Northwest Indiana Discussion

Hey Scoop,


Now, I thought that China was the sworn enemy of the working man. Why would the Mayor even consider importing any aspect of their soldier-ant culture to a brawling shot-and-a-beer town like Hammond? My gosh, those people work 28 hours a day and are grateful for their $2 paychecks. We were told that passage of the right-to-work law would bring about the end of civilization as we know it. Didn't the Mayor's staff giving him a bobble-head doll with boxing gloves for fighting against this travesty? What will happen when the Chinese make further inroads into employers like Krazy Kaplan's or your cash-for-gold joints?

As China's high-octane economy shifts into lower gear, virtually everyone agrees that the double-digit, super-charged boom years are drawing to a close. Speculation over the possibility of a so-called "hard landing" for the country flourishes with each boom and bust cycle, only to die down as China's growth revs up again. This time, however, both external and internal factors -- including global conditions, domestic politics and financial trends -- are reinforcing the downturn. Many experts warn that without some painful reforms, there will be worse trouble to come.

Still, economists' opinions about just how far China's economy will fall range widely. Also, exactly what constitutes a "hard landing" for a country that has until now been viewed as an almost unstoppable economic powerhouse varies from analyst to analyst, although most point to China's growth rate as a key defining factor. "People give different definitions," notes Wharton finance professor Franklin Allen. "Mine would be growth below 5%."

China's growth slowed to 8.9% in the final quarter of last year, after months of attempts by the government to cool inflation through curbs on bank lending, interest rate hikes and stringent increases in banks' reserve requirements. The government has said all along that it expects growth to slow: In his "State of the People's Republic" address to China's legislature on March 5, Premier Wen Jiabao set the annual growth target for 2012 at 7.5% -- the first time the official benchmark has been set below the 8% level long viewed as the minimum needed to create enough jobs and ensure social stability. And in the current five-year plan, the government has set the annual growth rate at 7%.

(MORE: Are China's Big State Companies a Big Problem for the Global Economy?)

Despite the fact that China is one of the few countries that routinely surpasses growth projections, this time reality might come closer to the government's target. Wei Yao, a Hong Kong-based economist at Societe Generale Cross Asset Research, forecasts that China's economy will grow at an 8.1% pace in 2012, slowing to 7.7% growth in 2013 and 7% in 2016. "I do not think that China will have a hard landing this year, but what will happen by 2014 really depends on what the government does in the next few years," she says. Given the many issues the country's leadership is juggling -- including the property bubble, local government debts, income gaps between rich and poor and rampant corruption -- "it will be a challenging task to avoid a hard landing."

Patrick Chovanec, a professor at Tsinghua University's School of Economics and Management, sees China heading for a "bumpy landing," with ups and downs in the next few years. The country's leaders, preoccupied with the upcoming shift to a new generation of Communist officials and distracted by the global financial crisis, have put off several tough but crucial structural reforms, he notes. These include liberalizing exchange rates and interest rates, improving the distribution of wealth, carrying out tax reforms and shifting away from the increasing dominance of state-owned industries. The worst thing China could do, Chovanec and other economists say, is to unleash another flood of stimulus to counter weaknesses in exports and investment. "That would be ... kicking the can down the road for another year, presuming they could. All it would do is set up the economy for an even bigger fall later," Chovanec notes. "China needs corrections in the property market and broader economy to refocus growth on activities that earn genuine returns. The longer you put them off, the more painful it will be."

China's handling of those challenges matters more now than ever. Political stability will hinge on overhauling the economy to ensure that growth is more sustainable and equitable, suggests a report issued in late February by the World Bank. "This is not the time just for muddling through. It is time to go ahead of events and to adapt to major changes in the world and national economies," World Bank President Robert Zoellick said during a news conference for the report's launch in Beijing. "As China's leaders know, the country's current growth model is not sustainable."


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