China's Internal Stresses Multiply

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When a country's growth is dependent on exports, as is China's, a global recession will inevitably cause economic problems. With unemployment in the U.S. climbing back over 9 percent, and Euro-zone investors uneasy due to the high debt loads of some of its members, China is facing an unprecedented slowdown.1

So far, it has masked this slowdown with an enormous stimulus program focused heavily on fixed investment. As a result, 46 percent of China's GDP is now related to capital investment.

This scenario is not sustainable over the long term, as is shown by the proliferation of entire vacant cities across the Chinese landscape. Moreover, it's just one of the many stresses and challenges China faces in the immediate future.

Chinese Riot

As the economy slows, the poor are feeling increasingly alienated. Chinese riot police confronting demostrators is becoming an increasingly common occurrence.


This slowdown, in particular, is exacerbating many related problems.

Recently the Trends editors highlighted some of the most intractable challenges and their implications.

Perhaps the most difficult is the multifaceted demographic crisis just beginning to play itself out.

One component of this crisis is a rapidly aging population that, combined with virtually no "social safety net," will have severe economic repercussions as the dependency ratio explodes.

A second demographic component, which has been many years in the making, is a gender imbalance caused by a cultural bias for male offspring, coupled with a one-child policy. The net result is 32 million Chinese men under the age of 20 for whom there are no potential wives. Current forecasts show that this surplus of unmarried males will be disproportionately under-employed or unemployed.

Another factor is a growing real estate bubble. This bubble was been driven by a $586 billion stimulus program that emphasized infrastructure projects and real estate development. This stimulus came as a response to the global economic meltdown three years ago, which caused a drop in exports.

When that bubble deflates, and there's no doubt it will, there will be serious economic consequences. Local governments in China depend on real-estate deals for revenue and they could be forced to default on their commitments if the market falls too far...

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