October 6, 2011
Forget Greece, Keep Your Eye on China
By _Moises Naim_
(http://www.realclearworld.com/authors/?author=Moises+Naim&id=4247)
(http://www.carnegieendowment.org/)
While the world's attention remains glued to the crisis in Greece
(population 11 million), in China (population 1.34 billion) things are going
on
that we are mistakenly overlooking. Should the world's economic engine stall,
the consequences would be much more serious than any Greek problem, even
taking into account its impact on the wider European economy. Here are a few
boring facts about what is happening in China: manufacturing has fallen for
the third consecutive month; the construction boom is about to bust;
property prices are falling, and companies in the sector are finding it hard
to
access financing. Local government debt is now equivalent to 27 percent of
the economy, and experts say that 80 of that debt cannot be recovered.
Share prices of Chinese companies on the New York Stock Exchange fell on the
news that regulators found serious faults in their accounts.
The Financial Times' summary is a little less boring: "A sector that was
until last year the darling of international investors is turning into a
horror show [...] a development that would send shockwaves through financial
markets worldwide."
Does this mean that China is headed for a crash? Not necessarily. But
there is a strong possibility that China's economic growth is set to be
derailed. The accident could be financial, environmental, social, or
international. A collapse on the stock exchange that would wipe out people's
savings, or
some kind of infrastructure disaster that would prompt millions to take to
the streets in protest, could be the spark that sets off a crisis that
would eventually hit the economy. And that would then quickly spread around
the world.
The social and political contract the Chinese Communist Party has with the
people reads like this: we create millions of jobs and promise continued
prosperity for you and you let us govern without you playing any part in the
process. If job creation stutters so does the regime's legitimacy, and its
ability to govern centrally as it has until now. There are other factors
at play as well that could have dangerous political consequences: inflation,
inequality, and corruption. Over the last decade, inflation has rarely
risen above two percent a year. It is now at 6.2 percent, while food prices,
the most politically explosive factor, have risen even higher.
Inequality before the boom was limited, and invisible to most people. It
is now among the worst in the world. Urban workers earn three times more
than peasants in rural areas, and the number of Chinese people among the
wealthiest in the world breaks new records every year, while China's
millionaires are, on average, around 15 years younger than those in other
countries.
Corruption has long been a problem, but it is now increasingly widespread,
and far more visible, and affects almost all areas of life. The government
has tried to stem the flow of graft. But highly publicized jail terms and
even the death sentence for public officials are simply not working.
Economic crises tend to turn corruption from an irritation that can
largely be put up with, even over long periods of time, into a powerful
popular
cau
--
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