The Chinese central government has made it clear that a key to the nation’s economic recovery is strong consumer spending. The $585 billion stimulus package that has been in effect since early in the year is meant to improve the availability of create to both individuals and businesses. That should help push up buying activity among the middle classes.
China believes that if it injects enough liquidity into the market and begins enough new infrastructure projects that spending activity within its borders will make up for lost export revenue caused by the recession. The theory has one major flaw.
Unemployment in China is high and may get much higher. A senior official at the Ministry of Human Resources and Social Security told the AP that “The employment situation in China is still very grave. We are still under enormous pressure to provide employment services.” China does not provide national statistics covering joblessness, but some estimates put the number of jobs lost due to factory closings last year at 30 million. The figures in remote and rural areas of the nation may be just as bad.
The Chinese government may find that the most troublesome factor in keeping its GDP growing at a rate of over 7% is its inability to find work for people who made their livings off of the country’s export economy. The notion that liquidity-driven consumer spending will help China while the rest of the world emerges from a downturn only works if there are a lot of consumers to stimulate.
Douglas A. McIntyre
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