China’s real estate market was about to emulate the hyper-inflation that reflected most modern industrial powers, which suffered a crash unlike anything seen since The Great Depression. They were saved by our pain. Even the PRC’s over-accelerated and inflationary growth, with environmental devastation as the inevitable side effect, has slowed, and China now is learning how not to rely as heavily on the export market (which represented 2/3 of Chinese production before the managed depression hit) – she must turn inward. Her $587 billion stimulus package is aimed at changing a national direction, unlike the American bailout, which seems to tilt towards restoring order and traditional financial giants well ahead of the otherwise stated priorities of building new industries and funding education.
In the past three months alone, the Peoples Republic of China has loaned out more money than in the previous year… while reasonably available credit remains a distant memory to all but a few of America’s industries. The PRC banking system passed through the firestorm that destroyed the Western financial markets intact. As we struggle to figure out which infrastructure projects to fund, China has already begun deploying a good chunk of its stimulus package toward building new highways and is setting up training programs to prepare its citizenry for a serious skills upgrade in the competitive future.
During a recent meeting of the National People’s Congress, China’s President, Hu Jintao reminded his people that, “Challenge and opportunity always come together — under certain conditions, one could be transformed into the other.” After Chinese leaders warned America to safeguard its economy and worried openly about their $2 trillion of US based currency holdings (half in US Treasuries alone), new directives were issued by the PRC commerce ministry to search the globe to find new “buying opportunities;” they immediately sent a delegation to Europe to scope out potential corporate acquisition targets in textiles, machinery, automotive, food, energy, environmental protection, and electronics. The PRC is in the process of streamlining the approval process to facilitate Chinese companies buying foreign holdings.
It’s clear that the Chinese workforce of the future will be very different from the perception many have in the West of unskilled and exploited masses. The March 16th NY Times: “[W]ith subsidies from Beijing, provincial governments have embarked on large-scale vocational training programs of the sort that the United States has discussed but not actually tried… Guangdong province alone… in southeastern China, is quadrupling its vocational training program this year to teach four million workers engaged in three-month or six-month programs… The main comparable program in the United States, under the Workforce Investment Act, has been training fewer than 250,000 a year, although President Obama’s stimulus program provides funding that could double the number of American workers in training programs.” Many active PRC workers are even spending ample time in factory classrooms sponsored by their employers (with government help).
China seems to understand the value of building and inventing industries, creating more than illusory financial instruments that have lulled the West into believing that such financial efforts were in fact more worthwhile national goals than actual research and true invention. We used to be the best at that form of entrepreneurial creativity; we need that spirit and ethos back. Our “best and brightest” must lead us to new constructive values, deploying capital into invention and not mere speculation.
With cheap energy and even cheaper labor, China is poised for some very significant short and long term growth, and if we do not get out competitive act together, we better start learning to speak Mandarin as soon as possible. Remember my admonition in an earlier blog: when people borrow heavily against over-inflated assets, the most likely ultimate owner of those assets is the lender.
I’m Peter Dekom, and there is no “easy” button.
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