Article by SARAH-JANE VASSALLO for urbanemagazine.org
The repercussions of the recent economic recession were widespread, reaching nearly every globalized corner of the world. As is oft-quoted in various media, the stock market collapse of 2008 was perhaps the greatest test to the merit the free market since the Great Depression. The Western world saw a resurgence in popularity of Keynesian economic policies; increased spending, tighter regulation, and more government control upon the means of production. Public-sector responses to the recession have taken different forms based upon the particular circumstances in each nation, and have been met with varying success.
The People’s Republic of China (P.R.C.) in particular has fared better than many Western nations due to a strict government oversight of banks and a meticulous, state-led capitalist structure. Fourteen months after the initial collapse, the P.R.C. has reemerged relatively unscathed. Since the turn of the century, the Chinese economy has grown at an unprecedented double-digit rate due in large part to its export market. Although the global economic crisis has caused exports to slow and global demand to plummet, China has been able to recover and sustain its gravity-defying growth rates due to the flexibility of its market.
In the immediate aftermath of the recession, sources reported that Gross Domestic Product (GDP) growth rates in the P.R.C. were expected to fall as low as 5% per annum, and would continue to fall within the coming years. Reported statistics have not come close to this level. They are still hovering around 9% and recent reports show that rates have stabilized. Financial analysts note that if China is to manage a swelling labour force and facilitate the transition of millions of peasants from the agricultural to the urban sector, a growth rate of at least 9% will be necessary. The Chinese economy has once again defied the odds and managed to float above the ups and downs of the market and emerge with minimal damage. BusinessWeek reports that growth will accelerate to more normal levels of 9.5-10.5% in 2010. Not even ‘The Great Recession’ has obstructed China’s path toward becoming the largest economy in the world.
Chinese exports have fallen throughout the recession. Photo by: Berk van Dijik, CC2.0.
Professor Victor Falkenheim, a China specialist at the University of Toronto provides several explanations for China’s ability to circumvent the wrath of the greatest financial crisis in decades. The government responded to the crisis with a number of social and economic stabilizing measures. “They have sustained economic growth based on loosening credit and providing a domestic stimulus…attempting to encourage domestic consumption to replace exports,” says Falkenheim. According to Falkenheim, the multi-billion dollar stimulus package has generated growth in the housing market, and has also managed to maintain growth by implementing a number of policies to satisfy various social sectors. For instance, to counter unemployment of university graduates, the government has created public service opportunities including village teaching and internship positions that are reasonably well paid. This “has mopped up a lot of youth unemployment.” Professor Falkenheim also cites the emphasis on programs to create social harmony and government subsidies to sustain development.
However, the most anticipated consequence of the crisis was not economic, but rather political. Many scholars predicted that the recession would test the stability of China’s authoritarian government. Historically, the popularity of oppressive totalitarian regimes has been influenced by the fluctuations of the market. China’s unique political and economic structures have been able to survive the odds, yet the fact remains; the backbone of continued support for Chinese Communist Party (C.C.P.) has been the powerful and resilient economic engine of the P.R.C. A regime that bases its claims to legitimacy entirely on economic prosperity was thought to be inherently faulty because approval ratings will rise and fall in tandem with economic growth figures. Yet a major dip in global demand and a blow to China’s export market has inflicted little to no visible damage on the C.C.P. It has proven flexible enough to overcome the crisis with strength, even in the midst of faltering growth rates.
Prime Minister Stephen Harper with General Secretary of the CCP and President of China, Hu Jintao during his visit in early December. Photo by PMO.
Western observers speculated that market liberalization would put pressure on its authoritarian political structure and erode the foundations of the ruling party. However, Prof. Falkenheim notes that, “It hasn’t significantly damaged the party’s legitimacy.” As such, the economic consequences for the regime were not as severe as they could have been. The recession did initially incur damage to the P.R.C.’s strongest source of growth— its exports, but the C.C.P. has remained as flexible and resilient as ever.
However, aftershocks are still rippling through global markets. The recent debt crisis in Dubai proves that the post-recession period is still unstable, and will not return to normalcy for a few more months. Recovery is not always perfectly linear, and even economic powerhouses are not immune to relapse. Yet trends within the Chinese market are optimistic; the two stock markets in the P.R.C. have outperformed stock markets around the world and growth rates are returning to pre-recession levels. Although the world is still rebounding from the crisis and China is still recovering from floundered growth levels, it has proven to be adaptable in durable in the face of an global economic downturn.
Header PHOTO BY: Artemuestra, C.C. 2.0.
