The alarm bells begin to ring in China
Who will buy all this stuff? Who will buy the plastic garden furniture, the fridges, the toys, the wall of household junk that is thundering out of shiny new factories in China?
Between January and October, China’s statistical bureau recorded $1.2 trillion (£580 billion) of industrial spending. During the same period, lenders in America were slamming the door on their customers, cancelling credit cards, demanding the keys to homes, apartments and trailers. The message from the banks is clear: the party is over. Still, China’s factory floorspace continues to grow. You have to ask the question: who will buy the stuff?
The Pollyanna economists think it is all different now, a view espoused by the World Bank in its most recent report on East Asian economic growth. China is creating its own demand, “decoupling” from the US economy, it says.
I didn’t see much decoupling on a tour in early June of a furniture plant in southern China owned by Samson, a Taiwanese firm. Seven production lines, each in its own giant shed on a million square metre site were dedicated to producing reproduction antique furniture. Between 7,000 and 8,000 Chinese workers cut timber, sandpapered, lacquered and varnished enough wardrobes and dressers to fill 1,200 containers every month, with every item destined for a bedroom in America.
What will the bank debt collectors do with all those repro wardrobes, each lovingly polished to an antique patina, complete with fake wormholes? Samson reported falls in revenues and profits and squeezed margins in the first half of the year, due to the worst American housing slowdown in 25 years. It doesn’t expect a short-term turnound. “We will focus on cost-savings to go through the winter,” the company said, in a sombre outlook.
On planet World Bank, the view is still glorious. Perhaps the civil servants at World Bank HQ in Washington get better credit terms than most Americans. The institution reckons that China’s economy will grow at 10.8 per cent in 2008, two percentage points above its forecast in April, but some people in Beijing are yet to be convinced.
Only a day after the World Bank released its fug of warm air, Beijing’s Commerce Ministry raised the alarm, giving warning that things had reached a “turning point” and Chinese exporters could be “devastated” if US demand continues to fall.
Exports account for a third of China’s growth and America is the destination for a fifth of the stuff.
“The risks of economic slowdown in the US . . . plague our export prospects,”the Commerce Ministry said.
China’s OK and so is Africa, says the World Bank. In a separate report, the Washington institution announces that the continent has “turned the corner”. A host of African states are now showing growth rates of 6 per cent or more, enough to lift their populations out of grinding poverty. Moreover, the bank seems to think that the shift to a higher gear is sustainable and not merely the temporary trickledown from barrels of oil priced at $100.
There is no doubt that there is mounting excitement about Africa. At a Renaissance Capital conference in London this week, Stephen Jennings, the investment bank’s chief executive, confidently predicted that his firm would repeat in sub-Saharan Africa the success it achieved when it established itself in Russia in 1992.
Huge infrastructure projects are the buzz. Ironically, it is China that is leading the way, offering its civil engineering know-how and financial muscle in return for access to the oil and metals badly needed by the People’s Republic. It’s a start, but only a continuing flow of private sector investment will create the conditions for sustained growth. What private investors want to know is whether a country, such as Nigeria, can break with its past tendency to regress periodically into orgies of corruption.
The answer lies not in aid, technical assistance or even private investment. It lies in people such as Ngozi Okonjo-Iweala, a former Nigerian finance minister, and Mo Ibrahim, the founder of Celtel, the pioneer of mobile telephony in West Africa. Mr Ibrahim, who sold his company for $3.4 billion and is using his wealth to promote good governance in Africa, chided bankers for their reluctance to back entrepreneurs. Celtel was sold with only $190 million in debt. “Those guys who were lending to sub-primes in America. Why would they not lend me more than $190 million?”
Bankers might lend if Africa had a well-regulated banking system strong enough to cope with crises – and that is where Dr Okonjo-Iweala played a vital role in Nigeria. As finance minister, she attacked corruption and engineered a debt forgiveness package that freed Nigeria from a millstone of borrowing accumulated under military dictatorship. Unfortunately, the woman who for many symbolised Nigeria’s drive to wipe out corruption is no longer in government. She was moved suddenly from her post last year and resigned. She is heading for Washington, to become managing director of the World Bank.
Politics matters in Africa. There, where business opportunities are few, politics attracts the strong. Dr Okonjo-Iweala is wasted in Washington. She is needed in Nigeria. The best aid package that the World Bank could devise would be to send her.
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