China's Economy Grows, But Can It Last?

The Positec power tools factory near Shanghai i i

hide captionThe Positec power-tool factory in Suzhou Industrial Park — about 50 miles outside Shanghai — is suffering a worker shortage; it lacks about 200 employees, or about 10 percent of the workforce. In an effort to attract workers, the factory has increased wages by 10 percent and is building new dorms and a canteen.

Louisa Lim/NPR
The Positec power tools factory near Shanghai

The Positec power-tool factory in Suzhou Industrial Park — about 50 miles outside Shanghai — is suffering a worker shortage; it lacks about 200 employees, or about 10 percent of the workforce. In an effort to attract workers, the factory has increased wages by 10 percent and is building new dorms and a canteen.

Louisa Lim/NPR

New statistics show that China's economic recovery is picking up. The figures released Thursday show that China's economy grew by 8.9 percent in the third quarter, the fastest pace of growth for a year.

The numbers put Beijing on track to meet its annual target of 8 percent economic growth, a target that had looked optimistic at the start of the year. Industrial production was also up in September, as were retail sales.

"This is very strong economic growth, and I think the economic recovery is becoming broader," says Standard Chartered economist Li Wei.

But Li says that momentum is likely to fade in the second half of next year.

"The current momentum in the economic recovery is kind of unsustainable. I do not see private consumption picking up. I do not see income growing. I do not see saving rates falling anytime soon. That certainly worries me a little bit," Li says.

The fact that China hasn't managed yet to stimulate domestic consumption means that its recovery is of limited benefit to the rest of the world. It's good news for commodity exporters, like Australia and Brazil. But analysts say that while China's comeback is improving global confidence, it isn't yet driving global growth.

In what some analysts see as another sign of economic recovery, labor shortages are emerging in factories in China's developed coastal region.

At Suzhou Industrial Park, about 50 miles from Shanghai, there have been two waves of labor shortages in the complex of about 14,000 factories. The first shortage happened when workers went to their home villages for the Chinese New Year and didn't come back, fearing job cuts. More recently, the shortage has worsened since September as Christmas orders ramped up production.

However these factories laid off so many people last year, they still are not back to the levels of staffing that existed before the economic crisis.

"The first time, we were lacking around 5,000 workers; now, we're lacking 20,000 to 30,000," says Kang Yue, deputy director of Suzhou Industrial Park's labor and social security bureau. "China has 1.4 billion people. How can it be that we can't find any people? Where have all the people gone?"

He says that while orders have bounced back, the park's exporters are still in crisis, due to downward pressure on prices.

One factory that has survived the downturn reasonably well is Positec, a power-tool factory, which saw sales growth of 2 percent last year, compared to 20 to 30 percent in previous years.

Now Positec is also suffering from the labor shortages, needing around 200 people, or 10 percent of the workforce. In an attempt to attract new talent, it is increasing wages by 10 percent, building new dorms and a canteen for the workers, and offering better welfare.

But factory manager Osan Wang says it is still tough.

"It's very difficult to get people to come here. It's not because we have problems. It's just that central China and the west is developing very fast. The government is investing a lot of resources in infrastructure, and that needs lots of workers," Osan says.

Across town, an army of migrant workers heading home for supper proves the point. They are working on a new $50 billion high-speed rail network linking Shanghai to Beijing. This rail line will cut travel time from 10 hours to four hours. It is part of the government's $586 billion stimulus package to kick-start the economy.

It is certainly helping construction workers like Si Xigen, who was feeling the impact of the global financial crisis in his last factory job.

"I quit the factory because my family's needs were too great, and it didn't pay enough. The salary here is almost $300 a month, more than double what we made in the factory," Si says.

The problem is that such government-funded infrastructure projects are driving China's economic recovery. One estimate is that 88 percent of the growth in the first half of this year was tied to such fixed asset investment.

Beijing's response to the financial crisis has also raised fears that China's loose monetary policy could be feeding a bubble, for example, in the stock market, which has soared 68 percent so far this year.

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