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Finance & Economy

Can China break the vicious circle of economic slowdown and foreign capital exodus?


Chinese Workers

Chinese Workers

Is China’s economic slowdown causing the foreign capital exodus or vice versa? It is like the old question: which came first, the chicken or the egg? Let’s look at both scenarios.

Economic slowdown has caused capital exodus.

Taiwan media Want China Times says in its report “Foreign manufacturer exodus from China”, “With the Chinese economy slowing down and its population dividend diminishing, foreign capital has been exiting the market at an accelerated pace”.

They are saying that foreign capital exodus has been caused by high labour costs instead of slowdown.

In its report “Exodus of Foreign Enterprises Quickens: There Is Fear of Closedown of 100 More Large Factories in Dongguan”, Hong Kong’s Singtao Daily also ascribes the exodus to the lower labour cost in Southeast China.

Japan’s Citizen has closed its production base in Guangzhou while US Microsoft’s Nokia has planned to close its factory in Dongguan this year.

According to China’s http://www.ce.cn, Japan’s Panasonic, Sharp, Daikin and TDK have planned to transfer production capacity from China back to Japan, while well-known foreign enterprises such as Uniqlo, Nike, Foxconn and Samsung have set up new factories in Southeast Asia and India in preparations for the exodus.

Foreign capital exodus has caused the closedown of some large Chinese enterprises in Dongguan City that supply parts or processing products for foreign enterprises in China. Singtao says that it is estimated that about 100 more large enterprises will close down due to the exodus resulting in the unemployment of hundreds of thousands workers there.

The serious unemployment due to the exodus reduces demand in the Chinese market, and thus gives rise to economic slowdown.

Then it’s the exodus that is causing the slowdown.

No matter which came first, slowdown or exodus, slowdown will give rise to exodus, while exodus will give rise to slowdown. It is a vicious circle.

The difficult question is: How can China break that vicious circle?

Hu Jintao wanted to replace the development model that relies on export and excessive investment for economic growth by a model that relies on domestic consumption and innovation. He failed to achieve this reform due to resistance from conservatives and vested interests.

Now, it’s Xi Jinping’s turn. Will he be able to overcome the resistance? Let’s wait and see.

Source: Singtao Daily “Exodus of Foreign Enterprises Quickens: There Is Fear of Closedown of 100 More Large Factories in Dongguan” (summary by Chan Kai Yee based on the report in Chinese)
Source: Want China Times “Foreign manufacturer exodus from China”

 

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About chankaiyee2

Author of the book "Tiananmen's Tremendous Achievements" about how with the help of Tiananmen Protests, talented scholars with moral integrity seized power in the Party and state and brought prosperity to China. The second edition of the book will be published within a few days to mark the 25th anniversary of Tiananmen Protests All the parts in the first edition remain in the second edition with a few changes due to information available later and better understanding. There are also some changes for improvements of style. The new parts are Chapters 12-19 on events in China after the first edition was published: The fierce power struggle for succession between reformists and conservatives; Xi Jinping winning all elders’ support during his mysterious disappearance for 2 weeks in early September, 2012; and Xi Jinping Cyclone. Chan Kai Yee's new book: SPACE ERA STRATEGY: The Way China Beats The US An eye-opening book that tells the truth how the US is losing to China. The US is losing as it adopts the outdated strategy of Air-Sea Battle while China adopts the space era strategy to pursue integrated space and air capabilities: It is losing due to its diplomacy that has given rise to Russian-Chinese alliance. US outdated strategy has enabled China to catch up and surpass the US in key weapons: Hypersonic weapons (HGV) that Pentagon regards as the weapon that will dominate the world in the future. Aerospaceplane in China’s development of space-air bomber that can engage enemy anywhere in the world within an hour and destroy an entire aircraft carrier battle group within minutes. Anti-satellite (ASAT) weapons, anti-ASAT weapons, stealth aircrafts, drones, AEW&C, etc. The book gives detailed descriptions of China’s weapon development based on information mainly from Chinese sources that the author monitors closely. U.S. Must Not Be Beaten by China! China is not a democracy. Its political system cannot prevent the emergence of a despotic leader or stop such a leader when he begins to bring disasters to people. A few decades ago, Mao Zedong, the worst tyrant in world history did emerge and bring disasters to Chinese people. He wanted to fight a nuclear war to replace capitalism with communism but could not bring nuclear holocaust to world people as China was too weak and poor at that time. If a despot like Mao Zedong emerges when China has surpassed the US in military strength, world people will suffer the misery experienced by Chinese people in Mao era. China surpassing the US in GDP is not something to worry about as China has the heavy burden to satisfy its huge population, but China surpassing the US in military strength will be world people’s greatest concern if China remains an autocracy. US people are of much better quality than Chinese people. What they lack is a wise leader to adopt the correct strategy and diplomacy and the creative ways to use its resources in developing its military capabilities. I hope that with the emergence of a great leader, the US can put an end to its decline and remain number one in the world. China, US, space era strategy, air-sea battle, space-air bomber, arms race, weapon development, chan kai yee

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