Is China's Economy Heading for a Crash

Crack's in the Chinese economy
Crack's in the Chinese economy



The Great Wall of China was established by the emperor Qin Shi Huang to prevent attacks from northern nomadic tribes.It could be use metaphorically as a symbol for the Chinese Marxist communist viewpoint of "Keeping out the barbarians" and their decadent western influence.

The opening up of China to the west by reformers led by Deng Xiaoping saw China emerged from a long period of suspicion and insularity into an economic and world power today.

Over the last two decades many multinational companies have been inveigle to invest heavily on the myth of China's economic growth and global ascendancy. But as the chain reaction of the global debt crisis in the west hit the shores of mainland China; signs of failure and cracks in the state-planned economy are beginning to show. Is China's economy heading for a crash?


People liberation army(PLA)
People liberation army(PLA)


The "Beijing Consensus"

The elite and ruling class of China are not too keen on "Democracy". They are afraid that too much political freedom would only led to more dissension.

The specter of more discord and the disintegration of the country into the days of warlordism and civil war of the 1920s,along with the loss of their newly acquired affluence made it imperative for the Chinese leaders to maintain authoritarian rule while giving some concession to "Democracy"


The China Model (Beijing Consensus) was formulated to address this issue and to serve as a guide to China's modernization and rapid economic progress.

It's salient features are :

>an authoritarian political structure headed by the CPC(Communist Party of China)

>State control of banks and finance with China's Central Bank maintaining an undervalued Yuan(China's currency) by artificially lowering the exchange rate.

>the encouragement of massive foreign investment to fuel an export-driven economy supported by cheap labor,while retaining the domestic market for State owned or privately owned industry of loyal cadres and their cronies.

HIDDEN WEAKNESS IN CHINA'S ECONOMY

China has been successful in making the transition from a communist collectivist to a capitalist economy. But cracks are appearing in the "great wall of China" which may led to a possible crisis in the Chinese economy.

Some of the problems facing China today are; a threatening real estate crash,drug addiction,an aging population, pollution and dwindling resources, unequal distribution of wealth,social inequality and government corruption.

The economic downturn will affect not only millions of lives in China but also have repercussion for the rest of the world.

Zhengzhou new district with empty residential towers
Zhengzhou new district with empty residential towers


China's real estate bubble

China's banking and financial sector is dominated by state-owned banks which are inefficiently manage.It gives out loans regularly mostly to local governments and unprofitable state-owned enterprises for political purposes.

Chinese companies with strong political connections,although engage in other industries often set up their own real estate divisions to take advantage of cheap credit and lenient bank terms to acquire and develop properties in speculative ventures.

With a significant number of non performing commercial and residential properties including an estimated 64 million vacant luxury apartments, Chinese property developers are now experiencing their own credit crunch as easy housing loans dry up due to tightening credit conditions.

A large percentage of bank portfolios now carry huge amount of noncollectable debts that were engaged in real property speculations. A real estate bubble burst greater than what happened in the U.S. looms in the not so distant future and will be a contributing factor in a Chinese economic crisis.

China now has many uninhabited cities with vast complexes  of skyscrapers, government buildings and residential apartments  all connected by networks of car-free roads
China now has many uninhabited cities with vast complexes of skyscrapers, government buildings and residential apartments all connected by networks of car-free roads

Jim Chanos,a hedge fund manager who discovered the accounting fraud by company officials in the "Enron scandal" warns that China's hyper stimulated economy is headed for a crash beginning with a fall in real property value.

He points out that fixed asset investments which make up 60% of China's GDP(gross domestic product) created a false demand for huge construction and infrastructure projects.

Many of these projects ended up as "ghost cities" complete with high rise office buildings,condominiums,mega malls,public utilities and services but with no people living in them.

Ghost cities located in some of China's most inhospitable regions costing countless billions of dollars.
Ghost cities located in some of China's most inhospitable regions costing countless billions of dollars.

....and the (ghost) cities continue to rise. It is estimated that China is building up to 20 modern cities a year on vast area of "free land" (lands reclassified and expropriated from farmers and rural dwellers) that may only end up as uninhabited and wasteful "white elephant" projects of the government.

In the squalor of an opium den.Emaciated addicts living only for the next fix (circa 1890)
In the squalor of an opium den.Emaciated addicts living only for the next fix (circa 1890)


China's Drug menace

Just like the drug problem in the U.S.,China's economic prosperity and rise in living standard have began to produce an alarming increase of drug dependents.

It is estimated that 40% of the heroin produced in Afghanistan and Pakistan with a corresponding percentage from the "Golden Triangle" countries now go to China which has become a major transit route for the illegal drug trade.

China also has clandestine laboratories manufacturing precursor chemicals needed for the production of methamphetamine (ice), cocaine (crack), heroin and MDMA (ecstasy). Destined not only for foreign markets but also domestic consumption.


China has over a million registered addicts. Unofficial estimate of drug users put it at 10 to 12 million.These are conservative figures and the true figures could be much higher.

Controlled by criminal organizations with official collusion, it has resulted in the spread of corruption in all levels of government officialdom. As the drug menace tear into the moral fabric of Chinese society,will history repeat itself the likes of the 18th century when China was the world's largest consumer of Opium?

In a Chinese opium den.Foreigners among Chinese users (circa 1890)
In a Chinese opium den.Foreigners among Chinese users (circa 1890)


China's aging population

People are a nation's most valuable resource.The demographic development of it's population gives important indication of its economic growth and prosperity.Since 1978,China has enforced the one-child policy with no major changes expected for another decade.

Government sponsored billboard promoting one child family
Government sponsored billboard promoting one child family
"four-two-one" problem _taking care of  two parents and four grandparents....is he up to it?
"four-two-one" problem _taking care of two parents and four grandparents....is he up to it?


With the cultural and traditional preference for sons by Chinese,sex-selective abortion and killing of baby girls are occurring. In some remote areas of China there are also reports of force sterilization of women by the local governments.

This has created an abnormal imbalance of the population's sex ratio. It is estimated that in the rural and economically marginalized districts alone,there are in excess of over 30 million (approx. the population of California) unmarried men due to the lack of women.

The continued enforcement (there are exceptions) of the Chinese government's one-child policy has contributed to an aging population and a corresponding decrease of the young labor work force.



Pollution and wasteful use of natural resources

China has overtaken the U.S. in energy consumption due to the rapid pace of it's industrialization although Americans use five times more energy than the average Chinese. According to the International Energy Agency China's energy needs are expected to double within twenty years.

Because coal is abundant in China, 75% of her energy needs are supplied by inefficient coal fired, sulfur-belching power plants. Acid rain from China's heavily industrialized zones affects soil quality and threatens the food chain.With the yearly increase of motor vehicles that are introduced to it's roads and indoor cooking using coal burning stoves by the poorer populace,China is now the worlds biggest producer of carbon pollutants.

If the rate of it's pollution keep pace with it's industrial and manufacturing growth, by 2030 China's toxic emission would equal the entire world's carbon pollutant produce today.

Chinese coal fired power plant
Chinese coal fired power plant

China has some of the world's most polluted cities

Two thirds of Chinese cities don't even meet it's own air emission standards,and if the European Union standard is use,then only 1% of China's 560 million urban residents have safe air to breath. A World Bank report estimate that over 750,000 people die prematurely from respiratory diseases due to air pollution.

A Chinese smog covered city. Chinese cities are among the most polluted in the world
A Chinese smog covered city. Chinese cities are among the most polluted in the world
Man and beast using polluted water containing untreated industrial effluents.
Man and beast using polluted water containing untreated industrial effluents.

Because of indiscriminate dumping of industrial waste,40% of China's rivers are considered unsafe for human contact. 90% of China's urban groundwater is contaminated,about 300 million of the rural population rely on unsafe drinking water and by 2030,China would have exploited all of the country's available water supply.

Polluted canal ; environmental degradation in the pursuit of commerce
Polluted canal ; environmental degradation in the pursuit of commerce

As rural areas are quickly urbanize, farms and arable lands are being turn into industrial zones (special economic zone) and modern cities of skyscrapers and super highways.China's agricultural output could be reduced by 5 to 10% by 2030.

Since half of China's land is arid and semi-arid, any climate change or long periods of drought would spell disaster in a country that has over a billion people (1.3 billion). Food shortages and famine like those in China's past history that wipe out millions could happen again.

China has 225 million rural born migrant workers in the cities.Living in crowded dormitories, they  and their children are not entitled to health care, education or pensions in the city because their "hukou"(residence registration) is elsewhere.
China has 225 million rural born migrant workers in the cities.Living in crowded dormitories, they and their children are not entitled to health care, education or pensions in the city because their "hukou"(residence registration) is elsewhere.

Social inequality and the distribution of wealth

Beyond the impressive statistics,charts and reports that show a growing economy and improve standard of living is another side of China's economic "success" story. Beneath the veneer of world class mega cities and luxury lifestyles is a hidden world of poverty,slave labor wages,displace and migrant workers that show the stark disparity of wealth distribution and social injustice.

Some facts:

> Nearly 500 million Chinese live on less than $2 a day, with another 150 million subsisting below the United Nation's poverty line of one US dollar a day

> 99% of China's poor live in or come from rural areas where over half of China's population lives but share less than 12% of the country's wealth

> Up to 200 million Chinese workers and peasants suffer from occupational ailments, according to data from the Chinese Ministry of Health.

> Only 50 million households comprises China's middle class

The wealthy and super rich

> China’s top 10 percent of the population control 45 percent of the country’s wealth. Majority of whom are members of the CPC ( Communist Party of China)

> China now has more billionaires (128 in 2011) than any other country except for the U.S. (412 in 2011). ~ Forbes

> China is the world’s second largest consumer market for luxury goods, behind Japan (after passing the U.S. in 2009) but is expected to be the first for the next decade.

Government officials on trial for corruption
Government officials on trial for corruption

Government corruption

When the Chinese leadership decided to reform the economic system into a consumer market economy, authority was decentralized to regional and district communist party officials.The central government sets the economic policies and general directions, but left it to the local government officials to decide how to plan and develop their own local economy as long as the targeted growth rate was achieved.This gave the local officials enormous leeway and influence. It created petty fiefdoms open to self aggrandisiment,corruption and abuse of power.

Tianamen,Beijing,China June 5,1989, An ordinary anonymous Chinese "The Unknown" stand defiant in front of a column of tanks sent to disperse Chinese students and workers protesting authoritarian rule
Tianamen,Beijing,China June 5,1989, An ordinary anonymous Chinese "The Unknown" stand defiant in front of a column of tanks sent to disperse Chinese students and workers protesting authoritarian rule

A difficult position for the ruling authorities

China's rapid growth and development hinges on an export driven economy. Recent pronouncements by Chinese leaders give tacit recognition that in the face of a growing economic slowdown in countries ( EU, U.S.) where Chinese products are being exported, the government must now turn to the domestic market and encourage local consumers.

"Riding on the back of a Tiger and finding it hard to get off"

In order to achieve this China must raise the living standards of the rural populace and other lower income sectors of society if it wants to encourage the further growth of the middle class. It is after all the middle class that supplies the buying power in a robust economy.

The emergence of a social class that has more economic independence,mobility and are better educated would give rise to demands for more political and social reforms. These would undermine the authority and possibly see the demise of the Chinese Communist Party which have ruled China when communism took over the country under an authoritarian one-party system since 1949.



China rose to prominence in the global economy at neck breaking speed by taking short cuts. Will China's political and economic system sustain it's economic growth or is China's economy heading for a crash?

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Comments 18 comments

Robwrite profile image

Robwrite 5 years ago from Bay Ridge Brooklyn NY

Very well researched and interesting. I never knew about the Ghost Cities. That's amazing! Thanks for the information.

Rob


SilentReed profile image

SilentReed 5 years ago from Philippines Author

Robwrite ~ Compare to the old China,the Chinese leadership have manage to alleviate and raise the living standard of the ordinary citizen.The middle class in China is steadily growing but there is still poverty especially in the rural areas.Those "ghost" cities were built on land forcibly expropriated by the government.With capitalism comes greed.With greed comes corruption.Most of China's fortune 500 corporation are own by the State,with it's leaders and their minions the benefactors.


Alastar Packer profile image

Alastar Packer 5 years ago from North Carolina

Awesome article & pics on the "New China" SR. A dozen responses but this piece speaks well enough on its own. Maybe just this one. Why isn't China held internationally responsible to the same environmental mercury spewing dirty coal plant emissions that America and elsewhere are? Vote up.


SilentReed profile image

SilentReed 5 years ago from Philippines Author

IT SHOULD BE HELD ACCOUNTABLE. Has it's economic muscles intimidated the rest of the world? NO. Where profits are concern, there are no country boundaries. American and other foreign corporations have been in bed with China for quite some time and apparently the cushy mattress of profits and earnings have made them look the other way.Pimp and whore need each other.As for the ordinary people....acid rain suspected to have originated from China falls on California~news article.


dallas93444 profile image

dallas93444 5 years ago from Bakersfield, CA

China is catching up to the world... It will experience growing pains of an undeveloped nation emerging into the "real world." Flag up.


SilentReed profile image

SilentReed 5 years ago from Philippines Author

dallas93444 ~ Thank you for your comment.I agree with you that China's present demographic configuration is cause by it's "growing pains" as it emerge from it's cocoon of insularity.But it is taking a lot of short cuts and cutting corners in it's haste to become a world power.Let us hope that the injurious cost to the environment and the internal diaspora of the Chinese people have not created an abnormality that future generation will have to pay for.


50 Caliber profile image

50 Caliber 5 years ago from Arizona

Great article, much I didn't know well presented and easy to follow start to finish. Seems like the whole world is balancing on little real wealth and a lot of hedging bets that markets won't crash. Thanks for the lesson,

Blessings,

Dusty


SilentReed profile image

SilentReed 5 years ago from Philippines Author

50 Caliber~ Hello Dusty,In your profile you mention about "keeping the scars on the land to a small footprint". Instead of scrambling and frantically clawing over each other in their avarice for more wealth,and in the process exhausting the planet's natural resources,polluting and destroying the eco-system. Leaders and policy planners should take pause and look at economics as if people mattered. There is wisdom in the Native American saying " We do not inherit the earth from our ancestors,we borrow it from our children". A more accurate description of what we are actually doing today is we are STEALING it from future generations. God Bless SR


robindeng profile image

robindeng 5 years ago from China

Wow,wow,wow. Two thumbs up!!!!


SilentReed profile image

SilentReed 5 years ago from Philippines Author

robindeng ~ Thanks for the two thumbs up :) You are from China? Welcome to Hubpages :)


Astra Nomik profile image

Astra Nomik 5 years ago from Edge of Reality and Known Space

Wow, all that pollution and smoke. That is crazy. They have to do something about that. How can they live that way? Great hub. :)


SilentReed profile image

SilentReed 5 years ago from Philippines Author

Astra Nomik ~ The price of progress.The Chinese government decided that rapid industrialization is more important.I agree with your comment "THAT IS CRAZY".


prasetio30 profile image

prasetio30 5 years ago from malang-indonesia

I found complete information from this hub. Well done, my friend. I learn much from you about what really happened in China. Thanks for share with us. I also enjoy all stunning pictures here. Well done and RATED UP!

Prasetio


SilentReed profile image

SilentReed 5 years ago from Philippines Author

prasetio30 ~ It was a surprise for me too! Behind the facade that China presents to the world we find a majority of the Chinese populace not fully benefiting from the economic progress. This is due to the repressive policy of the Chinese government which seek to retain political power and maintain the status quo of it's minions.Many of whom are multimillionaires or billionaires whose lifestyle would be the envy of many wealthy westerners.


beijing driver profile image

beijing driver 4 years ago from Beijing, China

Very profound description, with critical is worth to recommend.


SilentReed profile image

SilentReed 4 years ago from Philippines Author

beijing driver ~ Hi! Thank you for driving by and commenting:) Has the Beijing pollution level gone up after the China Olympics?


beijing driver profile image

beijing driver 4 years ago from Beijing, China

after the China Olympics pollution levelin Beijing is much better , but still have .

If you come back again , I will be your driver and tour guide.


SilentReed profile image

SilentReed 4 years ago from Philippines Author

beijing driver ~ Again,thanks for driving by :) I might take you up on your offer if I have the opportunity to visit your great country. Have a good day and drive safely.

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