The List

5 Signs of the Chinese Economic Apocalypse

From hog ratios to growing coal stockpiles, the Chinese economy is blinking red.

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.

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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.



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.



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 revelation in 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.



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 imported more 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.



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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The List


How many summits does it take to NOT solve the eurocrisis?

"As a general rule, meetings make individuals perform below their capacity and skill levels," Reid Hastie, a professor of behavioral science at the University of Chicago's Booth School of Business, once wrote. "[P]lease, don't just call a meeting and hope the magic happens. Take charge and take personal responsibility for meeting its objectives, whatever they are."

It's advice that European Union leaders would have done well to consider as they kicked off a closely watched two-day summit in Brussels on Thursday, while Italy and Spain watch their cost of borrowing soar. With France and Germany at odds about whether to address the European debt crisis by pooling eurozone debt or better integrating the region financially and politically, German Chancellor Angela Merkel has already tried to tamp down expectations for this week's summit, which is expected to produce a stimulus package and plans for a banking union.

"There is no quick solution and no simple solution," she warned in Berlin on Wednesday. "There is no one magic formula ... with which the government debt crisis can be overcome in one go."

The thing is, when it comes to major EU summits in Brussels, the region's heads of state haven't had one go -- they've had roughly 20 since 2010 (albeit with a changing cast of characters, as 14 of the 27 EU countries have switched leaders since the debt crisis began). And if the previous crisis-management meetings are any guide, we should expect this week's summit to be long on talk of turning points and short on game-changing results. Here's a look at what European leaders have accomplished in their previous gatherings -- and how they've chosen to frame those achievements.


FEB. 11, 2010

Action: European leaders discuss troubling developments in Greece, which recently announced that its debt had reached the highest level in the country's modern history and unveiled austerity measures to slash the soaring budget deficit.

Assurances: In a joint statement, the assembled heads of state pledge to "take determined and coordinated action, if needed, to safeguard financial stability in the euro area as a whole." They call on Greece to cut spending and add that "the Greek government has not requested any financial support."

MARCH 25, 2010

Action: Eurozone leaders work with the International Monetary Fund to create a $29 billion safety net for Greece.

Assurances: Greek Prime Minister George Papandreou boasts that the package "guarantees the protection of financial stability in the eurozone" and that "no other measures are needed" (the German press is no less effusive, with one headline screaming, "Euro crash avoided!"). But EU President Herman Van Rompuy sounds a note of caution. "We don't view this as a miracle cure," he says. "It is an important part of the cure, no more."

MAY 7, 2010

Action: Shortly after bailing out Greece, eurozone leaders hammer out plans to check the spreading sovereign debt crisis. Days later, European finance ministers roll out a $1 trillion emergency package, which includes a European Financial Stability Facility (ESFS) that can provide financial assistance to troubled eurozone countries.

Assurances: French President Nicolas Sarkozy states that the "leaders of the eurozone have decided to do everything in their power to ensure the stability and unity of the currency union."

OHN THYS/AFP/GettyImages

JUNE 17, 2010

Action: European leaders adopt the Europe 2020 Strategy for long-term growth and introduce a new "European Semester" system of economic policy coordination at what one European diplomat dubs a "normal meeting" for a change.

Assurances: "We are sending a clear signal to citizens and to the markets and also to our partners: We will consolidate our budgets and reduce our debt, without strangling our economies and putting people's well-being at risk," European Commission President José Manuel Barroso declares in a statement

SEPT. 16, 2010

Action: In a summit overshadowed by France's crackdown on Roma migrants, the European Council does not dwell on the debt crisis.

Assurances: In a high-minded reflection on the region's economic governance reforms, the council issues a statement welcoming the "important progress made ... on the development of a new macro-surveillance framework to monitor and correct unsustainable competitiveness divergences and imbalances in a timely manner and on the strengthening of national fiscal frameworks."

OCT. 29, 2010

Action: European heads of state endorse new budget rules and discuss amending the EU;'s Lisbon Treaty to create a permanent system for responding to financial crises.

Assurances: "We are doing everything to ensure that there will never be a repeat of the crisis we have had," Merkel explains. "One can already say that the euro will be strengthened.


DEC. 16, 2010

Action: A month after bailing out Ireland, European leaders agree to create a permanent European bailout fund called the European Stability Mechanism (ESM) to replace the ESFS in 2013.

Assurances: "We are ready to do everything that is necessary to ensure the financial stability of the euro area," Barroso declares. European officials promise to unveil a "comprehensive package" to resolve the eurozone debt crisis once and for all in March.

FEB. 4, 2011

Action: European leaders clash over a pact supported by France and Germany to strengthen the competitiveness of weaker eurozone countries as part of a larger effort to expand the region's bailout fund.

Assurances: The outlook in the eurozone "has substantially improved," Van Rompuy observes. "The decisions taken last year ... are clearly paying off. However, we are aware that there is still a lot of homework to do. It is not a time for complacency; we will learn lessons from the crisis."

MARCH 12, 2011

Action: Eurozone leaders add more firepower to the region's bailout fund and agree to adopt the "competitiveness pact" that had stoked controversy at the previous summit.

Assurances: "The most important thing of this summit was that Europe developed the necessary measures for a systemic approach," notes Portugal's then Prime Minister José Sócrates. "All the countries, including Portugal, have done their share and assumed their commitments."


MARCH 25, 2011

Action: A political crisis in Portugal, which will ultimately result in a bailout for the country, prevents European officials from unveiling a package that meets market expectations. Officials delay increasing the European rescue fund but do strike deals on how to fund the ESM and better coordinate economic policy.

Assurances: "We adopted today a comprehensive package of measures which should allow us to turn the corner of the financial crisis and continue our path towards sustainable growth," the European Council says in a statement.

JUNE 24, 2011

Action: EU leaders approve a second bailout package for Greece on the condition that it implement new austerity measures.

Assurances: Barroso, the European Commission president, says there is "a real will of the member states to do what is necessary" while European Parliament President Jerzy Buzek waxes poetic about the predicament confronting the region's heads of state. "We are like Odysseus, who must sail between the Scylla of mistrustful financial markets and the Charybdis of growing discontent amongst the population," he explains, adding that Europe is headed toward a safe harbor.

JULY 21, 2011

Action: European leaders agree to reduce Greece's debt burden and grant new powers to the EFSF rescue fund.

Assurances: "We improved Greek debt sustainability, we took measures to stop the risk of contagion and finally we committed to improve the eurozone's crisis management," Van Rompuy announces after the meeting. "When European leaders say that we will do ‘everything what is required' to save the eurozone, it is very simple: We mean it," he adds.



OCT. 23, 2011

Action: European leaders move closer to agreements on bank recapitalization and on how to use the region's bailout fund to prevent bond market contagion, during a meeting that produces heated exchanges between Sarkozy and British Prime Minister David Cameron.

Assurances: Van Rompuy, who had previously pledged that the EU would "finalize our comprehensive strategy on the euro area sovereign debt crisis" at meeting, says those decisions will now have to be made at the next summit.

OCT. 26, 2011

Action: In a marathon 11-hour negotiating session, European leaders reach an agreement to reduce Greece's debt (by asking private sector investors to accept 50 percent losses on Greek bond holdings), recapitalize banks, and strengthen Europe's bailout fund.

Assurances: "The summit allowed us to adopt the components of a global response, of an ambitious response, of a credible response to the crisis," Sarkozy proclaims. Merkel is equally triumphant. "We Europeans showed that we are able to reach the correct conclusions," she says. "We found agreement on a complete package."

DEC. 9, 2011

Action: Most EU countries adopt an intergovernmental "fiscal compact" that includes mandatory penalties for states that exceed deficit targets, with Britain refusing to take part.

Assurances: "The stability union, the fiscal union will be developed step-by-step in the next years," Merkel remarks, "but the breakthrough has been achieved."


JAN. 30, 2012

Action: European leaders approve the fiscal compact and the eurozone's permanent rescue fund.

Assurances: European Central Bank President Mario Draghi greets the fiscal agreement as "the first step towards a fiscal union," adding that "it certainly will strengthen confidence in the euro area."

MARCH 2, 2012

Action: European leaders sign the fiscal compact but delay a decision about beefing up Europe's financial firewall.

Assurances: "I think we are turning the page," Sarkozy asserts. "We are in the midst of exiting this crisis." The EU's closing statement includes 24 mentions of the word "growth" and only one mention of the word "crisis," according to Der Spiegel.

MAY 23, 2012

Action: European leaders urge Greece to stay committed to austerity and remain in the eurozone, while new French President François Hollande, a Socialist who campaigned on a pro-growth agenda, makes his first appearance at the meetings and expresses support for Eurobonds.

Assurances: "Nothing will be decided today," Merkel explains. "It's an exchange of opinions and then a final agenda at the end of June."

Despite their rosy pronouncements at the end of these summits, European leaders have often said that resolving the debt crisis is a marathon, not a sprint. But even marathons end eventually. Europe's inexhaustible capacity for self-delusion, it seems, may never run out.