The hidden side of the Chinese economy

The hidden side of the Chinese economy

Posted in the China Forum

Since: Dec 12

Shenyang, China

#1 Dec 31, 2012
The hidden side of the Chinese economy
  
  To have a clear-cut understanding on China’s unemployment situation, for the most part, is like to read tea leaves, and no wonder. First of all, it is rather hard to come up with a universally agreed definition of unemployment that fits into Chinese situation. This combined with statistical manipulations make study on China’s unemployment problem a challenging task for an outsider. Most analysts, nevertheless, tend to believe the situation is perhaps far worse than what was reported, and see no sign of improving. During a recent CCTV interview, Prof. Nai-Tsing Chen, an expert on enterprise studies and a senior researcher at the Chinese academy of social science, portrayed a rather pessimistic picture on the situation of private owned enterprises in China. Based on Dr. Chen’s studies, out of 42 millions Chinese private owned enterprises, 40% already have gone bankrupt. Another 40% are struggling on the verge of bankruptcy. Dr. Chen’s studies may provide some very insightful threads for us to come up with a realistic view on the situation of China’s unemployment problem.
  
  Now, how much does private owned enterprise weight in the whole Chinese economy? A report shows small to mid sized enterprises contribute roughly 60% of China’s total GDP,50% of the total taxes collected, and employ about 75% of the city and rural working forces. Explicitly, private owned enterprises are the driven forces for today’s China economic engines.
  
  What has caused this large scale bankruptcies in China’s private owned enterprise? Governmental interference in banking policies seemed to have played the major role. Looking back to 2007, China’s economy was in the hay days of its recent boom with first quarter GDP growing at 13%, the best year in the past two decades. The fast growth rate, however, triggered a fear of inflation and concern of over heating among many economists and government officials. As result, a stricter lending policy which was viewed as a remedy to curve inflation, was adopted during the second half of the 2007, targeting primarily on China’s small to mid sized and private owned enterprises.
  
  The effect of this policy was felt in a hard way by the end of 2007 when numerous small to mid size enterprise started going bankrupt and laying out workers. The situation did not improve in the first half of the 2008 and government also began to question the justification behind this policy.
  
  The devastated situation was not dispelled by the summer of 2008 when a global financial crisis struck, only making it far worse with the decline in exports and overall trade volumes. China, whose economy relied heavily on export, was hit the most with sharp drop in overseas orders for many of its exporting enterprises which consist mostly of private owned small- mid companies in the coastal provinces. The crisis happened in such a prompt way that it did not give China enough time to respond. Because of shrink of overseas market, it was also too late and useless to adjust loan policy to revive these dying enterprises.
  
  Profes sor Chen draws his conclusion largely on the studies of performance of small-mid enterprises in recent years. The result is by no means rosy: 40% already have gone bankrupt and 40 % are struggling to survive. The direct result of this dire situation is the substantial increase in China’s unemployment population.
  

Since: Dec 12

Shenyang, China

#2 Dec 31, 2012
To know the actual number of unemployment population, we need to first take a look at the numbers released by different Chinese sources. The official statistics of unemployment for 2009 as provided by the commercial and finance department and the general labor union of China, shows the total unemployed people at 40 millions, a stunning 100% increase over the number in the last year. However, most Western economists along with their Chinese colleagues tend to have some serious doubts about the accuracy of this figure. The most reliable statistics of the total Chinese workable force is estimated at 789 millions as of 2009, with a break down between 272 millions of urban and 517 millions of rural area.
  
  Out of total 272 millions urban work forces, 75% were employed by small –mid private enterprises, or roughly 204 millions. If the numbers shown in Dr. Chen’s report are accurate, 40% of these 204 millions people will lose or have already lost their jobs. This sums up the total unemployment numbers in urban labor force to 81.6 millions. This number, however, was only the tip of the ice burger because it did not count the out of work migrant workers and rural unemployed population which were estimated at 200 millions. By adding these three figures together, we get a stunning number of unemployed forces of 280-300 millions, or roughly the size of U.S. population.
  If the statistics presented by these sources is reliable, we may conclude that China’s actual unemployment rate could well be in the range of 35% to 38% of the total working population. Many Western observers are puzzled by China’s apparent immunity to social turmoil in face of a dire unemployment situation like this, especially considering the lack of a sophisticated and universally applied social welfare system like the one in West. The answer may be found in the unique cultural environment in which China had existed since the immemorial. An unemployed person usually survives through various means, either by taking up some seasonal and menial jobs, or relying on the helps from relatives. Unemployment, though a serious challenge in the long run, will not likely lead to riot so long as the majority of Chinese people are not being starved to death.
  
  A recent economic stimulation plan proposed by premier Wen Jia -Bao was said to provide totally 4 trillion Reminbi to increase investment and boost internal demands. However, most of this money would most likely go to those state owned enterprises, only very small portion could benefit small –mid sized enterprises. The rationale for not lending to these private owned companies is based on the solvency concerns because of their lack of collateral assets. But in fact it was the state owned businesses that had been showing poor pay back records. The poor loan management by the state owned enterprises has been the main factor responsible for creating the lump sum uncollectible debts which were estimated at several trillions RMB during premier Zhu’s administration.

Since: Dec 12

Shenyang, China

#3 Dec 31, 2012
Due to low efficiency in production technology and poor management of these state owned businesses, the proposed investment is most likely not going to bring a good return. It may neither stimulate the economy nor increase internal demand, and most likely, it may turn out to be the opposite of what was originally expected, creating more bad debts and surplus.
  
  Having in mind the ugly picture of 40% bankruptcy rate in small – mid sized enterprises, and another 40% struggling to survive, it is rather logical for Western analysts to doubt about the trustworthiness behind the number released by Chinese government on GDP growth rate. Other variables such as declining rates in energy consumption and good shipping volumes also make an increasing GDP look suspicious. How could it be possible that the major contributors, namely the private owned companies, are facing widely bankruptcies while the overall economy still manages to keep at such a high growth rate?
  If nothing changed in the way of how money was distributed, a lump sum of the 4 trillions will likely be invested into stock and commercial housing market for speculation. On the other hand, those who really need funds to keep things going are denied of these resources. A company facing financial difficulty could not hire more workers. Thus, if the current discriminative banking policy is allowed to continue, more investments will not be able to reduce the current unemployment pressures in China, but most likely to worsen them instead.
  Neithe r the production nor investment model currently adopted by Chinese government seems to be pointing to the right direction so far as finding a solution of current economic crisis is concerned. Simply by pouring in more funds will not automatically create more internal demands or reduce unemployment, because money has to be distributed and spent in a proper way in order to generate good return. The unemployment pressure will be reduced only if more market-competent and private owned enterprises are allowed to flourish by having more accesses to country’s financial resources. To solve the problem of unemployment is a dire attempt for China to maintain its social stability, and it clearly demands a change in its financial policies. But changed it must be, or the failure may prove to be too heavy for China to bear.
lct

Beijing, China

#4 Jan 1, 2013
urban work force is over 400 million.

as urban population already surpassed 50%.

liar.
planet more important

United States

#5 Jan 1, 2013
Unemployment? Who cares. Bigger problem is pollution everywhere. China is a land of filth and garbage and poisons.

What kind of country will the grandchildren inherit? A deadly disgusting country that is unlivable.
lct

Beijing, China

#6 Jan 1, 2013
planet more important wrote:
Unemployment? Who cares. Bigger problem is pollution everywhere. China is a land of filth and garbage and poisons.
What kind of country will the grandchildren inherit? A deadly disgusting country that is unlivable.
stay your own gay country. nobody wants you in china.

i am not sue if your grandchildren can inherit anything, if you will have any grandchildren at all.
AZN

Toronto, Canada

#8 Jan 1, 2013
momotaro70 wrote:
The hidden side of the Chinese economy
  
  To have a clear-cut understanding on China’s unemployment situation, for the most part, is like to read tea leaves, and no wonder. First of all, it is rather hard to come up with a universally agreed definition of unemployment that fits into Chinese situation. This combined with statistical manipulations make study on China’s unemployment problem a challenging task for an outsider. Most analysts, nevertheless, tend to believe the situation is perhaps far worse than what was reported, and see no sign of improving. During a recent CCTV interview, Prof. Nai-Tsing Chen, an expert on enterprise studies and a senior researcher at the Chinese academy of social science, portrayed a rather pessimistic picture on the situation of private owned enterprises in China. Based on Dr. Chen’s studies, out of 42 millions Chinese private owned enterprises, 40% already have gone bankrupt. Another 40% are struggling on the verge of bankruptcy. Dr. Chen’s studies may provide some very insightful threads for us to come up with a realistic view on the situation of China’s unemployment problem.
  
  Now, how much does private owned enterprise weight in the whole Chinese economy? A report shows small to mid sized enterprises contribute roughly 60% of China’s total GDP,50% of the total taxes collected, and employ about 75% of the city and rural working forces. Explicitly, private owned enterprises are the driven forces for today’s China economic engines.
  
  What has caused this large scale bankruptcies in China’s private owned enterprise? Governmental interference in banking policies seemed to have played the major role. Looking back to 2007, China’s economy was in the hay days of its recent boom with first quarter GDP growing at 13%, the best year in the past two decades. The fast growth rate, however, triggered a fear of inflation and concern of over heating among many economists and government officials. As result, a stricter lending policy which was viewed as a remedy to curve inflation, was adopted during the second half of the 2007, targeting primarily on China’s small to mid sized and private owned enterprises.
  
  The effect of this policy was felt in a hard way by the end of 2007 when numerous small to mid size enterprise started going bankrupt and laying out workers. The situation did not improve in the first half of the 2008 and government also began to question the justification behind this policy.
  
  The devastated situation was not dispelled by the summer of 2008 when a global financial crisis struck, only making it far worse with the decline in exports and overall trade volumes. China, whose economy relied heavily on export, was hit the most with sharp drop in overseas orders for many of its exporting enterprises which consist mostly of private owned small- mid companies in the coastal provinces. The crisis happened in such a prompt way that it did not give China enough time to respond. Because of shrink of overseas market, it was also too late and useless to adjust loan policy to revive these dying enterprises.
  
  Profes sor Chen draws his conclusion largely on the studies of performance of small-mid enterprises in recent years. The result is by no means rosy: 40% already have gone bankrupt and 40 % are struggling to survive. The direct result of this dire situation is the substantial increase in China’s unemployment population.
  
Then why the hell are you still in China?

Get the f**k out!!
RayH

Guangzhou, China

#9 Jan 1, 2013
lct wrote:
<quoted text>
stay your own gay country. nobody wants you in china.
i am not sue if your grandchildren can inherit anything, if you will have any grandchildren at all.
Actually, his grandchildren will inhebit his debt. They'll probably have to work for the Chinese.

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