In recent years, China has adopted a version of “export-led growth” (ELG or EOI–export oriented industrialization). Largely by manipulating the value of its currency (which we’ll discuss later in the term), the Chinese government has encouraged exports to the “West.” This strategy has largely worked, powering tremendous economic growth; but it also has some costs.

Before the current economic crisis, I wondered about several things:

(1) How would the Chinese fare if foreign demand declined? At the time, I feared political backlash, that Western export-competing producers might secure protection from Chinese imports. But the current economic crisis has served to produce the same result: skittishness on the part of consumers in the West has decreased demand for Chinese exports.

(2) How long could the Chinese government continue to encourage exports at the cost of increased domestic consumption? Simply put, when would the Chinese consumers begin clamoring to keep more of their products at home for their own use?

I just ran across an article in BusinessWeek that addresses some of these issues. In response to decreased foreign demand, Chinese manufacturers appear to be reorienting production towards the home (Chinese) market.

The competition there, however, is fierce. This latter insights sheds some light on my second question. The answer seems to be that the margins in China are much, much thinner. Simply put, there are more producers chasing less demand; and the demand is low, I presume, because incomes are low.

Here’s the article:

http://www.businessweek.com/magazine/content/09_08/b4120026074539.htm?campaign_id=rss_daily

Thoughts?