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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
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