The Cracks in China's Economy Are Already Beyond Repair

Last Updated Jun 3, 2011 8:07 AM EDT

Like a bull in the ...
If you thought our economic meltdown was bad, wait until you see China's. Unfortunately, you probably won't have to wait long. While some would tell you it's a question of if China's economy will crash, it isn't. The only questions at this point are when and how badly.

Here's the shortlist of just the latest issues facing the world's most populous nation:
Not good signs in a nation with at least 15 percent of its 1.3 billion people below the poverty line. While 15 percent may not sound like much (and it's a huge improvement over where it was 10 years ago), it is around 200 million people.

What makes the economic numbers even more unnerving is they're given out by the government and the Beijing has a long history of altering numbers to fit its needs. Because this is China we're talking about, "long history" here is measured in millennia.

Beijing has been riding a dragon ever since the China Miracle began. As much of a blessing as it has been, it has also unleashed a huge number of problems -- any one of which could undermine the society.

Consider:
  • Nearly all the economic growth has been along the coast, missing much of the vast interior region.
  • People from the interior are moving to coastal cities that don't have enough jobs or anything like the infrastructure to support them.
  • The income disparity is big and getting bigger, leading to discontent among the have-nots.
  • Even the haves are now expecting more -- like schools that don't collapse on children.
  • While the nation used to be poorer, it was also able to provide a social safety net that is no longer there.
  • Endemic corruption means that regulation of business is fitful at best. (Fitch Ratings said in March that China faced a 60 percent chance of a banking crisis by mid-2013.)
  • The justice system usually operates according to the wishes of those in power.
  • The nation's industries are creating vast amounts of pollution which have a direct and fatal impact on people.
China is facing what political scientists refer to as a "J Curve" problem. Civil unrest tends to be the most likely not when a society is at rock bottom, but when it is beginning to see improvements and people get an idea of what they are missing. The number of strikes, riots and protests has doubled in the five years to 180,000 incidents last year, according to Sun Liping, a sociology professor at Beijing's Tsinghua University.

It is difficult to find words to describe China's government beyond brutal and repressive, so it is equally difficult to wish them luck in dealing with all this. However, if Main Street gets a cold when Wall Street sneezes, think what will happen when China gets the flu.

In the words of the old Chinese curse: "May you live in interesting times."

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    Constantine von Hoffman is a freelance writer and writing coach. His work has appeared in outlets such as Harvard Business Review, NPR, Sierra magazine, Brandweek, CIO, The Boston Herald, TheStreet.com, CSO, and Boston Magazine.

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