The “d” word is still shunned. But what is the definition? Depends – as usual. Some say, it is a long and severe recession characterized by high unemployment. Others define it based on a 10% fall in output, something that did not happen since the 1930s.
But one thing is clear: it is going to take time and will be painful, as the IMF people already warn (“The worst is yet to come”).
Securitization (in the USA) holds 1.5 trillion US$ of subprime and alt-A loans, 400 billion are delinquent. More are to become delinquent and more foreclosures (of homes) are on the way.
CitiGroup announces staff cuts of over 50,000 worldwide on top of 23,000 earlier layoffs. And so on: financial job losses worldwide are expected to climb from the now 170,000 to over 350,000 by next year – 20% of the total jobs.
It would be naïve to expect China to escape from the domino effect. With exports going down and international companies cutting budgets and people, what can you expect? South East Asia with Japan will also suffer as they supply many of the components used in China’s exports. Logical.
China is not that hungry for a trade surplus. The value-added factor in exports is said to be just 16%, with the other countries like Japan taking a big share. Not to forget the profit companies like Wal-Mart make on their exports from here.
So, China has to focus more on its own needs and market.
China has announced a 4 trillion boost program and a further 1 trillion is already in the pipeline. I totally disagree with Laurence Brahm and others who look at the China infrastructure projects as wasted money, like the Japanese bridges to nowhere. They don’t understand the much needed improvement we need in rail transport, urban transport, water treatment and so on. In recent years, the Ministry of Railways could only satisfy 30% of the demand for passenger and goods transport. Traffic jams in the big cities can only be solved by more public transportation. The electric power network badly needs a better transmission grid to interconnect the separate grids. Everybody knows that. Waste? You must be kidding.
The U.S. better follow China. As Mary Peters, current U.S. transportation secretary said: “The US is one of the few countries in the world to make the majority of its transportation investments without first conducting any kind of economic analysis to determine whether those investments will have any practical benefits for commuters or shippers. The results are telling”.
Indeed, a run-down network of highways and bridges and poor railways and outdated airports. And so much more. Come and learn from China?