BOSTON--President Hu Jintao has painted China's economic prospects in stark terms, telling party leaders that the country is losing its competitive advantage and facing social tensions.
The warning to the Political Bureau of the Communist Party of China (CPC) Central Committee on Nov. 29 appears to be the grimmest assessment yet from the country's leadership of the economic challenges that lie ahead.
Hu said that "with the spread of the global financial crisis, China is losing its competitive edge in the world market as international demand is reduced," the official People's Daily reported.
"China is under growing tension from its large population, limited resources and environment problems, and needs faster reform of its economic growth pattern to achieve sustainable development," said Hu.
The outlook comes amid forecasts that China's economic growth rate will fall below double-digit levels this year for the first time since 2002.
Although official estimates for GDP growth range as high as 9.8 percent, economists say China needs constant expansion to keep millions of migrants and new urban workers employed.
The International Monetary Fund has forecast growth of just 8.5 percent next year, and some economists fear growth could slip considerably lower, costing millions of jobs.
"They're very worried," said Lowell Dittmer, a China expert at the University of California's Berkeley campus.
"They estimate that they have to have a growth rate of 8 percent or so to soak up this unemployment," Dittmer told Radio Free Asia. "Although their growth rate has only dipped to about 9 percent, they feel threatened very much by the possibility that it will drop down to 7 or 8 percent and create greater social instability."
In the export centers of Guangdong province, thousands of factories in traditional industries like textiles have closed as workers refuse to accept pay cuts in the face of rising costs.
The pressures have prompted violent incidents and protests, including attacks on police in Dongguan city and a series of taxi strikes throughout China. Many of the nation's 130 million migrants have given up on the cities and returned home.
"Rural provinces that supplied much of China's factory manpower are watching the beginnings of a wave of reverse migration that has the potential to shake the stability of the world's most populous nation," The Wall Street Journal reported on Dec. 2.
But workers may find even fewer opportunities in the countryside, where economic forces are also working against them.
After last year's boom, commodity prices have fallen, hitting farmers in the wallet. Cotton prices have dropped 20 percent, the official China Daily reported last month, while a bumper grain crop may also drive prices down.
In November, the government announced a 4-trillion-yuan($586-billion) stimulus plan to spark the slackening economy and save jobs.
Pay cuts urged
But Hu's remark about losing competitive advantage suggests the government may also be urging workers to accept pay cuts in order to keep low-cost production in China. Experts say that rising wages have led to an erosion of jobs to lower-cost countries like Vietnam.
"Their wages have been creeping up," said Dittmer. "Their price advantage is fading away."
David Bachman, a China scholar and political science professor at the University of Washington in Seattle, said Hu is bracing the country for hard times, knowing it has grown too export-dependent.
"There's no way that they can go forward with as many factories producing as much as they were in the past," Bachman said. "He's saying there are going to have to be major changes going on in China."
But workers are unlikely to be receptive to the idea of lower wages, said Bachman. Even with steady gains, the per capita income of rural residents stood at just 4140.4 yuan ($606.20) last year, according to the National Bureau of Statistics, making calls for pay cuts a tough sell.
"I don't think that's going to be terribly persuasive," said Bachman. "I think the Chinese Communist Party is going to have to come up with a series of measures that bring up income in the interior."
Factory closings and wage cuts are also driving migrants back to the countryside at a time when the government is promoting greater urbanization by allowing farmers to sell their lease rights to land. The sudden downturns in the economy, exports and employment are all running counter to social policy and stability.
"It's certainly going to add tensions," said Bachman. "I suspect that the people in Guangdong who have been abused for a very long time by their employers simply aren't going to stand for it, and they can go back to their villages, maybe. Not that prospects are necessarily great there."
Dittmer agrees that workers will find it hard to respond to Hu's appeal.
"He's telling the workers that they shouldn't go for higher wages, that the country's in trouble, that they should put collective interest first. That'll be a tough thing to do," he said.