Happy Anniversary?

As China is getting ready to celebrate the 30th anniversary of its economic reform push with none other than a set of gold and silver commemorative coins, fears of unrest prompted the government bailout of the country’s exporters.

China began its historic process of opening up to the rest of the world after the third Plenary Session of the 11th Central Committee of the Communist Party, held from December 18 to 22, 1978. Today indeed China has come a long way, basing its economic boom on seemingly ever-growing exports. But the current global financial crisis is dampening the celebratory mood. NPR reports on the situation in one of China’s many manufacturing hubs, Dongguan city located in the southern Guangdong Province’s Pearl River Delta:

    Official statistics show that thousands of factories in Guangdong province have gone bankrupt this year. In the latest flare-up of unrest, laid off toy factory workers protested in Dongguan on Nov. 25, flipping police cars and smashing company offices. This has Beijing worried. It has decided to protect exports by increasing export tax rebates and halting the three-year-long appreciation of China’s currency against the dollar. And local governments in the delta have used billions of dollars to bail out small and medium enterprises.

Much like the United States and other Western economies, China has resorted to salvaging its export sector out of concern that its collapse could trigger a serious economic downturn leading to massive unemployment and social unrest. But as the attention of China’s leaders is turning inward, hopefully their reaction will not be that of reversing 30 years of economic openness. Beijing University finance professor Michael Pettis reminds us that 80 years ago it was the U.S. that was exporting its oversupply of goods. To protect those exports the country passed harmful legislation such as the Smoot-Hawley Tariff Act of 1930, which led to a collapse of global trade and contributed to the Great Depression.

Published Date: December 08, 2008