Economic Slowdown and Nationalistic Behaviour

Two weeks ago, I mentioned that the Chinese economy is still very much reliant on demand from the West and alluded that it was not really domestic consumption boost or successful diversification, but rather false expectations about the speedy recovery in EU and US that had contributed to the outside appearance that Asia, particularly China has successfully decoupled itself from the West sometime ago when Asia seemed to be doing pretty well as opposed to EU and US (More on Decoupling and Asia).

The latest data released on the Chinese economic slowdown and the need to clear existing inventories served to prove this point. Indeed, an article by Damian Grammaticas from BBC gave some examples of industries where the number of days to clear inventories have increased exponentially.

In that pervious post, I made a passing (and cautious) remark that the Chinese government can consider learning a thing or two from Indonesia, which has been able to drive economic growth by boosting domestic consumption. Learning from Indonesia is one thing. Question is: has the government ever considered boosting domestic consumption as an option to pick up the slack from EU and US? Judging from its past actions, it certainly has. However, boosting domestic consumption is not a free lunch. While they largely fulfill their objectives, interest rate cut and the likes also lead to inflation, default, etc, things that the government has been trying to put a lid on.

Even if they have certain mechanisms in mind to counteract these unwanted side-effects, they may want to tone it down and give the limelight for solving the economic slowdown to the new generation of leaders that are expected to take over the country later this year.

So when you want to do something that will impact your population but can’t really do it for economic and political reasons, the simplest way is to divert the attention of the population away from it. Perhaps this is the reason why China has become more nationalists with regards to South China Sea and other nearby waters in the past few months.