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Reason Foundation

China's growth falters

Samuel Staley
November 2, 2008, 10:29am

Just last year, Chinese economic planners were worried that the economy was growing at an unsustainable rate. Now, as an LA Times article demonstrates, the Chinese economy is slowing, perhaps even collapsing in some areas, because of slowed world growth.
Few were bigger than Jianglong, which is Chinese for "River dragon." The company posted sales of about $110 million and a profit of $14 million last year, according to its annual report. Its owner, Tao, boasted of the company's sophisticated research and development capabilities and a base of global customers that included Wal-Mart.
Now, the Jianglong company is one of an estimated 100,000 manufacturing companies that will close their doors by the end of the year.
By 2004, he was exporting $2.5 million of goods, and two years later, after listing the company on Singapore's stock exchange under the name China Printing & Dyeing Holding Ltd., Tao bought two companies and built a massive factory outfitted with Japanese and Italian equipment. This year, as he began to miss or delay payments to suppliers, Tao told them he would soon be raising tens of millions of dollars by listing the company on the Nasdaq Stock Market.
But, China is not a free market paradise. Governments on the provincial and local level have often been actively (and sometimes corruptly) involved in building up businesses.
But Tao's plans were foiled by the global financial crisis and the sudden turn of fortunes for exporters, according to suppliers, many of whom fault the local government for supporting Tao and continuing to assure them and employees that the company's listing on Nasdaq was on track.
Government officials said last week that Tao and his wife had been caught, but they refused to comment further. "It's very hard for me to analyze why or how it had this problem," said Jin Agen, vice director of Shaoxing's Publicity Department.
Perhaps China will be another example of the dangers of the "mixed economy" model now heralded again in US political quarters. Still, analysts expect the Chinese economy to grow at about 4% this year. That's still less than half of the rate in the year leading up to the Olympics.

Samuel Staley is Research Fellow


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