Saturday, May 12, 2012

China's Economy Shows Continued Evidence of Slowing

Despite confident predictions from Wen Jiabao that the economy was heading for more growth, April figures across a range of sectors make for grim reading: industrial production is down, fixed-asset investment and retail spending slowed, home sales plummeted, and export sales growth was only half what it was in March. When China’s economy grew at an abnormally low 8.1 per cent clip in the first quarter of this year, some analysts suggested that it had reached the bottom of the business cycle. Better times were ahead, they reasoned. These latest figures, however, suggest that what we may be seeing in China is the start of a prolonged, and perhaps permanent, deceleration in Chinese growth.

Of course, it’s too soon to know for sure whether these data are merely a blip on the radar. But if the Chinese economy is indeed entering a permanent slowdown the political and social consequences will be profound. Decades of rapid economic growth granted legitimacy to the Chinese Communist Party and helped minimize social unrest. As the country prepares for only its second organized transfer of power since 1949 the incoming leadership team must be asking itself whether China’s political system is capable of undertaking the necessary economic reforms to maintain prosperity and stability.

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Will failure to reform unleash waves of social unrest? Cracks are already appearing. Over 30 Tibetans have set themselves on fire in protest against the central government. The revolt in Wukan caught the attention of the world. And China hands are well aware that the Chinese government now spends more on internal security than it does on the military.

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