Tuesday, April 29, 2014

4 Potential Crises for China

My piece for Thursday's InvestmentU.com is about China. It got too long, so I had to cut a chunk out. Here's what I removed:

The potential problem for China is if slowing economic growth triggers any or all of the four crises that are simmering just below the surface.

China’s 4 Potential Crises

  1. Migration. China has experienced three decades of migration that has left some of its cities bursting at the seams. China has eight cities as big as New York. New York has 8 million people. The "Big Apple" seems crowded, right? Well, Guangzhou has 13 million citizens; Beijing, 18 million; Shanghai: 23 million. This migration has strained local governments' capacity to provide adequate housing, health care and education. It’s also led to horrible levels of pollution. And migrants are treated like dirt, which leads to potential civil unrest.  Many of them have “temporary” jobs in construction. Speaking of which …
  2. What If China Stops Building? Chinese infrastructure investment has led to enormous gains in construction-related industries and employment, while boosting local gross domestic product. But the building boom can’t go on forever. And when it ends … or even slows down … that’s going to cause an employment crisis.
  3. The Conflict Between Landowners and Local Governments. Forced demolitions of private homes have sparked protests. Public outrage is heating up. In fact, the deputy party secretary of Sichuan was arrested on corruption charges. Sure, they’re all corrupt. He’s being singled out for his ruthless expropriation of farm properties.
  4. How to Pay for Social Services.  Local governments don’t have the authority to impose their own taxes in China. That’s why so many are neck-deep in real estate development; it’s how they generate much-needed revenue. If they are forced to cool down the red-hot real estate market, what will they do for money?

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