How China Lost Its Mojo: One Town’s Story

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from The Wall Street Journal,

Once Booming Yantian Looks for New Sources of Growth.

Low wages, easy access to overseas markets, and a business-savvy leadership helped transform Yantian in the 1990s from a sleepy agricultural hamlet to a manufacturing hub with close to 150,000 people. By 1998, more than 400 foreign firms set up shop, churning out electronics, toys and watches for export. A golf course and high-end hotel sprang up to keep Japanese and Hong Kong factory bosses amused.

Today, the number of foreign firms in town has dropped to about 150. Rising labor costs, land shortages and fading Western consumer demand drove some out of business; others moved to cheaper locations. The number of migrant workers, who once flooded into Yantian for jobs, has also shrunk, by nearly half.

Yantian’s challenges offer a microcosmic view of the problems today facing China. According to the National Bureau of Statistics, economic growth in the country fell to 7.5% year-over-year in the second quarter of 2013, down from a high of 14.8% in the second quarter of 2007.

For decades, the world’s most-populous nation relied on a simple formula to turbocharge growth. It combined vast pools of cheap labor with heavy investment in new factories and infrastructure to unleash economic energy squandered during the years of chaos under Mao Zedong.

Foreign investment flooded in and China became the world’s factory floor. Annual economic growth averaged 10% in the 1980s, 1990s and 2000s, says the NBS.

But now, much of the fuel that powered China’s old model looks spent.

Demographics are a large part of the shifting equation. China’s working-age population shrank in 2012, breaking a rising trend that stretched over the reform era of the past three decades, in large part because of a one-child policy that lowered birthrates. From 2010 to 2030, China’s labor force is expected to shrink by 67 million workers—more than the entire population of France—according to United Nations’ projections.

… few inside or outside the country believe China’s economy will power back to its former growth levels. Many predict it will struggle just to sustain its current trajectory in the absence of major reforms. While China remains the world’s biggest exporter, it is steadily losing some of its earlier leverage, reducing the odds it can repeat its previous feats of superfast export-led growth. Rising debt levels add to the headwinds.

A crucial meeting of China’s Communist Party elite in November is being billed by the government as an attempt to put the economy on a more sustainable path.

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