This article has been corrected since it was published in the print magazine.
Video: "China Climbs the Ladder"
James Fallows and Megan McArdle discuss China’s economic moment and the folly of the term “currency manipulators.”
Our apartment in Beijing overlooks one of the city’s long-distance bus terminals, where people arrive from the countryside to find work or sell wares, and depart for visits or permanent returns to their home villages. Early last summer, the terminal was jammed, and most of the passengers were leaving town.
At the time, the outbound flow was taken as one more last-minute sign of China’s optimistic, all-fronts effort to spiff up Beijing for its role as Olympic host. Through the spring, construction workers had toiled round the clock on any building or public-works project (notably, new subway stations) that had a chance of being completed by the time of the Games. For projects with no hope of making the deadline, workers toiled instead to put up screening walls, or to neaten the piles of I-beams and rebar that normally littered the sites. In July the government ordered a halt to all building or demolition work anywhere near Beijing, as part of a security lockdown and in hopes that construction dust would settle out of the air. The workers, mostly migrants from poorer neighboring provinces, went home on (mostly unpaid) leave to see their families and watch the Games on village TVs.
In September, as Olympic spectators were leaving Beijing, migrant workers returned, via packed buses and trains. In the capital as in fast-growing cities all across China, country people stand out in the urban crowd. Their hands and faces are more weathered, their clothes simpler and more ragged. Often they move about town lugging unwieldy bundles of bedding and belongings wrapped in the plaid-patterned, woven-plastic fabric that somehow has become standard for such purposes in poor countries around the world.
This post-Olympic flow back into the city was expected—but what happened next was not. In mid-October, at about the time retail sales were collapsing in the United States, we started seeing extra buses muster each morning with full loads of migrants headed out of town again. On an icy afternoon in November, I passed a site where a huge new office complex was being built. Its towering construction cranes, which just a week earlier had been swinging loads of cement and steel so close to the sidewalk that passersby ducked, were motionless. The frontage road was lined with buses whose license plates were from Hebei province—the sticks. A driver told me that the convoy would take workers back to their home village—“For now, no work”—and then come back for another load as soon as it dropped this batch off.
Through the rest of the winter and early this spring, Beijing’s air stayed notably clearer than it had been at the same time a year ago. Part of that was because of unusually windy weather, and part may have been a residual benefit of Olympic cleanup measures. But it was also a sign that fewer factories were running in the heavy-industrial districts upwind of Beijing.
The outbound buses and the better air were our local indicators of the economic contraction being felt in practically every corner of the world. And there were signs of it everywhere in China. Container ships sitting, moored and idle, in the harbor of Hong Kong. Revenues down in Macau’s casinos. Seas of empty seats aboard a small Airbus on the Shanghai-Beijing shuttle flight. (The first time I took that trip, in 2006, it was aboard a 747 with every seat full.) A report that a million or more of this year’s university graduates were still looking for jobs. Protests across the country, as real-estate developers and small-factory owners went bankrupt—and disappeared without paying employees months of back wages. Thousands of factories in Dongguan, in Guangdong province just north of Hong Kong, had been the real-life incarnation of the world’s stereotype of low-wage Chinese workers turning out low-value goods—cheap dolls and toys, Halloween masks, the bulk of the world’s Christmas presents and decorations. Within months the area was transformed into China’s rust belt.
You never know which statistics to believe in China, but in January a local official in Dongguan told me that at least 1 million factory workers had recently lost their jobs within five miles of where I was, and probably another million in nearby manufacturing areas of Guangdong province. The electronics supplier Foxconn, whose gigantic compound in Shenzhen turns out components for Apple, Dell, HP, and countless other companies and which had recently employed more than 250,000 workers, sent all its employees on a one-month unpaid furlough late last year. Reports in the Chinese press said Foxconn might lay off 100,000 worldwide.
Is the “China story” as we’ve known it—the three-decade-long story of modernization and prosperity supervised by an authoritarian regime whose economic success excuses most complaints and failings—over? Has it reached its limits and exposed its contradictions? If China does not keep moving forward and growing, will it tear itself apart?
Observers outside China often compare its difficulties to Japan’s a generation earlier. Few people inside China think the two economies have much in common—one is full of impoverished peasants, while the other has practically eliminated poverty; one is rushing toward industrialization while the other has been an industrial power for more than a century. But in recent months, I’ve heard countless Americans and a few Europeans ask, “Isn’t this just like the ‘Japan scare’ of the 1980s?” The question is shorthand for saying: “Japan seemed unstoppable 20 years ago and has been a sick man ever since. Is ‘rising’ China perhaps due for a similar reassessment?”
From Chinese intellectuals and officials I’ve more often heard a cautionary comparison to the old Soviet Union, implying that political control and territorial dominion could be undone by economic failure. By this logic, the Chinese Communist Party has no choice but to keep the country’s business growing as fast as possible, since a steady increase in material welfare is the real basis of the party’s legitimacy. If the economy were ever to stagnate—which is generally understood to mean a growth rate that falls below about 8 percent per year—then a larger share of the Chinese public might register dis content with Communist rule. And then anything could happen. The territorial contrast between the vast old Soviet empire and today’s shrunken Russian state may help explain the Chinese government’s intransigence about any threat of what it dismisses as “splittism” concerning Tibet, the Muslim region of Xinjiang, or Taiwan.
The Japanese and Soviet comparisons are awkward because of obvious differences from China. At no point in its history did the Soviet Union achieve anything like China’s sustained record of high-speed growth. So the “stagnation” that helped bring the Soviet regime down was in fact real, decades-long economic decline. Japan’s prolonged “sickness” is one most countries would envy: with half as many people as America and one-tenth as many as China, Japan still has the world’s second-largest economy and many of its strongest industrial brands, including the world’s largest carmaker, Toyota. Moreover, both Japan and the Soviet Union at times presented themselves as models of different paths toward modernity. Modern China is a force and a reality, but not a model or an idea that others might replicate. The Chinese system will remain unique. (The one nation that shares its scale, India, does not share its political precepts. No other nation that could build roads, airports, and industrial parks as modern as China’s could impose so repressive a political regime.)
Still, thinking of how previous models might apply to China raises a valid point. The Soviet Union’s political control was finally undone by its economic failures. And the parts of Japan’s system that truly don’t work—mainly the financial markets, which have yet to emerge from a 20-year slump—reflect its difficulty in adjusting to changes in the world economy. So if China’s rise is not undone by the risks that have been evident for years—pollution, water shortage, corruption, the widening rich-poor social gap, primitive safety standards*—might China prove vulnerable to Soviet-style discontent born of a slowing economy? Or to Japanese-style inability to understand how the world is changing all around it?
My guess is No. China faces big problems, and its modern history has been marked by the unforeseen. Perhaps we will look back at the spectacle and choreography of the Beijing Olympics opening ceremonies as the last time the world thought there was no limit to what China could achieve. But I am betting the other way.