Page last updated at 13:31 GMT, Monday, 15 June 2009 14:31 UK

Part 5: The chill of China's economic crisis

Part 1: Heading out into the real China Part 2: The mathematics of Chinese labour Part 3: China's mass consumer culture Part 4: Change from 60 years of Communism Part 5: The chill of China's economic crisis Part 7: The multiple realities of China Part 6: In Pictures: A trip through China's crisis

By Paul Mason
BBC Newsnight, Baotou, China

Baotou, for the last decade, has been one of the top 10 fastest growing cities on Earth.

It is home to Baotou Steel, a massive privatised metal conglomerate, and the city is located on top of about 60% of the world's rare earth deposits.

King Deer cahsmere company
King Deer cashmere company is one of the world's biggest knitwear factories

So it has both a past and a future. Rare earth is a key metallic component in many 21st Century technologies.

This is the first time on the journey that I can really feel the chill wind of the economic crisis hitting me in the face. But China's anti-crisis measures are also in full swing here.

Mr Kang is my guide. He is the city's propaganda boss.

Since China stopped the system of forcing Western journalists to have "minders" from the local media I have always run a mile from any official "accompaniment" on my Chinese reporting trips - but Mr Kang is a boon.

Not only does he open doors to spectacular filming locations, he teaches me the Communist Party of China's (CCP) slogans to fight the economic downturn.

The first one is the "Three Nos" - no job losses, no late payment of wages, no pay cuts. It is a far cry from the way Western businesses have responded, but this indeed is the CCP's slogan, promulgated on 3 March 2009.

Fiscal stimulus

At the King Deer cashmere company (one of the world's biggest knitwear factories), the boss, Eugene Tong, tells me that they are faithfully trying to carry out the party slogan, keeping the workforce going so that domestic demand is maintained.

Guarantee development, boost domestic demand, benefit ordinary people!
Communist Party slogan on tackling the economic crisis

The second slogan is this - guarantee development, boost domestic demand, benefit ordinary people! This was issued by the Politbureau in November and goes to the fundamentals of what China is trying to do.

Exports have fallen 22% in the first quarter of 2009, and imports are worse. Since China's growth model is driven by exports, they have to find a new source of demand.

On 5 November 2008, the government decided on a $590bn fiscal stimulus and, unlike the US government which is still struggling to spend its own stimulus money, urged party cadres to "make every second count".

By nightfall that day local officials were already meeting to allocate the cash.

Storing up future problems

Here in Baotou they are getting a £3bn stimulus to build two new high speed railways.

There is a big problem with the stimulus. It is inefficient, throwing money at projects that will be hastily built; and two thirds of the money is not fiscal at all - it is being lent by banks on incredibly easy terms.

In this, China could be storing up its own credit crunch for the future.

But Mr Kang tells me they are also spending some of the new money on an enhanced social safety net. If Chinese people feel they do not have to save 40% of their wages to insure against sickness or educate their kids, they will "dare to spend"!

The fact is, even while I am travelling, the money is demonstrably kicking in. Investment in China is up 30% year on year. And while growth more or less collapsed at the end of 2009, it is coming back.

As I leave Baotou, on a migrant train bound for Hohhot the Inner Mongolian capital, you can feel the effects. Most of the migrant workers are moving north.

They have given up on the factory zones of southern China and are looking for work on the vast construction sites that will extend the power grid, the railway network and the motorways into the north and west.

Read Paul Mason's Idle Scrawl blog

Paul Mason's journey across China will be broadcast in two parts on Newsnight on Tuesday 16 and Wednesday 17 June 2009 at 10.30BST on BBC Two, and then available to watch on the Newsnight website.

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