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The cracks in China's engine
Powered by rip-roaring growth, China just surpassed Japan as the world's No. 2 economy. But are strains starting to show?
A construction worker climbs a scaffolding at the Shiliupu port in Shanghai, China.
A construction worker climbs a scaffolding at the Shiliupu port in Shanghai, China.
Corbis
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ow quickly has China's economy grown?
It's been expanding at a staggering pace. For the past three decades, the economy has grown by an average of 10 percent a year, lifting an astonishing 500 million Chinese out of poverty. Although its growth is expected to slow this year to less than 9 percent, China's 2010 gross domestic product is projected to be $5.36 trillion. China is now the world's leading producer of everything from toys to consumer electronics and clothing — 60 percent of the world's clothing is manufactured in China. To feed its industrial appetite, China has become the world's largest importer of aluminum, copper, and iron ore. "This is just the beginning," says Wang Tao, an economist in Beijing. "China . . . has a lot of room to grow."

Might anything slow it down?
Quite a few things. First, China's growth depends on exports, which makes its economy vulnerable to global economic conditions. China was hard-hit by the 2008 financial crisis and the global recession, when international demand for Chinese goods fell 10 percent, by some estimates. As a result, some 100,000 Chinese factories closed, throwing 30 million people out of work. To revive its sagging economy, China launched a successful $1.1 trillion stimulus program. But both manufacturing growth and infrastructure investment slowed recently, raising fears that China's economy may one day run short of miracles — with potentially grave consequences for the country's stability.

Is China unstable?
Not yet. But while the Communist Party retains largely unchallenged control of China' s government, the rapid transformation of a rural, peasant society into a 21st-century industrial power has produced real political, economic, and social strains. In recent decades, more than 200 million peasants — of a total population of 1.3 billion — have migrated from China's rural interior to find work in cities, many of which sprang up virtually overnight (see below). There, uprooted peasants labor in primitive conditions with little job security. Many are also exposed, for the first time, to China's newly affluent professionals and entrepreneurs, whose conspicuous consumption can stir resentment. Affluent Chinese, says Yi Zhao, a civil servant who lives in China's heavily industrialized Guangdong province, "collect wealth at the expense of the poor."

Are workers likely to rebel?
They already have. China was rocked this year by strikes and demonstrations — some violent — by workers demanding better pay and conditions. The boom has made tens of thousands of Chinese so rich that sales of Mercedes-Benzes, Jaguars, and Rolls-Royces soared more than 100 percent in a single year. Meanwhile, hundreds of millions of others still live in primitive huts and scrape out a subsistence living. Widespread poverty drags China's per capita income down to $3,678 — roughly on par with Angola and Azerbaijan. Tensions over rising inequality have even been linked to a series of horrific attacks on schoolchildren by alienated, middle-aged men who seemed to feel left behind by China's new prosperity.

Can education close the income gap?
Not soon. More than 6 million college graduates enter China's workforce annually — up from 1 million in 1999 — but students often find little skilled work after they graduate. Many end up working for $300 to $500 a month — little more than a factory worker earns, and less than workers with college degrees earned just a few years ago. "The government has failed to create enough jobs," says Su Hong, 23, a college graduate who's competing with about 1 million others for 15,000 government jobs. "People’s expectations for employment are getting lower and lower."

What else has gone wrong?
China's breakneck growth has been purchased at the price of creating one of the most toxic environments on earth. Half of China's 50,000 rivers are severely polluted, and 16 of the 20 cities with the world's worst air quality are in China — a consequence of the country's heavy dependence on coal. Unregulated road building and mining have scarred the countryside, leading to disasters like last summer's mudslides in northwestern China that left more than 1,700 dead or missing. The World Bank says that by 2020, as many as 30 million "environmental refugees" may roam China in search of breathable air and potable water. "We’ve pushed the environment to its limit," says Sun Haixia, a factory worker in Linfen, one of China's most polluted cities.

Are Chinese leaders worried?
It would appear so. Prime Minister Wen Jiabao recently said he'll "make sure China maintains a sense of crisis" as it struggles to address its problems; in a sure sign that the government is nervous, people who persist in protesting environmental or political conditions are being hauled off to jail. Chinese leaders have tacitly encouraged a rise in pay scales in an effort to create consumer demand at home, which would reduce China's dependence on exports. And China plans to invest at least $440 billion in green technologies over the next decade to mitigate environmental degradation. China is also developing rural areas to reduce income disparities between city-dwellers and peasants. But achieving all this will require economic growth to continue at a blistering pace. If the miracle falters, warns Zhou Tianyong, who trains government bureaucrats at Beijing's Central Party School, China risks falling into a "trap of social and political turmoil, slow economic growth, enduring lack of prosperity, and weak and declining national competitiveness."

Eating bitterness
In 1994, Zhang Changhua and Chen Suqin, the married couple at the center of the documentary Last Train Home, left their impoverished village in Sichuan for Guangzhou in southern China. Since then, Guangzhou's population has more than doubled to 10 million, and its wealth has soared. But Zhang and Chen work long days stitching clothing in a cramped workshop, and return home to a squalid room in a crowded cement building. Like the rest of China's 130 million migrant workers, they have no unemployment or health insurance, no pension plan, and few legal rights. In China, tireless workers are praised for their willingness to "eat bitterness." For that feast, at least, migrants are at the front of the line.

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