China's Economy Grows At Its Slowest Rate In 25 Years
RENEE MONTAGNE, HOST:
Asian markets fell today after the International Monetary Fund scaled back its estimate for global growth this year. That followed word yesterday that China's economy grew last year at its slowest rate in a quarter century. It looks bad, but some Chinese investors don't seem to think it is. Markets in Shanghai are still up slightly for the week. To figure out what's going on, we turned to NPR's Frank Langfitt, who is in Shanghai. Good morning.
FRANK LANGFITT, BYLINE: Good morning, Renee.
MONTAGNE: And why, Frank, is the Shanghai market not down?
LANGFITT: Well, it's interesting. You know, the GDP numbers which came out yesterday, those were really big news in the West, but they were pretty much expected here. People here are very close to the economy. And what investors figure is that the government now looking at it is going to feel that it has to cut interest rates, pump more money in the economy. And that, actually, the hope is that'll spark some growth at least in the short term. So, you know, markets are always often really looking at the short term, and so that's why they responded the way they did.
MONTAGNE: Well, what about other numbers out this week that we might be focusing on to understand where China's economy is headed?
LANGFITT: Well, there were two really interesting ones that I think probably, to some extent, were overlooked, which I think are really important when you want to look at the long-term health of the - and the future of the Chinese economy. The first one is we saw, for the first time, services are now over 50 percent, providing 50 percent - more than 50 percent of GDP. This used to be very much a heavy industry, trade-driven economy. And for the long run, this is very good news. Over time, you know, services, they tend to produce higher value growth, better white-collar jobs, hopefully, and better wages. And this a really big change. If you go backstage to the '90s when I first started covering the Chinese economy, this nation was mostly factories and farms. When I was in Beijing, there was this gigantic steel plant on the western edge of the city. Today, when you look at these cities, the big ones, there are services everywhere. In Shanghai, you got a lot of banks, tons of restaurants, five-star hotels. It looks a lot like New York City. The second figure that's also really important and it's related is consumer spending is now making up two-thirds of gross domestic product, and that's up 15 percent from last year. So what we're seeing is the economy is actually moving in the right direction, going away from construction and kind of the dirty industry model towards a more sustainable economy driven by consumer spending and services.
MONTAGNE: But if - when you get right down to it, China's economy is, as you say, headed in the right direction. Why have Western stock markets reacted so negatively to news out of China over these past months, bad news but...
LANGFITT: Yeah, there are a number of reasons for that. One is, you know, consumer spending hasn't been growing fast enough to make up for the fall off the old industrial economy. It's basic math. China also contributes about one-third to global growth, and people are worried that they're not going to be able to depend on China the way they have in the past. There's also, frankly, concern about China's leadership. They've made some pretty big mistakes on currency devaluation and the stock market in the last six months. And party's always been known for strong managed the economy. People always thought that was a short bet. And some economists are worried, though, the party leadership is divided or they're not quite sure of what they're doing.
MONTAGNE: Well, then as growth slows, what are the political implications for China's communist government?
LANGFITT: Well, I think the government is concerned. There hasn't been a lot of publicity on this, but this is something that people should watch for in the coming months. We saw at the end of last year there was a big spike in worker protests and strikes, and this was as the stock market tanked and manufacturing and construction were slumping. And we saw that labor protests actually doubled to 2,700. Cops were called in on 800 of those cases, more than 800. This was mostly over unpaid wages. And the party's generally handled labor unrest very well over the years. But if growth keeps slowing, that could get harder. And also keep in mind that China's Communist Party, their claim-to-rule is really built on the management of the economy. They're not elected. And the management now is looking a little shaky, and I think the last thing the party wants to see is lots of people in the streets criticizing the party and questioning their authority.
MONTAGNE: NPR's Frank Langfitt speaking to us from Shanghai, thanks very much.
LANGFITT: Happy to do it, Renee.
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