A not-so-good Year of the Ox

This Chinese New Year wasn"t the rosiest for many folks on the other side of the planet. According to reports, Chinese exports were down 2.8 percent in December from the previous year--a significant number, considering the amount China exports. The country"s GDP grew 13 percent in 2007, but was nearly flat during the fourth quarter of 2008. The world"s workshop now must deal with a global marketplace that isn"t buying as much as it was.

Timothy Geithner, our new Treasury secretary, made a diplomatic faux pas last week by using the words China and currency manipulation in the same breath. Sure, there"s truth to it, but it"s also true that China is financing the lion"s share of our astronomical national debt. For their part, U.S. consumers have fueled China"s dramatic growthuntil now, of course. It seems China and the U.S. have the global-trade equivalent of a co-dependency disorder. We"ve read about the excesses of U.S. consumption. The party"s over; it"s now time to save and live like responsible adults. Boiled down, the thinking has been that the U.S. consumes too much, while China produces too much. Recent news says the U.S. is headed in the right directionconsuming less and saving morethough manufacturers are feeling sharp economic pains because of it. China, however, may feel sharper pains.

The question is, Why have Chinese citizens consumed so little, even during economic good times? Much of the reason, I feel, comes from the fact that China"s communist policiesMaoist remnants from a starkly different erasuppress individual freedom. For instance, the Chinese government"s recent economic stimulus gives loans to small farmers so they can start businesses. But according to a report in The Economist, Few rural folk may be keen to start new businesses during a downturn, even if the state-owned banks are willing to lend to them (most farmers have little to use as collateral, since their land-use rights cannot be mortgaged.) Those land-use rights, the report said, are a Maoist-era holdover of collective farming.

If more of the world enjoyed the freedom of good education, ownership rights, and a chance for upward mobility, more people could afford to consume. If this happened, maybe world trade wouldn"t be so off-kilter. I"m not preaching democracy here; different cultures have different ways of doing things. I"d just like to see the freedom to innovate spread. Innovation, I believe, builds the foundation of a productive society. Besides, using poverty-stricken workers as the building blocks of economic growth is just plain wrong.

It"s a complicated world with different cultures, values, and power structures, and just having the freedom to innovate wouldn"t create a global utopia. But one thing"s for sure: China"s cheap-labor playing card doesn"t always make a winning hand anymore. For manufacturers stateside, that"s not a bad thing.