What happens when one of the world’s fastest growing economies slows?
The National Bureau of Statistics in China announced that its gross domestic product for the first half of 2010 was 17.3 billion yuan, or approximately $2.5 billion, an increase of 11.1 percent year-over-year. However, the second quarter only rose 10.3 percent, compared to the first quarter’s 11.9 percent growth rate, signaling a potential cool down and a worry for investors.
“I don’t think we’re going to see any big crash, but there has there has to be a managed slowdown,” said Alberto Salvo, assistant professor of management and strategy at Northwestern University’s Kellogg School of Management. “I’m quite optimistic. I think that China’s economic policy is broadly sound.”
Industrial production slowed to 13.7 percent in June from 16.5 percent in May. Wages rose 9.7 percent year-over-year, a growing inflationary concern and a challenge for foreign companies with operations in China.
In the past year, many Chinese workers and advocates have petitioned for higher pay. Last month, Foxconn Technology Group, a Taiwanese electronics manufacturer that also makes Apple Inc. products, was pressured to raise wages and improve working conditions after being blamed for bad working conditions leading to suicides at the plant.
In that context, wages are a sign of success, Salvo said. “Labor is being reallocated. Wages going up means that China is going up the value scale. It’s a natural process of development.”
China’s economic development may also be reflected in its trade surplus, which fell 42.5 percent in the first half of this year, according to China’s General Administration of Customs. China’s total value of exports rose 35.2 percent to $705.1 billion in the first half, while imports surged 52.7 percent to $649.8 billion, World Trade Organization statistics show. The country ranked second in exports and fourth in imports globally in 2009.
At the FutureChina Forum earlier this week in Singapore, foreign affairs minister George Yeo spoke about his confidence in the role of China in the long run despite setbacks.
“Does it mean, going into the future, that China will be able to progress on a straight line and without major hiccups, without major difficulty, become the greatest power on Earth, even though it may be self-contained?” he said. “It will not be so simple because the challenges within China today are enormous”.
Although some fear that the superpower may lose steam as companies may choose to leave due to increased costs, including wages, Salvo said it’s a natural progression.
“I never see [increased wages] as a threat. I see it as a natural process of development,” he said.