It’s taken quite a long time, but now even National Public Radio’s Beijing correspondent acknowledges that Chinese statistics are a little more than dubious. It’s become an even more critical issue for those of us who have cast doubt on the numbers for a long time. For there’s now general agreement that China’s economy is slowing.
The question is, of course, how fast and hard the landing will be, since a steep fall puts into question not only Beijing’s lauded growth strategies but also the survival of the whole repressive regime, which has come to see fast economic expansion as its only rationale for existence. Strangely enough, perhaps the most reliable indicators of what is happening in China’s economy come from such ritzy boutique addresses as London’s Strand, Paris’ Champs Elysees and Florence’s Golden Triangle. Many of Europe’s fanciest and most expensive brand names in clothing, jewelry, liquors and food delicacies rely for as much as 25 percent of their market on sales in their Shanghai, Beijing and Hong Kong stores. That trade is now dropping like a stone. Some latecomers are still expanding their sales campaigns, but word is spreading rapidly that the party is over, at least for a while.
The reason, of course, is that China’s estimated 3 million millionaires are pulling in their horns. It is not only that they are not buying the expensive goodies for themselves, but sales of items bought as bribes for business associates — estimated at a fifth of the total — also are falling.
Official Chinese sources acknowledge that growth is dropping. An announcement a few days ago set growth at 7.6 percent for the second quarter of 2012. That has special significance because 8 percent is the minimum that Beijing’s Communist Party theoreticians have publicized as necessary to absorb a growing labor force and provide stability. With local outbreaks of dissent and violence, over everything from factory closings to land grabs, mounting throughout the country, the concept of a minimum acceptable growth rate has become all the more critical.
Plowing through the welter of speculation about the Chinese economy, often written by people who — whatever their expertise in Western economic development — know little of the history and peculiarities of the Chinese scene, there appear to be three basic reasons for the slowdown.
The first is that the Chinese takeoff of the past three decades has been largely based on access to foreign capital and technology and markets for their assembly in the richer countries, particularly the U.S. Now the American, European and Japanese markets are in doldrums. There is even pressure to cut prices on the thin margins of the Chinese and multinational manufacturers operating in China, in light of competition from new low-wage areas in Southeast Asia.
The second factor is much more difficult to evaluate, but may be even more important: the largely government-dictated investment program. Beijing has poured vast sums into infrastructure projects. Savers, faced with few investment possibilities beyond low or even negative bank interest rates when inflation is calculated, have poured funds into a housing bubble. The government’s efforts to restrain real estate speculation have been undermined by its own ambitions — building new “cities” that stand vacant because there are no customers who can afford the housing and the planners left out such fundamentals as a local employment base. The enormous stimulus of 2008 — probably close to $1 trillion — kept the gross domestic product buoyant, although now it is clear that much of the stimulus was wasted, with some 20 percent of the loans immediately written off. Chinese banks keep reporting huge profits, but the government lifts their “nonperforming debts” and stows them in parallel financial structures that themselves are now lending, in one of the world’s most incredible Ponzi schemes.
Lastly, China’s unfettered corruption has to be seen as an economic deterrent as much as it is a political problem. The continuing scandal involving the fall of Bo Xilai, a “princeling” as the son of a famous Communist Party hero and a rising star tapped for higher office, has sent a shudder through the economy as its tentacles reach far and wide.
At the moment, there are far more questions than answers. Can any significant shift to a more consumer-oriented domestic economy be made quickly? Do China’s ports, clogged with ore shipments and oil imports, suggest growing pressure on world commodity prices and on countries such as Australia that have profited from China’s spectacular growth? And with the Central Bank in 2011 estimating that $120 billion had been stolen by 18,000 officials and sent abroad since 1990, will there be a rush by corrupt Chinese officials to follow their money?
• 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.