Thursday, July 2, 2009

China's Western Development.

China's government, though extraordinarily stable in comparison to most of its tumultuous history, still faces challenges to its continued legacy.

There are restless people in the provinces of Xinjiang and Tibet. There are small riots over oil rights when small local governments ignore farmers' legally defensible claims because they know Beijing is too far away and too preoccupied. There are safety issues with coal mines. The Yellow River is nearly dry year round in the arid north. Pollution runs rampant. The poor remain exceptionally poor in comparison to wealthy entrepreneurs in chauffeured BMWs. One needs only jump on a train for 45 minutes from Shanghai to Anhui province to witness the stark transition from opulence to squalor.

The greatest challenge for the central government, however, has got to be the lack of infrastructure and stability. Migrant workers, as has been the case since the mid 90s, travel from cities and farms all over western China to work in construction and manufacturing on the coast. These workers move annually to cities around centers like Shanghai and Guangzhou to make quick money at stable jobs and send it home to their families.

As the recession hit, the central government faced a problem that needed immediate attention. Farmers from poorer provinces like Sichuan and Shaanxi returned from Shanghai this past Chinese New Year having been told that their jobs, and the factories they worked in, would no longer be in operation when they returned. This has happened with increasing frequency as the globalized economy that made China the world's manufacturing and assembly center suddenly stopped spending money. In addition to the slowdown and loss of work, the farmers returned to their homes knowing they could not farm their own land, which in many cases they leased out to larger local operators. The money they got from the lease was insufficient to survive on, and they needed work where there was none.

Over the past year or so, Chinese soldiers and police have been at the train stations every day, meeting these immigrants as they returned to their homes with no prospects and little hope, and asked them whether they had plans. If the answer came back "no", they were handed a shovel and told to take a job with the government building roads, upgrading train stations and tracks, helping with airport remodels and construction, or doing other infrastructure-related work.

China has chosen to combat the recession with a USD $586 billion stimulus package that focuses on development of its western and central regions. Moving development inwards has been long overdue. It will prove beneficial to the country for multiple reasons:

  • Locals who moved from cities like Chongqing and Chengdu to Shanghai to work in factories now have jobs closer to home.

  • As the infrastructure of these inner, second tier cities becomes more developed, China's well-educated, stable, land-locked cities will suddenly be less of a logistical nightmare.

  • The lower logistical costs of potential hubs such as Chongqing and Xi'an will make manufacturing for export overseas and domestically a reality.

Right now China's inner, second-tier cities are utilized more for domestic production and services outsourcing than for major export operations. Should China develop its interior to the point where jobs for less-skilled laborers become available closer to home, the country will hopefully see another boom. Opening up the interior and providing job stability and increased incomes for locals should help China's domestic economy shift from upper middle class development along the coast to blue collar across the interior. When this happens, domestic and foreign companies that have already positioned themselves in the west or at least have an entry plan will find themselves ready to reap the benefits of the next stage of China's development. In a USA Today article a few months back, Ting Lu, a Merrill Lynch economist stated:

"If you want to stimulate consumption, and persuade them to buy TVs, washers and fridges, you must provide electricity, running water and TV signals. (China) needs significant infrastructure investment in rural areas."

This stimulus package will be a great start. As cities like Chongqing, Chengdu, Xi'an and Kunming become more developed, the increased domestic wealth within provincial governments should bring infrastructure further out into rural areas

No comments:

Post a Comment