The riots could result from a culture clash as seven million freshly graduated college students vie for factory jobs with an estimated 10 million rural migrant workers.

As we have seen in the past, China’s irons fist and systematic bribery have contributed to a sense of stability that has attracted one of the high rates of foreign direct investment in the world. This valuable façade could easily crumble in the wake of a widespread insurrection by the millions of unemployed.

So while investors who like China survey the landscape through the lens of the global recession, they should also be ready for a whack to their portfolio from the angry masses.

Comments

[Firat Ünlü:]

Could people who can't tell the Ming's from the Qing's please stop writing articles about labour riots and what they could result in as they clearly lack the historical background?
I've listed a few times why they don't signify that much trouble, what could possible cause trouble is student riots.

Jan 11 06:34 AM

[investor88:]

Plenty of bulls on China but maybe for the short term we have tread the China market with great caution.

Jan 11 07:57 AM

[Touch:]

Is there another June 4th. happen then???
You're welcomed to discuss with...E-mail: [e-mail].....

Jan 11 08:27 AM

[blinded1:]

Has the author taken Economics 101 and know anything about recession? By the most pessimistic estimation, China will have a GDP growth rate of POSITIVE 5% for 2009. Or maybe the author has a different definition of 'recession'.

Jan 11 10:14 AM

[blinded1:]

has the author take Economics 101, and know anything about recession? By the most pessimistic estimation, China will have a GDP growth rate of POSITIVE 5% for 2009. For the last 3-4 months, it has growth rate above 7%, although it was a sharp contrast to what it had a year ago. If this is recession, any country has ever been out of recession? Or maybe the author has a difference definition of 'recession' known to no one.

Jan 11 10:26 AM

[lawbert:]

I want to know what is the source leading to you saying that China is in recession. China is still one of the few countries that still has positive GDP growth in the world. High unemployment does not mean a country is in recession, especially you are only talking about a particular province. We don't declare recession just because of high unemployment here in the US. There are other main parameters to be based on. We don't declare recession simply because of high unemployment in New York. Please do your due intelligence before you try to say something meaningful. Everywhere in the world has financial problem as a result of the financial tsunami and everybody is cautious in investing nowadays. Chinese stock market has dropped over 40% and is a bear market - which everybody knows. There will be some kind of protests or riots all over the world, not just China. I don't know why the writer is trying to pinpoint.

Jan 11 10:30 AM

[Dr Pandey, S.N:]

I had analysed and spoke out.Shandong is as much in predicament as Guangdong. Reader could visit my blog. They could view my paper on /saag.org as well.
Dr S.N Pandey
[e-mail]

Jan 11 11:20 AM

[huangthomas:]

There have been scattered, isolated reports of rioting by unemployed workers. Most cases showed that the owners of companies fled and left piles of unpaid bills, including back-pay owed to the workers. I can understand why they are so upset. More than 6 million of unemployed migrant workers have taken trains and go home peacefully. We should not simply associate unemployment with riot or unrest.

To sooth the feeling of the poor, usually unemployed, Chinese government has redefine the definition of poor, now there are 100 million of them, and distribute some monetary aids.

Jan 11 02:16 PM

[huangthomas:]

The definition of recession and depression is very vague: "significant" decrease in economic activity for "a period of time". In the United States, recession is determined by National Bureau of Economic Research chaired by an academic economist. I heard the Bureau pay a lot of attention to employment figures.

China, an emerging economy, cannot use the same criteria as the United States. The economy of China has been growing at double digit up to 2007. If GDP growth decrease from 12% to 6% (predicted by some for 2009), is it a "significant decrease" in economic activity or not? Your answer is as good as mine. If we look at the speed of deceleration of economic activity and increase in unemployment, the Chinese economy is in dire shape. How do you want to call it does not really matter! The unemployed have their answer.

Jan 11 04:35 PM

[bz1516:]

Agree with other comments. Anyone who thinks that demonstrations caused by a few factories who don't pay their workers will lead to actionable social instability in China, has no idea what they are talking about and has likely never been to China.

Jan 11 07:38 PM

[Mombasa:]

China's in deep trouble, their economy HAS hit the Great Wall.

But thanks the usual propaganda pouring out of the Chinese authorities we all believe what they want us to believe, sooner or later we'll all see the real picture.

Apr 22 12:18 PM