No, recession is not banging on the gates of Beijing. After expanding by 13.4 percent in 1993, China is starting a deceleration that could drive growth as low as 6 percent. In Tokyo or Omaha, they’d take that in a minute. But 6 percent won’t create jobs for the millions of peasants pouring into coastal cities like Shenzhen and Guangdong. Urban inflation is 30 percent and rising, and the central government is quickly losing control of economic policy. Even as foreign investors pour money in, fears of a power struggle after the death of the 89-year-old Deng are causing anxious Chinese to smuggle billions of dollars to Singapore and Taiwan.
Signs of an incipient bust are everywhere. In Chengdu, half-finished single-family villas, all but abandoned, line the road from the airport; the new-money millionaires who were expected to buy are reining in spending. The Shanghai and Shenzhen stock markets, where since 1990 millions of novice investors have bet their life savings in hope of sudden wealth, are down 30 percent this year. Strikes are spreading as discontent mounts. Warns a petition circulated by an underground labor union in Beijing: “Society could split apart amid illegal and violent contradictions.”
Why are China’s good times so suddenly in danger? The problem is twofold. After a wave of political unrest climaxing in the 1989 massacre of pro-democracy protesters in Beijing’s Tiananmen Square, the government went all-out to juice up the economy. Easy money suddenly gave average urban families the wherewithal to buy goods that had seemed impossibly out of reach only a few years earlier. But inevitably, it also brought inflation. Efforts to slow the economy were thwarted by provincial banks, which lent public funds freely in open disregard of Beijing. Says British expert Gerald Segal, “in some areas of economic policy, Beijing can only pretend to rule the provinces.”
At the same time, the central government dramatically scaled back plans to sell off or shut down 140,000 state-owned factories, relics of the days when Mao Zedong and Zhou Enlai were leading China down the socialist path. Last year these dinosaurs ran up a collective $3.7 billion loss, driving the budget deficit out of control and stoking inflation. But hundreds of millions of people still depend upon the “iron rice bowl” to, housing, health care and other benefits. That’s why the Beijing Copper Factory shed just three employees in 1993. “I would like to fire 200 more, but I can’t,” complains manager Yang Zhankui. There are simply too many people like Sun Guili, who supplements her $100 monthly earnings as a Chongqing cabdriver with a no-show job at the state-owned East Wind Bakery. “They don’t dare fire me,” she says. “China’s a socialist country.”
Vice Prime Minister Zhu Rongji, who has charge of economic policy, has been struggling to bring inflation under control. But in an economy that has expanded by an average of 9 percent a year since 1978, few people are prepared for the pain of a protracted fight against inflation. Robust foreign investment and greater exports are crucial if China is to come through without serious political unrest. That gives Clinton more leverage to demand that Beijing improve its human-rights record in order to continue enjoying low U.S. tariffs. But it also leaves the administration reluctant to use that leverage. There’s nothing Washington wants less than to see China in turmoil.
