America's facing not one but four "fiscal cliffs": Bush-era tax cuts, Pentagon budget cuts, social-program cuts and the continuing battle over "Obamacare." China, though, has even bigger problems.
Five months ago, we quoted World Bank President Robert Zoellick's warning of "a spreading crisis" in China that could consume the $75 trillion global economy. Back then we bluntly asked: "China? Or America? Who will crash the global economy first?" Think: China.
China's economy of 1.3 billion people continues slowing, according to the latest GDP-forecast downgrade from Premier Wen Jiabao, reported Keith Bradsher of the New York Times.
Earlier this week, MarketWatch's Carla Mozee reported that China's slowdown is already impacting stocks in Brazil, one of China's leading trading partners.
So let's shift our attention away from election-year bickering and ask: "Will China push America into a recession and new bear market?"
"China might already be in recession," warns Trefor Moss in his brilliant "5 Signs of the Chinese Economic Apocalypse" in the journal Foreign Policy. Actually, five huge apocalypses. "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." Wen Jiabao's 2012 growth target at 7.5%, if it happens, "would be China's lowest annual growth rate since 1990."
That led Moss to dig deeper, where he uncovered those five signs. You don't have to be playing poker at a Vegas casino to wonder if maybe, just maybe, China's five-card catastrophe might trump America's four-card "fiscal cliffs" hand.
We know China's downturn is already is impacting Brazil's stock markets. So America's next in line.
Warning: China's local governments drowning in debt
Remember the hundreds of billions of dollars that went to U.S. banks? Well, the China central government gave a $586 billion stimulus package to local governments.
That eased the pain during 2009's global economic downturn. But the stimulus only deferred the pain. "Now they're being asked to repay their debts," Moss writes in Foreign Policy, "and that means some serious belt-tightening at City Hall." Sound familiar? Like euro land? Maybe your local city hall?
Back in the boom days, many of China's local governments went wild, like pension funds in America, and bought fleets of "flashy cars." But now, for example, "the city of Wenzhou is planning to auction off 80% of its vehicles this year," reports Moss. "That's 1,300 cars, with similar fire sales occurring nationwide."
And China's central government decided to cool the overheated real-estate market. Property sales and revenue then dropped, creating a shortage of cash and confidence among potential buyers. Sounds familiar? Like here in America, where government revenues declined with taxpayers' and investors' income and spending? Yes, China's economy is slowing. China, in fact, is most likely in a recession. And exporting it to America.
Warning: China's economic crisis triggering unrest
Chinese communists have been expecting more trouble since the 1989 Tiananmen Square revolt that led to military suppression, deaths and angry global reactions. The quest for freedom triggers that. As we read in Foreign Policy, Chinese experts have warned "that economic slowdown could spell social unrest." But to date, according to the Hong Kong based writer Moss, "China's modern growth rate has been impressive enough to keep most people happy."
But as China's economy shifts from "developing" to "superpower," the growth rate is slowing predictably. The transition is already happening, warns Moss: "As GDP growth dips below 8% 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."
Export growth is also slowing -- to Europe and the U.S., as well as Brazil. In fact, "exporters are going bust, and some factories that remain open have switched from three shifts to just one." Meanwhile, migrant workers are creating "mass incidents" that could explode into an inland version of Tiananmen Square as China, as a developed nation, finds its growth rate gradually slowing. Think: Arab Spring, Occupy Wall Street, Greek riots.
Warning: China's 'super rich' now 'exporting' capital
While America's billionaires simply believe "more is never enough" and are doing everything possible to run American government like the central communist party, China's "super rich" see the writing on the wall: "When the going gets tough, the rich head to the airport," says Moss.
Luxury goods are going great in China, but "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 [China] real estate."
Yes, Chinese billionaires don't trust their government, so they're "looking overseas to invest in high-end property," creating a wave of wealthy Chinese seeking foreign residences. Why? Great deals. Versus too many local restrictions. And, notes Moss, as "a hedge against political and economic uncertainty at home."
Moss reports that Chinese prosecutors have gone after 19,000 dirty officials since 2000: "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."
Warning: China's environmental crisis
China's population is growing astronomically: 1.3 billion now, with the UN predicting the addition of another 300,000.000 people in the next generation, by 2050. Nobel Prize winning economist Robert Fogel projects China's economy will soon dwarf America's, reaching a staggering $123 trillion. That's 40% of the global economy in 2040 versus 14% for America.
But that kind of growth brings megachallenges for China's central planners and the environment. For example, China started importing to satisfy increasing energy demands. But now "China's ports are piled high with coal that should be roaring in the country's power plants." Why? "Lower manufacturing output," answers Moss. Last year planners were stockpiling emergency coal. Now demand is dropping as "hard-pressed citizens, businesses, and factories cut their electricity consumption in order to reduce their bills."
Obviously the Chinese are having real problems blending central planning with free-market capitalism in a global marketplace with everybody competing for the same scarce resources. China's learning these lessons the hard way. The price of coal has dropped 10% in the past year. "This drop could further dent the global economy," cooling demand for exports. Moss hits the nail on the head: "That's globalization for you: A Chinese person turns off the air-conditioning, and the world economy catches a cold."
Warning: Life-style demands triggering inflation
As China's standard of living explodes, as economic growth (broadly speaking) roars ahead, as the demand of luxury goods rises, China's ripples add pressure on prices throughout a competitive world.
"China consumes ever larger quantities of meat, [and] the prices of pork and beef have risen, fueled by the relentless demand," Moss writes, making inflation "a preoccupation" of Chinese policy makers. But the market is also trying to self-correct: Prices go up, then demand drops, and there's an oversupply, forcing Beijing "to step in and buy up pork to stabilize prices." But by then, Moss adds, "the price of eggs has shot up."
Bottom line: China's "faltering economy" has been wreaking havoc on the confidence of Chinese consumers in recent years. Add in the bailing-out billionaires; the prosecution of crooked officials; food-safety scandals; the inflation, debt, energy and environmental problems, and it's natural to ask: Maybe, just maybe, could China's five catastrophes reach critical mass, igniting at any moment and being exported quickly, intensifying the effects of America's fiscal-crisis foursome, plunging the U.S. economy into another recession and a bear market?