China's challenges

Two items of news from Beijing this week underlined the sheer immensity of the economic challenge which China is facing.

First, Monday, came a report of a massive drive to develop high technology industries with the aim of making the country the world's second biggest power in science and technology by the year 2020.

Then, yesterday (Monday), the Labor Minister forecast that state firms would lay off between eight million and 10 million workers in the next three years. As the minister recognized, finding jobs for these workers would be an arduous task. The strain on the social, as well as the economic, fabric will provide Beijing with one of its key tests, with success or failure having implications that reach far beyond China's borders.

The ambitious high technology plans ... give China a glimpse of adding a major new dimension to its economy, but, for the moment, the key issue is the linked one of resisting trade- boosting devaluation while absorbing those millions of unemployed. Clearly, the leadership in Beijing thinks it can do both. If it steps back on either front, not only China's economy will be put back in a serious way, but the world will be faced with a fresh round of deflation that could make last year's downturn in Asia seem like a mere rehearsal for a worldwide crisis.

-- South China Morning Post