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Outside the Box
July 24, 2010, 12:01 a.m. EDT · Recommend · Post:
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"¹ Previous Column
Market-timing indicators are bearish
First Take "º
Who needs TV news anchors? Not Tribune Co.
By Howard Gold
NEW YORK (MarketWatch) -- Every pundit and China hand says it: The next decade will be a critical one for China.
After an unprecedented three decades of 10% annual growth in gross domestic product (GDP), in which hundreds of millions of its people were lifted out of poverty as the country became the workshop of the world, China faces a more difficult second act.
Its government must spread the wealth beyond the great coastal cities of Beijing, Shanghai, Guangzhou, and Shenzhen to deep in the interior. It must find work for its young people while providing for a growing number of retirees. It must encourage people to spend more and save less to "rebalance" the economy away from exporting and towards domestic consumption.
How the Communist Party-run government handles this transition will determine whether it will retain the support of the Chinese people, despite its inherently undemocratic nature, and avoid the social upheavals that are the bane of all authoritarian states. It will also decide how great a power China will become.
Results due from electronics giants Sony, Panasonic, LG Electronics and Samsung; auto makers Honda and Mahindra, and Japan's largest bank, Mitsubishi UFJ. MarketWatch's Andria Cheng reports.
I pondered these questions during and after a recent family trip to China. Read Gold's column about his travels in China.
I have been a China skeptic for some time: In October 2007 I warned about a bubble in Chinese stocks, when the Shanghai Composite index topped 6,000. It's trading just above 2,500 now. Read Gold's column warning of a Chinese stock bubble.
But our trip did give me a new appreciation of how much China has achieved. It's hard not to be impressed by the glittering new buildings, smooth roads, and gleaming subways. And the optimism of the people is a refreshing antidote to the gloom and doom you hear all the time in America these days.
Of course, they're moving up in the world and we're the established superpower, so there's only one way to go, right? Also, all our mistakes are cycled endlessly through cable news channels and the Internet, but in China, the government keeps a tight lid on news.
Nonetheless, the government-run English-language China Daily displays surprising candor about certain issues, such as corruption, the direction of the economy, and increasing concerns about the gap between the rich and poor in China.
Those are the big issues the Chinese government faces, and the crunch time is now as party members and intellectuals debate the big issues that will be addressed in the next five-year plan (oh, yes, they still have those). Typically those debates continue until the Party Congress adopts the plan, then everyone gets in line. The sense of urgency is compounded by the fact that the party leaders will be anointing a successor to President Hu Jintao over the next few years.
Stephen Roach, chairman of Morgan Stanley Asia, who will be teaching at Yale University in the fall, told the South China Morning Post that "the upcoming 12th five-year plan for 2011-2016 'will be a watershed for China and the rest of the China-centric region.'"
He told Bloomberg that GDP growth will remain strong this year, but China must "up the ante" to boost domestic consumption, which now stands at a lightweight 36% of GDP, a bit more than half the percentage in the U.S.
How? He says China needs to develop a stronger social safety net, raise incomes in the rural areas, and boost employment in the service sector. We certainly saw evidence of the latter on our trip. A growing army of hotel and restaurant workers serve tens of millions of visitors from inside China and abroad.
The safety net is key. Right now, many Chinese retire early -- often with government pensions. But by 2015, there will be some 200 million Chinese aged 60 and over and a shrinking population to support them, thanks to the one-child policy instituted in 1978. With the Communist-era benefits dismantled, Chinese feel they must save more to take care of living and medical expenses in their old age.
That's where the "rebalancing" comes in. "It's going to be difficult, [but] they have the wherewithal to do that," says Christopher McNally, fellow of the East-West Center and an expert on China.
Houston, we have no problem, according to Tribune Co., Jon Friedman writes.
10:28 a.m. Today10:28 a.m. July 26, 2010 | Comments: 12
- chuckk | 8:23 a.m. July 24, 2010
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