China´s troublesome transition into a new economy – Arthur Kroeber

While the word ´recession´ is seldom used in China, many industries and region are facing rough times, now the country´s economy is in the middle of a transition into a new economy, tells economist Arthur Kroeber at NPR.

NPR:

The stakes are high — not just for China, but for the rest of the world.

Economic growth is slowing in China in a way it hasn’t in a long time.

“I think you have to be honest and say there are big chunks of the economy that are in recession right now,” says Arthur Kroeber, head of research at Gavekal Dragonomics, a Beijing-based economics research firm.

That word – “recession” – is one you almost never hear in China. The impact on China’s coalfields and rust belt is already painful, Kroeber says, and will only get worse.

“That will create unemployment problems,” he warns. “It will create bankruptcy problems. It will create nonperforming loan problems.”

China is shifting away, he says, from an economy built on things like investment in infrastructure and housing.

“The big deal has been that China, for years, was just in this incredible housing boom,” he says. “And every year, they were building more units than the year before. Basically, what happened was that people said, ‘Oh, well, we’re going to go up forever.’ So people built too many steel plants and too many cement plants and too much of everything. And then it stopped growing.”

Faced with falling demand and too much capacity, coal mines have shut down in western China. In the country’s northeastern rust belt, Kroeber says, “Instead of the steel plant closing down, they will cut back production. They’ll put their workers on one- to two-day-a-week shifts.”

That is all part of a punishing – if inevitable — path to a new economy….

The government next needs to begin laying off millions from state-owned industries, including moribund steel mills in the northeast, Kroeber says. Keeping them open keeps people employed, but otherwise they are drag on the economy.

Kroeber is not certain that officials – who traditionally fear economic unrest – are prepared to that. But the costs of failing to do so could be dire.

“We could wind up in a situation like essentially what Japan was in the ’90s, where they never do it and China winds up growing at a very slow rate — and all these stories of China taking over the world go away,” he says.