Tyler Cowen recently linked to this story in The Guardian, and wondered whether it was an indication of a Chinese recession:
China’s Workers Abandon the City as Beijing Faces an Economic Storm
Labour disputes are rising and some workers are leaving for the country amid fears a crashing economy could cause political and social unrest
Liu Weiqin swapped rural poverty for life on the dusty fringes of China’s capital eight years ago hoping – like millions of other migrants – for a better future.
On Thursday she will board a bus with her two young children and abandon her adopted home.
“There’s no business,” complained the 36-year-old, who built a thriving junkyard in this dilapidated recycling village only to watch it crumble this year as plummeting scrap prices bankrupted her family.
And here’s The Guardian in May 2009, a year when China experienced 9.2% real GDP growth:
Unemployment forces Chinese migrants back to the countryside
Factory to farm: millions who had enjoyed a taste of city freedom are returning to their villages
Until a week ago, Liu Xiao was part of the Pearl river delta’s army: one of the thousands of workers streaming along a Shenzhen road, gulping down breakfast, texting, lighting a final cigarette, teasing friends and swapping gossip – rushing rushing rushing to the factory for another shift making bras, computers and plastic toys for the world.
Today she waits patiently at the railway station across town. This region was the motor of China’s economic boom, but plummeting exports have forced it to slow and millions of those who kept it running have given up and gone home. Liu Xiao is one of the latest to return to the countryside: in her case to a village of just 200 people a 10-hour ride – and a world away – from Shenzhen.
So will 2015 be a repeat of 2009? Not entirely, the trend rate of growth in China is now lower, and the risks of recession really are higher than in 2009. But the similarity of these two articles should provide a cautionary note. Adam Smith said, “there is a great deal of ruin in a nation”, and there are very few countries where that aphorism is more apt than China.
PS. Here is an excellent article on the situation in China. It points out that the Chinese government is tightening monetary policy to stabilize the yuan. That’s not the right move at a time like this.
PPS. This is a really good article on why Chinese stock market regulation is so inept.
PPPS. This article suggests that as of August 25, 2015, the consensus forecast of economists is that China will have 6.9% growth this year and 6.7% next year. That makes Tyler and I China bears, as we both expect less growth than the consensus. For some reason it makes me feel better to be on the same side as Tyler. (I forecast about 6% going forward, and Tyler expects a very bad recession.) Willem Buiter forecasts, 4% on official figures, in reality even less. He says it will drag the world into a mild recession.
August 25, 2015
The main downside risk to the economy in the short term is that high volatility in the stock markets could translate into turmoil in the financial sector. On the other hand, a sooner-than-anticipated recovery in real estate and further action from authorities could spur growth in the next months. Panelists maintained their GDP projections for 2015 at the previous month’s 6.9%. Next year, the panel foresees growth at 6.7%.
But if China’s growth goes negative, I don’t think Tyler will let me get away with “I predicted less growth than the consensus, and I was right!!”