The Olympics have worn many masks in their modern era, alternately being seen as a symbol of international unity, a political chess piece, or a corporate-hijacked media spectacle. In the case of Beijing’s Olympics, one thing is abundantly clear: the games represent a watershed moment in China’s history, if only because the Chinese government and people perceive it as such.
The successful execution of the Olympics has been the government’s prime objective since winning the bid in 2001, and it is estimated around US$40 billion has been spent to ensure the whole thing goes off without a hitch.
But once the closing ceremony is over, China will have to face up to a host of issues that have been, in one way or another, postponed or ignored during the Olympic frenzy.
Inflation is perhaps the most immediate concern for China’s policymakers, who are all too conscious that in the past, rising prices have often coincided with periods of social unrest. And while China’s first-half inflation rate of 7.9% may be well below the 20%-plus levels seen in the period before the 1989 protests, the government’s clear problem with meeting inflation targets is surely rattling nerves.
Then there is China’s plummeting stock markets. As of July 21, the Shanghai Composite Index was around 2,850 points, down more than 50% from its October 2007 high of 6,092.
It’s not just individual investors that have been left stranded by this fall, their paper profits turned to losses; corporate China also got in on the act, re-investing profits in stocks. With the market now struggling, these companies will struggle to make their 2008 financial statements look as stellar as the 2007 ones.
Chinese companies across the board now face higher costs – a product of rising input prices – and there are signs that this is taking its toll on manufacturers toward the low end of the spectrum. In some of the coastal areas, factories are cutting production or even closing down. It is not clear how long-term this trend will be, how many migrant worker jobs will disappear, or what happens to those workers if assembly line jobs stay gone for a significant time.
With the Olympics finally behind us, it will be possible to get a clearer sense of where China is heading on all these issues and many others. Continued strong growth by the measure of any other country in the world is a given. But the one-sided bet of most of the past two decades may be becoming somewhat more two-sided.