Canadian Manufacturing

China’s painful economic transformation felt by all

Once considered the world's factory, China's shift to service industries and domestic consumer spending is unavoidable



GUJIAO, China—From coal country to the export-driven manufacturing heartland of China’s southeast, millions of people in the country are enduring wrenching change. Beijing is trying to replace an economic model that has run out of steam after delivering years of blistering growth based on trade and investment in construction and heavy industry.

The World Bank and other analysts say a shift to service industries and domestic consumer spending is unavoidable if the world’s second-largest economy is to keep growing. The change could also help China cope with another cost of its boom: badly polluted air and water.

In Gujiao, 550 kilometres (350 miles) southwest of Beijing in Shanxi province, miner Fu Senjie said he still works the same eight and 12-hour shifts but his pay has been cut by half compared with two years ago to about 3,000 yuan ($500) per month.

“I have considered switching industries, but right now all industries are bad,” said Fu, smoking a cigarette as he sat on his bed in a room he shares in a company dormitory with two other miners.

Nationwide, last year’s economic growth fell to a 24 year low of 7.4 per cent. President Xi Jinping, invoking an American phrase, has dubbed this the “new normal.” The ruling Communist Party this month announced its lowest ever target for annual economic growth at 7 per cent, barely half of its explosive peak of 14.2 per cent in 2007. The International Monetary Fund expects growth to decline further in coming years.

Conditions are worse in areas that rely on steelmaking and other heavy industries.

Coal mining, which employs 10.3 million people, has been hit especially hard. Consumption of coal declined in 2014 for the first time in 14 years. Shanxi was China’s top coal producer last year and reported its slowest growth at just 4.9 per cent.

Chinese leaders have promised to generate new jobs by opening more of the state-dominated economy to private business. But they have yet to cut back monopolies and other privileges for politically favoured government companies that are a drag on development.

“The progress is modest and gradual, and still quite small compared to what is needed,” said RBS economist Louis Kuijs.

Associated Press researchers Fu Ting in Shanghai and Yu Bing and Zhao Liang in Beijing contributed.

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