The Chinese economic miracle has been overdue. The country’s commercial genius, once unleashed, is proving prodigiously capable. But there is no such thing as a straight line in economics. China’s economy is overheating dangerously. Inflation has hit a seven-year high. Growth this year could approach 10 percent. China’s substantial economic advancement could once be justified on the basis of the low base from which it started. No longer.
It is now a world economy. Last year China was responsible for 27 percent of world steel consumption, 31 percent of coal and 40 percent of cement. The price of shipping has doubled, so great has been China’s demand to have raw materials brought to it and manufactured goods carried away to its markets around the world. This indicates the danger for the world economy inherent in a dramatic Chinese slowdown. China has been driving world trade while Japan, North America and Europe have been struggling. But the recovery that the American economy appears to be making could be stopped in its tracks by a faltering China. The entire global economic system is coming under pressure because of the high price of oil, which is only adding to the difficulties experienced by Chinese business.
When businesses anywhere start to fail, a chain reaction sets in. The challenge for a government is to mitigate as best it can the rate of failure. The Chinese authorities must not repeat the Japanese mistake of encouraging business and its bankers to paper over the losses and failures. Pain deferred is pain increased. Equally, international investors will not welcome any financial deals that give preference to local interests.
There is another important issue a checked Chinese economy is going to face. Large areas of the country have been only marginally affected by the boom. It would be good to think that in the economic downturn — because even if China avoids trouble this year, it will come — the country’s hundreds of millions of rural poor will escape suffering. Unfortunately many rural families have become dependent on remittances from relatives who have abandoned their villages and found work in the booming industrial centers. Many of those workers will face layoffs or reduced earnings. It has been one of the disappointments of China’s boom that the government in Beijing has failed to initiate successful programs to revitalize remote rural areas. This demonstrates the unevenness of the country’s growth so far. The authorities have focused too much on the easy challenges of urban growth at the expense of the more complex problems of rural regeneration. For a country that is still nominally based on Marxist principles of wealth distribution, this is odd.
