01/24/2008, 00.00
CHINA
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Inflation could force Beijing to modify its growth model

The economy continues to grow, but more slowly, after rigid government measures and worldwide contraction. Meanwhile, labour costs continue to increase, bringing crisis to companies accustomed to exploiting migrants. Experts: it will take months for government measures to bring adequate results.

Beijing (AsiaNews/Agencies) - Record growth of 11.4% in 2007 for China's gross domestic product (GDP). But a slowdown is forecast for this year, because of lower global demand for its products, the need to rein in inflation, and rising labour costs. Experts observe that the country must review its development model, before relaxing its price control measures.

Over the past five years, growth has averaged 10.6%, and Beijing has helped to pull the global economy forward. But global economic contraction, partly due to the subprime mortgage crisis in the United States, is leading to lower demand for Chinese exports, a category that accounted for about one third of GDP growth in 2007.

Beijing is adopting severe anti-inflation measures, and  - as Zhao Qinming, an expert at the China Construction Bank in Beijing, tells the South China Morning Post - economists are waiting to see if there will be a strong rise in domestic consumption and a drop in investment by March, as is hoped. The government wants above all to avoid an economic crisis before the Olympics in August.

The danger from inflation remains high, after consumer prices rose by 6.5% in December, only slightly lower than the 6.9% increase in November. Beijing raised interest rates six times in 2007, and ordered the banks to make fewer loans. In January, it froze energy and transportation prices, and imposed price controls on food at least until the lunar new year (which begins on February 7). Higher prices risk causing social protests, in part because the gap has increased between the incomes of city dwellers (which reached an average of 13,786 yuan, or 1,908 dollars, in 2007) and rural people (with 4,140 yuan per capita annual income).

Meanwhile, the availability of low-cost manual labour is falling. In the industrialised Pearl River Delta, there is a shortfall of at least 2 million workers, 10% of the migrant labour force in the region, and the factories are being forced to raise pay and improve working conditions. Xu Songyuan, a manager at a Dongguan clothing factory, observes that two years ago, a worker earned 800 yuan per month, while "employers now have to pay about 1,600 yuan [a month] to hire an assembly worker, provide free accommodation and social insurance". He expects a fourth of his 66 employees not to return after the lunar new year. Some companies have even provided return train tickets for their workers ahead of the new year holiday, and have extended the vacation from 7 to 13 days. The Taiwanese electronics company Foxconn has increased workers' salaries and gives them free work uniforms, laundry service, dormitories with hot water, transportation, and insurance.

But the flight of the workers from the region continues, because the offers are better elsewhere. In Shijiazhuang (Hebei) they give 2,000 yuan per month to an expert carpenter. Many manufacturing companies have for years exploited migrants to keep their prices low. So the salary increases are spurring inflation. Nonetheless, many experts agree that this will favour an increase in domestic consumption, which could absorb the production that was previously marked for export.

China also wants to increase commerce with Asian countries. In 2007, Beijing became the main importer for Japanese goods, at 17.4 trillion yen (163.6 billion dollars), surpassing the United States. But many of these goods are then assembled in China into products exported to the United States and other Western countries, meaning a definite export of inflation.

In this situation, Zhang Yongiun, an expert at the state information centre, a government advisory agency, maintains that "tight control [over the economy] must continue, at least in the short term, because economic growth is still elevated and inflation is rising. These strict measures can be decreased only in the second quarter, if economic growth has slowed and inflation has decreased". (PB)

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