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China's Government Tries To Stabilize Its Financial Markets

STEVE INSKEEP, HOST:

So you make your living selling raw materials to China. It's going to hurt you when China slows down. In other words, Brazil's trouble is at least in part a symptom of trouble in China. And that's useful evidence to us this morning because one big mystery is just how much China's economy really is slowing down. Simon Rabinovitch can also help. He's with The Economist magazine. He's based in Shanghai. Welcome to the program, sir.

SIMON RABINOVITCH: Thank you very much.

INSKEEP: You know, in Brazil, as we heard, people can hold a mass protest. How do people express their distress - if at all - in China right now?

RABINOVITCH: Well, as you know, the right to protest is much more circumscribed here. When people are pushed to the edge they may take to the streets. And there actually has been a slight increase in demonstrations and protests in recent months, which is a sign of some of the troubles that are building up. But that obviously is a very different situation from Brazil. One thing I would say is that it's clear that Brazil is being hit very hard by this slowdown in Chinese demand, but that really reflects two things in China. One is the slowing of growth, but the other thing, which is a bit more complex, is the restructuring of the economy here. For many, many years, it was really driven by investment. That has really begun to peter out. It's really becoming a more service-led and domestic consumption-led economy. And so that's a double blow for the kinds of economies, like Brazil, that were supplying commodities that really catered to the China of old.

INSKEEP: OK, so we've talked about how China has a falling stock market, other troubles. They even went to the extreme of devaluing their currency. And you're saying this is part of a broader transition, the kind of transition the United States made at one point from being heavily dependent on manufacturing to being more dependent on people buying stuff. Is that what you're saying?

RABINOVITCH: It's part of a very, very long transition. So it's not something that's going to happen overnight. But investment had grown to be about 50 percent of China's GDP, which was really unprecedented for developing economies. It was too high. It was unsustainable. That peaked a couple of years ago and consumption is slowly, gradually becoming more important. So from within China itself, the picture actually looks a lot better than it does for the kinds of countries that were supplying commodities catering to China's investment.

INSKEEP: You know, it's commonly presumed that even a small slowdown in China might affect unemployment in China. And unemployment in China - because it's such a huge country - could mean so many people out of work that it could lead to social unrest. What is the unemployment picture look like as best you're able to tell?

RABINOVITCH: Well, unemployment is one of the data points that is really the hardest to pin down in China. There has not been a big rise in unemployment in terms of, you know, job seeking cues or anything like that. The fact is that part of the transition away from investment toward services means that the economy is actually developing sectors in companies that are much more labor-intensive. So again, this gets back to the story of - from the outside of China, for countries that are supplying commodities to it, the picture is pretty bleak. But when you're inside China, you still actually see lots of help wanted ads in restaurant windows, you know, around the country. So the job picture is actually holding up fairly well.

INSKEEP: What's all this mean for the United States?

RABINOVITCH: It's not good. I mean, China is the fastest-growing export market for the United States. Sometimes in the U.S., the relationship is described as being a very competitive one, and certainly there is a big element of competition to it. But more importantly, China is emerging as an important source of demand for American companies. The direct competition is something that will emerge as China's economy gets more sophisticated and developed, but for the time being, China's a very important source of demand. And if the economy slows too sharply, that's something that will actually hurt American companies.

INSKEEP: Simon Rabinovitch of The Economist in Shanghai, thanks very much.

RABINOVITCH: You're welcome. Thank you. Transcript provided by NPR, Copyright NPR.