Sink or swim in modern China

Chris Hogg heads to the small Chinese village of Zhushanxia, 200km from Shanghai, to see how lives have been shaped by the economy under communist rule, the recession and the country’s economic recovery.

China’s economic roller-coaster has divided communities and villages into those who have sunk financially, and those who managed to swim

Huang Jiao Ling lives at the end of a long dusty road.

Mobile phone numbers are daubed all over the walls of her home and those of her neighbours.

It is like a strange kind of mathematical graffiti, but the numbers are, in fact, advertisements for people offering goods and services.

In modern China, it seems everyone has something to sell.

Huang Jiao Ling, too, is an entrepreneur. She is in her 50s, but she looks younger.

In her front garden, where others might have planted vegetables, she has built a small workshop.

Inside, the walls are unfinished and the floor uneven, but there is just about enough room for a work-bench and a handful of basic machine tools.

Churning out widgets

On the floor are cardboard boxes filled with piles of tiny metal widgets.

They are simple to make – her husband sits at the bench turning them out rapidly by hand.

Many Chinese run their own small businesses in order to get ahead

A few feet away, his bicycle-taxi is parked just inside the front door of the house.

The machine work is a lot less tiring than pedalling passengers around, but he still keeps the bike.

It is useful, he says, to supplement their income in leaner times.

The Huangs sell the boxes of widgets to the factory where Huang Jiao Ling has a full-time job.

For a while this year they had to shut the workshop as demand dropped, but now the machines are humming again.

They have two children, because if you live in the country and your first child is a girl, you are allowed to have another one.

The girls go to very good schools, the best Huang Jiao Ling can afford.

She spends more than half her income on school fees.

“We have to think of their future,” she tells me.

“It’s a Chinese tradition. Parents always think of their children, and when the parents get old, their children will look after them. It’s the same for every generation.”

Yu Feng Guo is Huang Jiao Ling’s brother-in-law.

She is doing well for herself in China’s new modern market economy, but he has been left behind.

He used to work in a state-owned brick factory.

Different lifestyles

When the economic reforms began 30 years ago he watched as some of his co-workers left their jobs to start up their own small businesses, many of them selling prawns or fish by the side of the road.

He decided to do what he thought was the right thing, what the communist party would expect of a loyal worker in a state-owned enterprise – he stayed.

Eventually, the brick factory went bust and he was out of a job.

Agriculture provides an income for many rural Chinese

Now, dressed in a shabby khaki jacket, he works as a security guard in an open-air food market.

Those early entrepreneurs who had left his factory to try their luck in the fledgling market economy are now much richer than him and to his family this seems unfair.

“Thirty years ago everyone in the village was poor,” his son tells me.

“Now the difference in lifestyle between the rich and the poor in our village is huge.”

There is an implicit bargain in modern Chinese society between the leaders and the led.

Beijing tells its people “we will give you opportunities” – to earn more, to enjoy a better standard of living than your parents did.

But you, in return, will behave yourself.

Back on track

In Zhushanxia village quite a few cars can be seen bumping along past the fields, something you would not have seen 30 years ago.

If you have got used to having more, whether it’s a car, or a bigger house, or a more expensive school for your child, you have more to lose when times get tough.

That is why it is so important for the government to get the economy back on track.

When it first faltered, when factories started laying off workers, there was a risk that they would start to feel the government was no longer keeping to its side of the deal, so why should they?

So in Beijing, of course, there will be relief that a recovery appears to be under way.

But the next challenge for the government will be to do more to try to ensure that everyone shares the benefits.

Huang Jiao Ling is happy her workshop is busy again, but still nervous about the future.

So she, like most other Chinese, is saving as much of her income as she can.

Her brother-in-law Yu Feng Guo, has no idea how he will be able to save enough to secure a state pension on his meagre wages from his unstable job.

He and others like him will be looking to their leaders for reassurance that they will be cared for as they approach old age.

But that will costly and complicated. Fixing the economy may prove to have been the easy part.

Student maintenance cash frozen

The system of student finance is different around the UK

Student maintenance grants and loans in England will be frozen for the academic year 2010-2011, the government has announced.

However, loans to cover tuition fees will be raised in line with the increase in the fees themselves.

Tuition fees will increase by 2.04% from September 2010, higher education minister David Lammy said.

He insisted that “difficult decisions” had to be made in the current economic climate.

The full maintenance grant, payable to students whose family income does not exceed £25,000, will remain at £2,906.

Maintenance loans and thresholds will also remain at 2009/10 levels.

Grants available for trainee teachers will also be reduced to be brought into line with amounts available to other students, Mr Lammy said in a written ministerial statement.

He said: “In these difficult economic times, we are continuing to take difficult decisions in the interests of students, universities and taxpayers alike.

“We have therefore decided to maintain the current package of maintenance support for full-time students, reflecting the current low inflationary environment.”

Recession

The Russell Group of 20 leading universities said it was “vital” that income from tuition fees kept pace with inflation.

“The introduction of fees has managed to halt a long-term decline in funding per student but funding for higher education in Britain is still significantly lower than in most other OECD countries,” said its director general, Wendy Piatt.

“The system of student support in England remains one of the most generous – and expensive – in the world.”

But the National Union of Students President, Wes Streeting, said: “Students are already racking up thousands of pounds of debt, and in a recession every penny counts.

“It appears that the inflation rate is being applied where it suits universities, but not where it will improve student support.

“In the context of the current recession, these real terms cuts in student support will be felt in students’ pockets.”

And the General Secretary of the University and College Union, Sally Hunt, said ministers had “failed” to ensure higher education was not a victim of the recession.

Loans

Students in England can apply for a means-tested grant to cover living costs – the value of this depends on their family income.

They can make up any shortfall by applying for a maintenance loan.

In addition, a tuition fee loan to cover fees is paid by the government on behalf of every student directly to the institution they attend.

These are repayable after graduation once annual income reaches £15,000.

Students in Northern Ireland are charged the same fees as in England.

The situation in Scotland and Wales differs – both countries charge higher fees to students from elsewhere in the UK coming to study there.

In Scotland, home students do not pay any fees.

US consumer confidence plummets

US consumers are increasingly gloomy about economic prospects

US consumer confidence has unexpectedly dropped to a record low in December, in the face of the US economic slowdown and continuing job cuts.

The index fell to 38, from November’s revised 44.7 figure, though it had been expected to rise.

The dismal job market appears to have outweighed falling oil prices in consumers’ minds, analysts said.

Meanwhile, October house prices in 20 US cities fell by a record yearly rate, according to a key home price survey.

Falling confidence

According to the Conference Board, those respondents saying jobs were “hard to get” rose to 42% in December – up from 37.1% in November, while those claiming jobs were “plentiful” dropped to 6.2% from 8.7%.

The proportion of consumers anticipating an increase in their incomes decreased to 12.7% in December from 13.1% in November.

And those claiming business conditions were “bad” increased to 46% in December from 40.6% in November, while those saying business conditions were “good” declined to 7.7% from 10.1%.

The survey is based on a representative sample of 5,000 US households.

Separately, house prices in 20 US cities fell by a record annual rate of 18.04% in October, according to the The S&P/Case-Shiller home price survey.

Record falls

The index shows that prices of homes is continuing to fall across the US with many areas showing record price falls.

David Blitzer, of Standard & Poor’s said that “home prices are back to their March 2004 levels”.

October’s annual fall was more than had been expected by analysts, who had been predicting a 17% drop.

The city which showed the biggest price-fall was Phoenix, where home prices plunged 32.6% in the year to October – followed by Las Vegas, which was down 31.7% and San Francisco, down 31%.

Overall, house prices for the 20 metropolitan areas in the survey fell 18.04% in the year to October, the largest drop since its inception in 2000.

The annual fall in prices for the top 10 metropolitan areas was 19.06%, its biggest decline in its 21-year history.

Both indices have now recorded annual declines for 22 consecutive months.

Prices in the 20-city index have dropped more than 23% since their peak in July 2006, while the 10-city index has fallen 25% since its peak in June 2006.

None of the 20 cities saw annual price gains in October – for the seventh consecutive month.

‘Decline slowing’

Wall Street’s reaction to this latest housing survey was initially muted, as November figures on the depressed state of the housing market have already been published.

Last week, figures from the Commerce Department showed that sales of new homes in the US had slowed to their lowest level in 17 years in November, while new home prices had dropped by the biggest amount in eight months.

Tim Ghriskey of Solaris Asset Management in Bedford Hills, said this survey was “pretty much right in line with expectations but very depressed”.

“There are signs we believe that the decline in housing prices is slowing and we’re in a bottoming process but clearly this does show that housing prices continue to decline significantly,” he said.

The US housing market is in the worst downturn since the Great Depression as a huge supply of unsold homes, the credit squeeze and record mortgage foreclosures has pushed down home prices.

Economists believe the market will not begin to recover until home prices fall far enough to stimulate demand, which has dropped off precipitously.

Japan’s economy sees a sharp fall

Japan now seems at real risk of recession

Japan’s economic output has recorded its sharpest quarterly fall in almost seven years as the country appears to be falling into recession.

The world’s second largest economy contracted at an annualized rate of 3% in the April to June quarter, as both domestic demand and exports weakened.

It was the first decline in more than a year, and the biggest since the third quarter of 2001.

The government has called on firms to raises wages to help boost spending.

The Japanese economy, like most around the world, has also been affected by higher energy and food prices.

“It is desirable that income for employed people increases,” said Economy and Fiscal Policy Minister Kaoru Yosano.

“We want company managers to recognize that pay rises would compensate for price rises.”

Last month the Japanese government announced an economic stimulus package worth 11.7 trillion yen ($107bn; £61bn).

A country is generally considered to be in recession when it sees two consecutive quarters of declining economic output.