Comments on: Big trouble in little China – how slowing growth may mean major problems for the Chinese Communist Party

By: awallar

awallar — Mon, 02 Jan 2012 22:37:58 +0000

Your reply to the second question was great, really great. I especially like "It may create more jobs in the long term, but by the time people reach there, we might already have harmed a generation". The one thing that I would add to your response is that a stronger RMB would be an incentive for the growth of a domestic market.

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By: awallar

awallar — Mon, 02 Jan 2012 22:33:03 +0000

1. How does China’s current account surplus result in fewer new jobs than a growth strategy based on domestic consumption would?

The current account records the value of exports and imports of goods and services in a country over a course of time. This means that a current account surplus would be a trade surplus meaning that there are more exports then imports of real goods. This leaves the business sector of the economy to only a few business (mostly state owned). This, as we know, limits the job market because instead of employing in parallel, China is employing in series; sort of like a monopoly in the job market. China needs to stimulate small scale capitalism. If China needs to make it possible for the average endowed consumer to start a business. This would instigate domestic consumption and would therefore increase employment.

2. Why would a stronger RMB contribute to greater domestic job creation?

A stronger RMB would not necessarily lead to job creation in the short run. The stronger RMB would decrease the demand for Chinese exports because they would become relatively more expensive. This, in the short run, would lead to unemployment because employers are not able to sustain as high of a workforce. However, in the long run, it is possible for the revaluation of the RMB to increase employment. China, contrary to the American economy, has a centrally planed, export based economy. A strong RMB would decrease the power of the exports and therefore a new paradigm of sorts would be needed. The other side of the economic spectrum would illuminate and consumers would buy overseas goods (more purchasing power). Entrepreneurs would also start to emerge because of the decrease in the demand for Chinese exports. Small, local businesses would start employing, and the unemployment rate would start to decrease.

3. “More labor-intensive growth would boost incomes and consumption and so help to reduce China’s embarrassingly large trade surplus” Discuss this statement.

First off, the speaker of this quote is describing China's trade surplus as “embarrassingly large”. It is indeed embarrassing because even though China is in a surplus, meaning it is exporting more than it is importing, China still has impressive levels of unemployment. The speaker also suggests that “labor intensive growth” would “help to reduce” said surplus. The “labor intensive” growth refers to the service sector of the economy. The service sector would serve to fulfill domestic demand. This new businesses would require labor and therefore the unemployment rate would decrease. This would put more money into consumers' pockets and therefore increase consumption. The creation of domestic service businesses would give incentive and initiative to people that a domestic market for goods could also be created. Domestic businesses would start emerging and more wealth would be allocated locally thus decreasing the amount of money needed to be used for exports. This would decrease the “embarrassingly large trade surplus”.

Oxford's dictionary defines communism as “a political theory derived from Karl Marx, advocating class war and leading to a society in which all property is publicly owned and each person works according to their abilities and needs”. The key phrase from the definition is that “each person works”. Full employment is not only the goal but a foundation for the political philosophy. Not meeting near full employment is a failure of the Chinese Communist Party. This is contrary to the “democratically elected party such as the Republicans in the United States”. American Republicans more or less endorse the idea of capitalism. Capitalism, by Oxford dictionary, is “an economic and political system in which a country's trade and industry are controlled by private owners for profit, rather than by the state”. It is more of an “every man for his self” situation. The government in no way says that there will be full employment, instead the government says we will help you gain employment but it is in the consumer's hand whether or not he/she will gain full employment. China is nearly forced to employ every able consumer (as dictated by the Communist philosophy), but the United States is not bound by any such clause.

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By: Dilan_Gunes

Dilan_Gunes — Sat, 24 Dec 2011 17:28:36 +0000

1.How does China’s current account surplus result in fewer new jobs than a growth strategy based on domestic consumption would?

Because the current account surplus is related with exports China uses factories for its exports and there is no need to have workers but China is more into service products where workers will be needed.

2.Why would a stronger RMB contribute to greater domestic job creation?

A stronger RMB will lead China to create more job opportunities between it. Because stronger RMB will be decreasing the demand for Chinese exports and afterwards China will give importance to domestic production.

3.“More labour-intensive growth would boost incomes and consumption and so help to reduce China’s embarrassingly large trade surplus” Discuss this statement.

The export amount will be decreasing and the amount of imports will increase. At the same time when the unemployment will decrease there are more people with a job that shows that their income increased and they can spend money on products. And they will demand on the imports.

China has communist regime for a very long time and this logic has the ideas of equal payment between workers. If the unemployment rate is high in China there will be a negative impact because China is trying to balance the living standards of people.

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By: tsekine

tsekine — Fri, 23 Dec 2011 16:11:17 +0000

For the second question, I strongly agree with your statement about how the stronger RMB will not lead to a "definite" job creation due to the 'unattractive' Chinese exports to foreign countries. Then again, if they can potentially receive more money/return, they may have the incentives to create products with better quality and end up making their products 'attractive' again, not with the low price but with the higher quality.

For the fourth question, I disagree or rather need some clarification of the US being "supported" by corporations and individuals. I feel that the corporations and the "individuals" are the problem to the US economy. They are the ones who have power, and they are the only ones. By individuals, I am referring to the 'rich individuals'. The poor are not even taken into account/consideration. With the new elections in 2009, did things get better? Not that the previous president was a lot better but the new president certainly has not made a significant improvement to the US economy. So in the end, does this so called "democracy" help a country's economy at all?

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By: tsekine

tsekine — Fri, 23 Dec 2011 16:02:56 +0000

1. China’s current account surplus results in fewer new jobs than a growth strategy for the economy as China is experiencing a surplus, most likely in the balance of trade in goods (not services, as the extract above discusses the lack of services by China which could in fact create more jobs). This means that China does not have the incentives to experience further economic growth as their goods (exports) are rather successful.

2. A stronger RMB would contribute to greater domestic job creation as a higher RMB would mean that the return from the Chinese imports (into foreign countries) would be higher. Therefore firms are able to pay a higher wage for their domestic workers, and without having the need to lay-off or fire workers to pay existing workers. This would also allow them to employ more workers, thus leading to a higher employment rate.

3. The statement states and explains exactly what it is meant to explain, as a more “labor-intensive growth” (emphasis on labor/work force within China) would result in a higher income for the workers, and therefore lead to higher consumption (as they now have more income). As they have a higher income and consume more products, China is more likely to import goods rather than just exporting a whole lot in comparison to importing foreign goods (thus, reducing China’s trade surplus).

4. I would imagine simply because of the fact that in a communist government structure, there is no private ownership and all income is divided among the citizens equally (therefore, everyone is “equal”). However the whole idea of communism has failed in the past as the ‘strong’ powerful leaders misused their position. Therefore if people do not like the way they are ‘treated’ or they do not like the system they are under, there may be a form of voluntary unemployment, thus limiting growth and increasing unemployment rate. Although having said this, I do not think the Republicans in the United States are any better. There is no “democracy” in the United States, or there is no such thing as “democracy” in this world.

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By: jjowett

jjowett — Thu, 22 Dec 2011 07:16:45 +0000

# Huanni Wu

An very correct set of responses to what I considered to be a quite tricky set of questions. An interesting take on the fourth question. You seem to have talked about the the importance for the chinese people. You should consider the need for China to prove to the world that communism can work and that it can only do so by retaining its high economic growth!

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By: jjowett

jjowett — Thu, 22 Dec 2011 07:13:18 +0000

1. A current account surplus usually leads to an appreciation of the currency on the foreign exchange markets as it implies an increase in demand for the currency. This will make imports cheaper, so reducing inflationary pressures, but will also make exports more expensive, which harms exporters. Large exporting companies are thus forced to cut costs by “letting some of their workers go.”
2. I don’t think that a stronger RMB would lead to greater domestic job creation! As I said in question 1, an appreciation of the RMB makes imports a lot more popular but in turn makes Chinese exports very unpopular as they seem very expensive. This means that Chinese exporting companies have to cut costs and “let people go” in order to remain afloat.
3. More labour intensive growth refers to the development of the service sector, as it is sector that is more reliant on human-labour than capital and machinery. The service sector usually pays quite highly, thus increasing the incomes of many families in China who are able to find employment in the service-sector. By having more income, consumer spending will increase as they have the ability to fulfil their wants (that they were not able to before because of low incomes). This will increase the amount of imports in China, thus reducing the large trade surplus. Furthermore, by developing the service-sector, the export sector will in turn decrease, thus reducing exports and the trade surplus.
4. China is one of the last communist regimes left in the world. So many communist countries have before failed to maximise and maintain high economic growth. China needs to maintain its current amazing growth to prove to the world that the communist regime is the right one, and that it is the one that will stimulate the greatest economic growth possible. China needs to prove its worth to the democratic countries such as the US (who dominate world politics).

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By: Huanni Wu

Huanni Wu — Wed, 21 Dec 2011 00:49:45 +0000

1. 1.How does China’s current account surplus result in fewer new jobs than a growth strategy based on domestic consumption would?

A growth strategy based on domestic consumption may increase demand in the service sector which is more labor-based. However, as China depends on net export to grow, the increase in demand for goods doesn't lead to a lot of job creation as goods are more machine-based.

2. Why would a stronger RMB contribute to greater domestic job creation?

A stronger RMB will adjust China's trade surplus. However, I am not sure if this will lead to definite job creation because there would be initially massive job losses in export industry due to the decrease in foreign demand. In addition, as increased purchasing power of the Chinese allows more imports to flow into the country, domestic producers would be put in an even weaker position because their market share is shared by foreign competitors. Although it is arguable that this may also flourish the service sector and a lower level of inflation would encourage more people to join the work force (as they expect lower wage, companies would be willing to hire more people), it is really unclear whether such change would reduce the level of unemployment as many drawbacks would be involved. The time period also needs to be considered, as to restructure production isn't something can be accomplished within just a few years. It may create more jobs in the long term, but by the time people reach there, we might already have harmed a generation.

3. “More labour-intensive growth would boost incomes and consumption and so help to reduce China’s embarrassingly large trade surplus” Discuss this statement.

"More labor-intensive growth" relates to the development of the service sector and the reduction in export production. Currently the workers in export industry are receiving low wages and there would be more opportunities of income in the service sector. The firms would use higher wages to fulfill their labor demand. In addition, reduced reliance on export industry would contribute to a long-term adjustment in the production structure and resource reallocation. A reduced trade surplus would also relief international conflicts and give way to a stronger currency. The country would benefit from a lower level of inflation and enjoy a more independent growth.

A country follows communism values the creation of "common wealth". Given that China has a large population, the Chinese Communist Party cannot guarantee the welfare of everyone and thus the decision makers are bound to sustain a high level of economic security so that even the poor ones have the opportunity to make livings for themselves. For the more democratic country – the US – the government doesn't have such the same concern because the economy of the US can be supported by corporations and individuals. Another difference is that China has a central-planned economy while the US has a more market oriented economy. For the former one, as there isn't much power endowed to the private companies and individuals, the government bear a heavier burden to achieve the macroeconomic goals.

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By: Huanni W

Huanni W — Wed, 21 Dec 2011 00:48:52 +0000

·I agree that stronger yuan would increase domestic consumption, but as imports become more attractive, it is hard to say the increase in aggregate demand would be significant as money would be spent largely on imported goods. I don't think there is a tight connection between "higher level of consumption" and "job creation" as the drawbacks of a stronger yuan would hinder its way towards low unemployment.

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By: Nesibe Zirzakiran

Nesibe Zirzakiran — Tue, 20 Dec 2011 22:05:04 +0000

1.How does China’s current account surplus result in fewer new jobs than a growth strategy based on domestic consumption would?

Their exports are factory capital goods which is not requiring the jobs, the workers for it. Instead of this, China may focus on service goods; the services which involve more of people working; the demand for jobs would increase then.

2.Why would a stronger RMB contribute to greater domestic job creation?

The stronger RMB would result in the more demand of the Chinese products. That would turn the Chinese economy from a secondary sector ( manufacture) based on to a tertiary sector based on which would give a way to creation of job opportunities.

3.“More labour-intensive growth would boost incomes and consumption and so help to reduce China’s embarrassingly large trade surplus” Discuss this statement.

As the people get job, they can have greater amount of income which would be an incentive to demand more ( rise in AD and eventually consumption) also the rise in consumption would be effective in the sense that Chinese people would demand more of imported goods on their country and by this way the imports and exports would be balanced maybe.

It is because China comes from communist roots which encourage the work and equal payment of work to the everyones and a risk of high unemployment would confict with their view and aim of standard life for everyone. In US it is not such a big concern because their economy is liberal and private markets are supported. In China, the equality among all the people according to their work and increasing infrastructure as a whole unity, whole nation are important aspects.

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By: Javier Alberite

Javier Alberite — Tue, 20 Dec 2011 20:39:52 +0000

I think that what happens with the pressure on the Chinese Communist Party is more about trying to maintain the already diminished honor of the communist system intact, what they are trying to do is to show the world that the communist system can provide low unemployment rates and good living conditions for citizens, trying to "convert" capitalist adepts to communism in a new communist fever such as the one after the 1929 crisis.

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By: Javier Alberite

Javier Alberite — Tue, 20 Dec 2011 20:35:52 +0000

The current account surplus means that generally the country is living under worse conditions than it could, and as a result there is no incentives for consumption; a strategy based both in exports and also domestic consumption by a higher income level of the citizens would mean a constant growth based on a greater amount of new jobs thanks to that boost of domestic production.

A stronger RMB would help to increase imports and acquisitive power of the chinese citizens therefore boosting domestic consumption and as a result to a greater domestic job creation. Although, a too strong RMB would reduce exports since the Chinese products would be more expensive for foreign trade and that would somehow be balanced.

That great capital surplus that China is enjoying means that they are living under their possibilities, a labour-intensive growth would help to increase consumption and trade therefore producing a current account stabilization and therefore decreasing that too high capital account deficit that as a result is striking the chinese unemployment rate.

Since the Chinese is one of the last Communist ruled countries in the world it is philosophically compelled to maintain good economic levels that justify the existence of communist regimes, the fact that many communist countries had failed before to achieve complete economic success is one more incentive for the chinese seek of economic leadership in order to show the world that the communist system is the right one.

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By: AydaAyd

AydaAyd — Tue, 20 Dec 2011 20:19:26 +0000

1. How does China’s current account surplus result in fewer new jobs than a growth strategy based on domestic consumption would?
China has strongly depend on its export and so the growth strategy also relies on export rates. If the exports are getting less in China, than that means there can be crisis caused by the structural unemployment. Plus, when the understanding of industry and service sectors, which are also called as secondary and tertiary sector respectively, are compared the industrial developments are more important for China’s economy. So in this case, the unemployment rate also increases as the new-tech machines are chosen instead of people who willing to have a job and actively seek for a job, which also creates the unemployment problem.

2. Why would a stronger RMB contribute to greater domestic job creation?
A stronger RMB means greater job opportunities, as the export rate will decrease and China will be in a position to give importance to other particular sectors like tertiary; so that the unemployment rate will decrease, since tertiary sector is person-oriented.

3. “More labor-intensive growth would boost incomes and consumption and so help to reduce China’s embarrassingly large trade surplus” Discuss this statement.
In this case, number of exports will reduce, and the number of imports increases especially the domestic consumption. Thus, the labor intensive growth will decrease the export rate because of the relation between domestic and foreign demand. So by the increase in domestic consumption, and the decrease in export levels, the unemployment rate will decrease, as people will have the chance to find jobs.

4. Philosophically speaking, why is there more pressure on the Chinese Communist Party to maintain high growth and low unemployment than there might be on a democratically elected party such as the Republicans in the United States?
In communistic regimes, the idea is being equal in many ways like having a fair distribution of income, having jobs (for everyone), having fair distribution of goods and services. So by this method, communism will ensure the low levels of unemployment and high growth; so that the communistic regime works in terms of economics in theory.

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By: Bryan_DiLaura

Bryan_DiLaura — Tue, 20 Dec 2011 20:18:05 +0000

I like your answer to question 4. However you didn't really mention how a democratic system would be more lenient on unemployment, etc. I think it is because of the more constant change, and the ideal that you're success is based on how much you work.

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By: Bryan_DiLaura

Bryan_DiLaura — Tue, 20 Dec 2011 20:15:20 +0000

1. How does China’s current account surplus result in fewer new jobs than a growth strategy based on domestic consumption would?
Because China has a current account surplus, they export a lot of goods. Many of these goods are in the manufacturing industry for businesses in other countries. Because other countries are beginning to have less and less growth in their businesses, they are very easily laying people off. If these goods were going to domestic markets, then there would be more of an incentive to keep people, as the whole business relies on the domestic consumer.

2. Why would a stronger RMB contribute to greater domestic job creation?
A stronger RMB would decrease demand for exports, increasing domestic production, increasing employment.

3. “More labour-intensive growth would boost incomes and consumption and so help to reduce China’s embarrassingly large trade surplus” Discuss this statement.
This statement refers to China focusing on jobs that produce more domestically. This will increase consumption domestically, increasing imports, and hopefully balancing out the current account.

4. Philosophically speaking, why is there more pressure on the Chinese Communist Party to maintain high growth and low unemployment than there might be on a democratically elected party such as the Republicans in the United States?
The Chinese Communist Party is the only thing that is in charge in China, and there is no choice for the people in who leads them. If the economic environment is unfavorable, it makes a revolution look very attractive. However for a democratic situation, there are changes in the leadership often, making a bad economic situation seem more bearable.

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