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 cause that rallies the
population. We should remember that corruption was a
determining factor in the downfall of the previous
regimes in Tunisia and Egypt. The same applies as
regards mounting environmental problems, which for many
Chinese are not merely abstract issues. After a while,
people get tired of turning on the tap to take a bath or
make a cup of tea only to find that brown, foul-smelling
water comes out. According to Sun Liping, a sociologist
at Tsinghua University, there were 180,000 street
protests against a multitude of issues in 2010. The
Chinese are increasingly prepared to take to the streets
to demand their rights. If this kind of activity starts
to impact the economy, then what happens in China will
affect us all, and much more than what is going on in
Greece.
