In my opinion, China will not have any recession in the next 20-year period. At least the next 5 years are for sure. I made a mistake in 1998 during the Asian financial crisis when we predicted that China would go down, too, due to non-performing loans and the conversion of state entities to private entities. Based on all the facts, we were very confident that China would be hit, but we were wrong. Maybe this was also due to the US’s productivity jump at the end of the last century.

But now, US is in big trouble. I foresee more to come in the US as other issues surface. With such a huge cash balance in the account, China should be able to keep the people happy for some years.

Unless another “Chairman Mao” on Long March uprising takes place.

Sooner or later, we could expect that China will suffer from this over construction or, more generally applicable term - “over-push” strategy. What Chinese people witness today is that we are wasting too much effort to build the house we cannot afford, explore the energy we will not use, while the ecosystem is deeply destroyed by those decisions and executions.

Obviously the numbers we used to define the economy look good so far (at least the mass media believe so), but this so called “recession-proof” landscape consists of too many demands supposed to belong to the future.

The middle class is being squeezed, and the reality shakes the belief that fortune comes from hard working.

China would not enjoy constant high-speed development unless government promotes more healthy real industry and meanwhile enhances overall governance to mitigate the impact of corruption.

The US in the 1920s-30s was the workshop of the world, yet it had a Depression. It was not nearly as out of balance as China is today. Size doesn’t make a country or organization recession proof—look at Citibank or GM—it just extends the problem. The US in the 20’s tried to provide credit to the world, particularly the UK which is the analog for the US today, as China has extended credit to the world. The debt levels were much lower then, and the productivity of adoption of electric motors, gas engines, cars, truck, airplanes,radio was probably greater than today’s one horse Internet.

It is interesting to see so many intellectuals opine on how to fix things rather than let the market work. China is a command control economy. The US extended its Depression in the 1930s with FDR’s command and control economy. No organization grows forever at high rates. Rather it tries to extend that growth and runs off a cliff, as the US, and other countries/organizations have done since the beginning of time. Come egg heads, or should I say humpty dumpty.

No market-based economy is ever recession proof. China has no magic formula. What China does possess in superiority to the west is a culture of savers and prudent investors. That contrasts with America where debt, both personal and governmental, is viewed cavalierly.

From my research for a documentary film on China’s entrepreneurial sector, I would argue that this sector is the country’s most potent economic force. Based on interviews with students/faculty at Tsinghua, to discussions with people on the street, to conversations with Jack Ma, the Chinese have more natural entrepreneurial instincts than I have found in India, the EU, Russia, Japan, South America, the Middle East, or Africa.

The government’s large, but rarely reported “infrastructure” investments in entrepreneurship education, incubators, research parks, and venture capital to support a generation of entrepreneurs—that will be the ultimate driver of China’s economy.

In my view, to sustain the economic growth at 8 to 9 percent, China has to make up for the fall in exports by increasing investments and driving up domestic consumption. With about a trillion dollars investment in US Treasuries, a high savings rate, a robust banking system, and institutional mechanisms to rapidly execute infrastructure projects, China certainly has the capacity to invest heavily and create massive infrastructure swiftly.

The magnitude of the mega investments made by the Chinese government in infrastucture can be appreciated by taking a glimpse of the transport sector. According to a study by ADB in the 10th five year plan (2001-2005), China added 15000 km of rail network, 25000 km of expressways, 0.2 million of road network and 2.5 billion ton of capacity to handle goods at ports. For the 11th Plan (2006-2010), investment of USD 90 billion has been planned for the railway sector alone. To meet the huge fund requirements, the government has introduced innovative financing mechanisms. For railway projects, some of the financing channels created are: a dedicated construction fund created by levying a surcharge on travel km; the issuance of construction bonds; strategic investments by stakeholders viz power plants, coal mines etc.; and the signing of agreements by railways with provincial governments for cost sharing.

Certainly, the investments in infrastructure will boost the economic activity in the country by building capacity in core sectors, improving efficiency and productivity, connecting suppliers with markets, reducing logistics cost, generating employment, improving labour mobility, and increasing urbanization. All these will incrase domestic consumption and fuel GDP growth. But these benefits may be mostly local and may not contribute much to the imports except for critical technologies, equipment, and machinery not available in the country. So, China may not act as an engine of growth for the whole world economy.

The real challenge before China is the sustainability of economic growth and the burning issues to be addressed are energy security, reducing energy consumption, reducing pollution, and going for clean technologies. Until now, the development of China was not bound by the Kyoto protocol to reduce emsissions, but with increasing pressure from the West and a desire to improve its own environment, it may have to accept some targets for emission reduction in future. It will have to go for energy effcient, clean, and green technologies, a substantial part of which may have to be sourced from developed countries. China can be an engine of growth for the Western economies in this regard.

I have always said that it is good for world peace, stability, and prosperity that China, with such a huge population, is prospering and growing. This is its contribution. In this sense, even 7 percent GDP growth this year is good both for China and the world.

To solve the problem of unemployment among the educated, the government of China can provide a minimum employment guarantee scheme. It is high time that the government of China think of introducing proper social security systems. A high degree of economic disparity can create mass opinion against reforms.

Very interesting discussion about the current causes of political and economic fragility of China. I would like to contribute on the points of: (1) unemployment and stability, (2) the role of structural reforms, and (3) China as the next engine of the global economy.

In reply to Andre Wirjo, I would say that the point made by David Li is very important. The geographical distribution of the unemployed can influence the actual threat they pose to social stability. Being concentrated (in cities) or dispersed (in rural areas) influences the possibility to gather, talk and organize. I would actually advise the CCP to manage the geographic allocation of the stimulus according to the map of unemployment, and create jobs accordingly.

About structural reforms, Tang Min refers to support SME and the private sector, to replicate in central China, the miracle which occurred during the past decades on the coast. I would say that the risks of such an approach are considerable. Central China, considered on its own, is a very large landlocked country and the there are very sound business reasons why the private sector is struggling there. I would propose that a higher degree of involvement of the state in providing social insurance would be a very good way to create jobs and to reduce the propensity to save that Andre Wirjo correctly mentions in his second point. China should not fear to create the largest welfare state in the world.

On the possibility of China becoming the next engine of the world economy, I agree that a realistic view on present per capita GDP should lead us to evaluate the medium term feasibility of the option. However, I would suggest to stop thinking in the mechanical way that most of us had done up to now.

To express it through a metaphor, old generation cars have one big central engine. But we have already seen cars with four smaller electric engines (one per wheel), coordinated to guarantee a smooth drive. I wonder if we can update global economy to this new, more modern view of multiple, balanced global engines.

In my view, China will have an uphill task to maintain the growth rate of 7 to 8 percent as the recession has hit the US and other countries (including India). The demand in these countries has gone down and hence the opportunity for chinese exports to these countries will be shrinking, at least in 2009-10. The increase in China’s internal consumption may not be able to compensate for the exports lost.

Sorry, but who are these people? Several, I recognize, others, no. I share Chi Wei’s concern about how the infrastructure investment will be used. Also, I think it unwise to underestimate the ability of migrant workers to organize and/or protest.

I disagree with all their conclusions that China will recover this year. All I can see is big trouble ahead.

From the fundamental side, China’s economy is highly imbalanced: too export oriented, too SOE orientated, and too FDI oriented. Small and medium business have difficulty getting capital, at the same time the cost of capital to SOEs is highly subsidized at the expense of citizen welfare. There’s no security net.

The result of this is that domestic consumption is low and declining ( check out AP article yesterday regarding retail numbers) and an enlarging mismatch between supply and demand. Without US and Japan consumption demand, who will buy these products? The Chinese people? They are busy socking money for future medical and education needs.

Please tell why this is not a big bubble now in China?

For decades Western businesses have salivated at the thought of “opening” Chinese markets. Mostly, their efforts have been disappointing. And now the story of China’s markets and the global marketplace is being shaped and narrated by the Chinese themselves who have found a new voice and are growing in their confidence in offering a new and unique vision.

The global recession that has brought the US and Europe to their knees has given China a new confidence and a new window of opportunity.

Technology played a significant role in the US growth model over the past forty some years. And it is very likely that technology will play an increasingly important role in China’s future growth and emergence. An increasing number of Chinese students are now applying to Western universities for their undergraduate as well as their graduate education. These young Chinese will come home and join the ranks of their older brothers and sisters who are already demonstrating a desire to innovate and create new technologies rather than simply adapt and acquire. Potentially, China may emerge not only as the largest market but as the preeminent producer of new technologies.

The challenges remain enormous and perhaps the most significant point was made by Chi Wei when she said, “China’s population accounts for, like, one-fourth of the total population in the world, right? If you can keep this one-fourth of people growing and happy and getting wealthier, that’s a big contribution already.” Yes, a big contribution to the world and also a bigger challenge to the Chinese leadership who must not just satisfy economic wants and needs but must set broad and universal goals and visions that unleash the potential creativity and generosity of its people as JFK did in America in 1961.

The point is not to discern if China is/is not recession proof. The point is to observe that China reacted swiftly and accurately to the collapse of its export sector. This means the Chinese government was prepared. They’ve thought about and anticipated global economic collapse.

Also, what the speakers call investment is not what Americans call investment. Instead, it is government spending at the federal level, handed down to the regional and local level. From there, funds spread to the “private” sector where jobs are finally created. The downside is that, over time, resources are over-allocated to infrastructure, but China is a long way from that point.

Furthermore, anyone from China, speaking publicly, will always remind Westerners that China is a developing country, a poor country. This is irrelevant to the issue of whether China will become a global economic engine. Per capita GDP is irrelevant. What matters is whether or not a critical mass of population have sufficient disposable income to drive consumer-related production and imports both inside and outside China. Again, endless declaration of the wrong measurement that deflects the issue.

China is a very big country with a big footprint, including 200m migrant workers with 20m (or 10 percent) jobless, as reported a month or two ago. Most of them have nothing to go home to. Even if they do, once they have tasted the lifestyle in the urban centers, their appetites might have changed!

China’s financial institutions supposedly lent out more than 100 percent of their whole of 2008 loan amount. This money probably contributed to the ‘re-emerging’ property and stock markets in China recently.

Also, the ‘efficiency’ of these loans is in question. Someone should assess how much has gone to the ‘ego-boosting’ monumental projects versus projects that are really productive and hold the possibility of building future-earnings.

I just came back from Guangzhou and there they are building Asia’s biggest convention center. It will have 2 towers that supposedly will be taller than the Taipei 101 building. I do not know where else the hot money is going to boost the coveted targeted GDP growth percentage mandated by the government.

The economists involved in the discussion may like to throw in some numbers to enlighten readers, such as: export ratio, imports versus exports, resources based industry versus manufacturing (export versus domestic), railway/road/airport (if we still think we don’t have enough of them!).

I know it is too complex to discuss China’s economy in such a short program, but it would be good to see the qualitative comments complemented by some quantitative numbers.

May China continue to consume and learn to consume responsibly and sustainably instead of just for the sake of keeping consumption going!

A very engaging discussion with varied views on the Chinese economy. However, I would like to share my views on the 2 points mentioned during the panel discussion:

1) On migrant workers being less of a social problem than college graduates because they are scattered in the countryside.
I don’t concur with this point because an unhappy population can generate social problems, regardless of who and where they are, including migrant workers in the countryside. Let us not forget that the countryside was where the Communists recruited most of its members during the Chinese Civil War (at the time when most large cities were occupied by the KMT).

2) On China being a new growth engine because of its large population.
There’s no doubt that population size is important, but it is only one side of the equation. To drive the economy, the same population must also spend. If the population is unable to spend for various reasons, then China’s contribution will be no different from other countries with smaller population size.

To a large extent, China is recession proof. It is flush with funds including foreign exchange. China has developed the infrastructure all over the country in last 10 years well, but they can still have large investments in coal to liquid projects, coal gasification projects, and of course infrastructure. China can have large investments in developing water supply schemes all over country. Housing projects can be another large business opportunity.

Chinese companies can accelerate takeovers, mergers, and acquisitions for strategic reserves all over world with surplus funds.

In nutshell, China can pull along a growth rate of 7 to 8 percent for another 5 years only on internal projects. The world economy would certainly rebound in the period and China can further maintain and accelerate it’s growth.

As a country, China need not worry about recession at all.

I have been dealing in China since 1979 and I find this article a little hard to swallow.

In southern China alone, more than 18,000 factories (many that have existed since the early 1970’s have closed their doors and unemployed their workers. They are not recession proof! Many workers have been forced to go back into central and northern China to work on farms again, because there is no work available. Many of the existing factories still in business have reduced staff, cut expenditures, and have less than 40 percent of last years orders.

This is an interesting view of Tsinghua academics in economics, but it is somewhat unbalanced as it does not include views of other institutions in other cities, and—especially when considering China’s future prospects—views from disciplines other than economics.

There is mention of GDP growth buffeting the Chinese economy by government investment (mainly in infrastructure), and the push on investing in the service sector. I wonder whether this trend is because of the hits on the manufacturing and exporting industries. There is a real danger with abandoning the manufacturing sector in place of the service sector as they complement each other. Moreover, genuine reform needs to be made in the services sector to be effective at all, e.g., in finance and banking regulatory bodies, contractual and legal frameworks, a more transparent and efficient customs process in logistics, effectively dealing with massive fragmentation in distribution, and all other activities up and down the value chain.

Indeed, the emphasis needs to be in innovation and higher value-add manufacturing, research, and development. It is important to be cognizant of China’s paths to globalisation (which are different from those of US and Europe), reaping the advantages of cost innovation which are a unique feature of China, e.g., the linkages of its ex-SOEs with the national innovation centres and the possible relatively inexpensive technology transfer. If, as was mentioned in the interviews, there is a future in collaboration, then this is effective only with China as an equal partner, therefore Chinese companies moving away from the position of the contract manufacturer, OEM, and towards ODM and OBM, and ultimately to becoming a strategic partner.

At this time in 2009, it looks like the predictions of recovery from all interviewees are somewhat optimistic. With its present status of provider of “derived demand”, it is difficult to see China’s true recovery until the effective recovery of the huge generators of “direct demand”, namely, the US and Europe. China is not isolated in the global economy, and the present government investment in infrastructure (no matter how heroic) and in state corporations, is only masking the impact of the global downturn.

The final interview recommendation to be agile and yet sustainable can work mainly for corporations that are large enough to rationalize, to divest non-profitable parts of their portfolios, and yet have enough resources to be alert for opportunities. Maybe this is the time to advocate the freeing up of government regulations on smaller, private companies and the true collaboration between these smaller companies, so as part of virtual larger entities or networks, they will also be able to take advantage of rising opportunities.

I look forward to a more balanced discussion between not only economists, but also marketers, operations and technology/innovation and finance specialists in the field.

The impact of adding to investment in large measure: The investment mutiplier implies that once the capital goods start producing consumer goods in multiples, there will need to be a sustained and synchronised escalation of demand whether internal or external , to sustain the planned investment growth.

Even if the investment is in public infrastructure, the return on a well built road will need to be seen in terms of shorter transit times for goods, implying a greater turnover of consumption goods.

China therefore needs to ensure that in the short term—i.e. within the gestation period of the investments being made—it is able to ramp up domestic consumption. So unless China takes on the role of a global engine, it will see a stagnation from all the investments made. In effect my assertion is that the imperative is for China to become the next US in terms of private domestic consumption given the large market size and growing urbanisation and therefore to become the next engine of global growth. It has no alternative.