Robust China sees "daunting challenges" for economy (Feature)

By Bill Smith Nov 12, 2008, 4:09 GMT

Beijing - Christmas is normally a happy time for the millions of workers at vast factory complexes in China's southern manufacturing powerhouse of Guangdong province.

The workers can relax in the knowledge that the export orders they have just completed will bring them relative prosperity, at least for a few months.

But this year, Christmas will instead be an anxious time for many Guangdong workers as they seek new jobs before they use up their dwindling savings.

Jiang, a migrant worker from the south-western province of Sichuan, recently lost his job at the Hejun toy factory in Guangdong's Dongguan city.

'I worked at Hejun for three years as a painter,' Jiang told Deutsche Presse-Agentur dpa by telephone from Dongguan.

Jiang, who declined to reveal his full name, said he had earned up to 1,600 yuan (234 dollars) per month at the factory.

'My wife is in Sichuan now, and I have two kids aged seven and 13 who are studying in Dongguan, so I cannot move back to Sichuan or to another city,' he said.

'I don't have money to start my own business, a new job is not easy to find and I have no idea of the prospects of finding one,' Jiang said.

There are already tens of thousands of redundant workers like Jiang in Guangdong and other south-eastern provinces as factories making toys, shoes, textiles and clothing shut down.

The effects of the global slowdown are likely to become more pronounced in China over the next year, Liu Kaiming, the director of the Shenzhen Institute of Contemporary Studies, said by telephone from Guangdong's biggest manufacturing city.

'Christmas is a good sales season for toys, but the orders from the EU and the US dropped dramatically this year due to the recession,' Liu told dpa.

'The main body of China's economy is the export economy and the main target countries of exports lie in the EU and the US, so you will see more businesses affected next year,' he said.

The Federation of Hong Kong Industries recently forecast that up to 2.5 million people could lose their jobs by January in the Pearl River delta, which includes Hong Kong, Shenzhen and Dongguan.

The government's official Xinhua news agency said in analysis this week that the economy faced 'daunting challenges,' pointing to 'weak domestic demand' attributed to an 'inadequate social security system.'

Rising costs of labour and materials and the gradual appreciation of China's currency against the dollar have also deterred investment.

Worried about the potential effect on China, President and Communist Party leader Hu Jintao has already discussed the financial crisis by telephone with US president-elect Barack Obama and is expected to meet him in Washington on the sidelines of the G20 economic summit.

This week, the government announced a package of measures designed to 'offset the adverse external economy by boosting domestic demand.'

It promised to spend an estimated 4 trillion yuan (586 billion dollars) on infrastructure projects, reduce some taxes and loosen bank-lending requirements.

Analysts welcomed the announcement but warned that economic growth was still likely to slow next year.

Morgan Stanley Research in Hong Kong said it had lowered its GDP growth forecast for China from 8.2 per cent to 7.5 per cent.

'The lower growth forecasts are mainly explained by smaller contribution of net exports - due to slower export expansion - to growth and weaker investment in the real estate sector,' Morgan Stanley said in a report.

Hong Kong-based economist Tao Wang of UBS Investment Research said in a report to clients that public housing and infrastructure were 'likely to receive the biggest push' from the new package.

'These public projects will help to boost overall investment sentiment and bring about more bank lending,' Wang said.

The UBS report also said China's GDP growth was likely to slow to 7.5 per cent next year, down from 9 per cent in the third quarter of this year.

But Zhou Xiaochuan, the governor of China's central bank, last weekend forecast economic growth of 8 to 9 per cent in China next year.

State media quoted Zhou as saying at a summit of G20 finance ministers in Sao Paulo, Brazil, that the Chinese central bank would 'cooperate with the International Monetary Fund to stabilize financial markets.'

Foreign Ministry spokesman Qin Gang echoed Zhou's comments on Tuesday and said the government's economic package would help China to 'promote the stable growth of the domestic and world economies.'

'We will make our biggest contribution to the world by maintaining the healthy and stable growth of our own economy,' Qin told reporters.