The lights are flickering in the world's economic powerhouse.
Although China's outlook may still be
positive by, say, European standards, the numbers show that the country's
storied growth engine has slipped out of gear. Businesses are taking fewer loans. Manufacturing output has
tanked. Interest rates have
unexpectedly been cut. Imports are flat. GDP growth projections are
down, with some arguing that China might already be in recession. In March, Premier Wen Jiabao put the
2012 growth target at 7.5 percent; then seen as conservative, it's now viewed as prescient. If realized, it would be China's
lowest annual growth rate since 1990, when the country faced international isolation
after the 1989 Tiananmen Square massacre.
What are the concrete indications that
China is experiencing something more than just a spreadsheet slowdown? Here are
five real-world signs of China's economic malaise.
1. BYE-BYE BMW
The $586 billion stimulus package that enabled China to sail through the 2009 global
downturn only deferred the pain for local governments. Now they're being asked
to repay their debts, and that means some serious belt-tightening at City Hall.
The fleets of flashy cars that local
officials indulgently amassed during the boom years will be among the first
things to go. The city of Wenzhou is planning to auction off 80 percent of
its vehicles this year -- that's 1,300 cars -- with
similar fire sales occurring nationwide. Even Ferrari is sounding
nervous about the Chinese downturn, and not only
because Bo Guagua is seemingly off its list of potential customers.
Part of the headache for municipal
governments is that land sales have dried up thanks to a central government initiative to cool China's
overheating property market, as well as a shortage of cash and confidence among
potential buyers. In June, the average
housing price for 100 major Chinese cities rose for the
first time in nine months, but prices are still down 1.9 percent from last
year. Some government premises could be next on the block, once those official
cars have been driven away by their new, private owners. Then the extreme
economizing begins: China's elaborate official banquets could become a lot more
prosaic.
2. RIOT
IN GUANGDONG
Senior government officials have warned for decades that economic slowdown could spell social unrest, and with
few exceptions, China's modern growth rate has been impressive enough to keep
most people happy most of the time. But as GDP growth dips below 8 percent for
the first time in years, China's social fabric could come under strain,
especially as thousands, if not millions, of migrant workers find their jobs
under threat. "It's clear the slowdown of export growth as a result of
weakness in Europe and the U.S. continues to weigh on the Chinese
economy," Lu Ting, an economist at Bank of America Corp. in Hong Kong
recently told Bloomberg Businessweek. Exporters are going bust, and some factories that remain open have
switched from three shifts
to just one.
Migrant workers have always supplied the
elbow grease that enables China's growth engine to purr. But it's critical to
China's stability that those workers feel they are sharing in the rewards.
Their disaffection has the potential to be China's undoing, as the southern
manufacturing town of Shaxi in Guangdong came to realize last week when it became the scene of
China's most recent large "mass incident." That incident appears to have been contained, but the authorities can only cope with
so many Shaxis at once.
3. VANISHING RICH PEOPLE
When the going gets tough, the rich head
to the airport.
Luxury goods sales, which have been
booming in China, began to slow earlier this
year. But that doesn't mean that rich Chinese people have stopped spending.
They've just stopped spending in China. Late last year, it became apparent that
many wealthy Chinese were losing
confidence in the domestic market, as they began
investing in convertible assets, like foreign currency, rather than in fixed
assets, such as real estate. Now they are increasingly looking overseas to
invest in high-end
property, partly because of domestic restrictions and bargains overseas, but
also as a hedge against political and economic uncertainty at home. This
dovetails with the
revelationin late 2011 that over half of China's millionaires are thinking about
skipping the country and setting up permanently abroad.
Chinese prosecutors have said that close
to 19,000 officials have been caught in the last 12 years while trying to flee overseas with money earned illegally; they use the term "naked
official" for one who has squirreled away an illicit fortune in some
overseas bolt-hole, has already safely installed his family there, and is now
waiting for the opportune moment to jump China's listing ship. China's wealthy
and politically powerful are often members of
the same family, and if China really does go into recession, a lot of rich people may
decide to cut and run.
4. A LONG, HOT SUMMER
Electricity consumption usually spikes
over the summer, as people turn on their air-conditioners to cope with the
seasonal heat. But this year, many Chinese appear to be braving the high
temperatures to economize. China's ports are piled high with coal that should be roaring in the country's power plants. Lower
manufacturing output is also to blame. Only last year, Beijing talked about
amassing an emergency
coal stockpile to prevent the stuff from running out. Now
it looks as if China has importedmore fuel than it needs, as hard-pressed
citizens, businesses, and factories cut their electricity consumption in order
to reduce their bills.
The national price of coal has already dropped 10
percent since late last year. This drop could
further dent the global economy, which would in turn cool demand for Chinese
exports even more. That's globalization for you: A Chinese person turns off the
air-conditioning, and the world economy catches a cold.
5. HOG RATIOS AND "ROCKET EGGS"
As China consumes ever larger quantities
of meat, the prices of pork and beef have risen, fueled by the relentless
demand. This has made inflation a preoccupation of Chinese policymakers. By
2007, China was eating 1.7 million pigs every day; in 2011 the country's National Bureau of
Statistics said pork prices had risen 57 percent year on year.
But over the last four months, demand for
pork has dipped. The resultant oversupply has caused the all-important hog-to-corn
price ratio to fall below the point where rearing pigs
becomes profitable, and the Chinese government had to step in and buy up pork to stabilize prices.
Even as the pork price has dropped, the
price of eggs has shot up -- so quickly that shoppers have started to use the
term "rocket eggs." Furthermore, Chinese consumers,
their confidence shaken not only by the faltering economy but by a long string
of food safety scandals, are increasingly opting to grow their
own fruit and vegetables so that they a) won't
be ripped off, and b) won't be eating cucumbers pumped full of things that no cucumber should ever be subjected to.
Vice President Xi Jinping is expected to
assume China's presidency in a once-in-a-decade leadership transition this
fall. As the cracks appear in his country's economic foundations, you have to
wonder whether he still fancies the job.
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