Creeping in at the outer edges of the soothsayers' economic crystal balls on Wall Street and London's City, until now dominated by American and European crises, is growing concern about China.
The inane idea that China — or India, which is also in trouble — would somehow rescue the world economy is now, finally, dismissed by the pundits — without apologies. How a largely export-led, mercantilist economy was to save the world, with its principal markets in the U.S. and the EU pulling back, was never explained. Continued wishful references to equally improbable promises by China's leadership to boost domestic consumption are also falling away.
There is, in fact, a growing consensus that the Chinese economy is spiraling down. One respected Hong Kong economist, Wang Tao of UBS, is predicting GDP growth of just 7 percent by year's end. That's below the red line 8 percent long considered by the double-domes as the minimum needed to satisfy job demand for China's growing population. Soon we can hope to hear an end to those straight-line projections — so wrong two decades ago when applied to Japan — which take China's current rise to become the world's second-largest economy to soaring heights. Indeed,China is the classic example of the inadequacies of GDP as an economic barometer. Even assuming official figures are reliable — which is a far stretch — China's GDP has been inflated by vast overexpansion of infrastructure and massive corruption, which indicate enormous activity but not necessarily a basis for continued stability and growth. (Remember the eurozone's GDP/consumption figures before the fall.) Nor do we have more than a notional figure of Beijing's huge military outlays.
Granted, some of us have been predicting a China crash for years, arguing that its miraculous transformation was jerry-built. But we have always said what would trip the fall, when the collapse would come, and how the Chinese would cope with it are all unpredictable — as are so many other things in life. Some full-time observers are now turning to the banking structure as a chief concern. As China's Communist Party decision-makers battle to maintain maximum growth but head off any hint of inflation, a traditional destroyer of dynasties, the outlook is grim. Larry Lang, a Hong Kong TV personality and Chinese University professor of finance, recently labeled the state of finances in the provinces as "China's many Greeces." Beijing's writ — as an old proverb goes — ends no longer at the village gate but at the provincial capital, where regional authorities defy the center, desperate to meet growing local demands for resources. Local politicos have wheedled, persuaded, bribed and threatened local government banks into lending far beyond their capacity to repay. Add that to the giant stock of nonperforming loans banks give their party buddies in huge, inefficient government companies and you have what could be the mother of all financial fiascoes.
Just as politics does not end at the banks' doors, the Communist Party is moving into a generational leadership succession year. In theory, the new president and prime minister already have been anointed. But there is a lot of shin-kicking, with the usual "ideological" arguments masking personality, regional and purely economic interests. A kind of neo-Maoism has surfaced, one that takes on new life as economic problems deepen, given the still-strong party constituency for preserving Soviet controls, planning and government ownership. Never mind that the fabled Chinese entrepreneurial spirit has taken hold with the partial liberalization of the past two decades. Much of this private sector, with its disproportionately higher productivity, was linked to exports now hit hard with the downturn in the U.S. and Europe.
The downturn has caused the collapse of thousands of private businesses, particularly in South China's clothing and gizmo-assembly operations, leading to growing unemployment and dramatic, literal disappearances of owners and managers. These, in turn, have fed already escalating unrest; Beijing has stopped reporting even the very suspect official figures on protests. It's early on, of course, to predict this will develop into the kind of provincial disintegration that has brought down virtually every ruling dynasty through China's long history.
Meanwhile, China's falling demand for raw materials is already hitting world commodity markets — iron ore, for example, and soon coal and soya. That will have its effects on overseas suppliers from Angola to Brazil to Australia, which already has seen a 10 percent drop in its high-flying dollar in just the past few weeks.
• Sol Sanders, a veteran international correspondent, writes weekly on the intersection of politics, business and economics. He can be reached at email@example.com and blogs at www.yeoldecrabb.wordpress.com.