Tuesday, 3 February 2009

China, One Year On

About a year ago, we wrote about the tightening labour market in China (see post). At that point, there was speculation about whether or not the process of globalisation could continue if China were to exhaust its seemingly unlimited supply of cheap labour.

How things can change in a year! We are now told that 20 million workers in China are to be laid off over the New Year break (see story). This number makes me suspicious. Last year, we were told that 20 million workers would not return after the New Year break. This year we are told that there are 20 million fewer jobs to come back to. The symmetry of this number makes me curious.

Notwithstanding that, there could well be a real problem in the offing. It has often been said that the Chinese economy needs to generate GDP growth of 8% in order to ensure rising living standards to offset the dislocations of a RIPE (Rapidly Industrialising Poor Economy) nation. this year, GDP growth is set to be below this number. According to the model, there may well be social unrest that could lead to major changes.

In terms of our scanning, we should look for evidence of this disruption. It has the potential to lead to the dissolution of China as we presently perceive it. Of course, it also may not. After all, a lot can change in a year.

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