China's economic growing pains

What's wrong with China?

It's struggling to cope with the consequences of its own rapid economic growth. China's economy grew at a red-hot rate of 10 percent a year for the last decade, making the country as a whole much more affluent. But the growth has been very unevenly spread over the vast population of 1.3 billion, causing bitterness and discord. The economic boom has created a new and very visible wealthy class of top government officials and private-business owners, including more than 500,000 millionaires who travel abroad, drive Mercedes-Benzes and Rolls-Royces, and adorn their wrists with Rolexes. But on average the Chinese are only about as wealthy as Jamaicans or Albanians. As a result, China is now suffering from serious social, economic, and political problems that have left its population restless and its leadership worried.

Will the economic growth continue?

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It's already slowing, dipping below 9 percent in one quarter last year. That partly reflects the Chinese economy's heavy reliance on exports, which have dropped off since recession-stung Europeans and Americans pulled back on purchases of consumer goods. China's rising wages, ironically, are also a factor: Some industries, particularly clothing and footwear, are moving factories from China to Indonesia and Bangladesh, where they can still pay workers pennies a day. But the biggest threats to China's economy are inflation and a housing bubble. The newly rich poured their earnings into real estate, driving prices way up. Many also invested in the private, underground lending industry, which thrives because official Chinese banks often refuse to make private loans. In at least one city, Wenzhou, a wave of defaults of these underground bank loans has set off a rash of suicides among people who can't pay their debts.

How widespread is the anger?

It reaches deep into Chinese society. The rural poor are complaining that wages and incomes are rising in cities, but not among those who live in the countryside. Some are beginning to rise up in protest against rampant corruption among local officials, who seize land from peasants and farmers and sell it at great profit to developers. In a case that generated international attention, townspeople in the southern fishing village of Wukan banded together in December and drove out the local Communist authorities; they have been allowed to elect a new government. Tens of millions of rural residents have simply abandoned the countryside to try to find better-paying jobs in the cities. In a single generation, the urban share of China's population has doubled, from 25 percent in 1990 to more than 50 percent today. That massive migration has put unimaginable stress on the cities.

Do the migrants fit in?

They're not really allowed to. The centuries-old system of hukou requires all Chinese citizens to register in their birth villages, and when they move, the new jurisdiction often refuses to grant them residency. At least 200 million people who have moved to the cities for work lack access to vital social services, including health care and schools, and many live in shantytowns on the cities' edges. A toddler who was run over last year and left to bleed in the street — an event captured on video and replayed endlessly on the Internet, to the horror of the Chinese public — was from one such disenfranchised family. Despite some recent reforms, the hukou system is still contributing to a marginalization of migrants that The Economist has called "China's apartheid system."

What about factory workers?

They, too, are getting restless. Strikes for higher wages and better working conditions are becoming more frequent, and the explosive popularity of Weibo, the Chinese version of Twitter, has allowed news of local unrest to spread around the country. Last November, employees at a shoe factory rioted over layoffs and salary cuts, and images of their bloody clashes with police went viral on the Internet. A report by the Chinese Academy of Social Sciences found that strikes have become more confrontational and more likely to inspire copycat actions.

How are authorities reacting?

With a combination of repression and reform. In an attempt to prevent local protests and uprisings from turning into a destabilizing contagion, Beijing authorities in December ordered that all Weibo users must use their real names. Individuals who complain too vigorously about corruption, wages, or industrial pollution are sometimes dragged off to jails or mental institutions. But in a conciliatory gesture, Premier Wen Jiabao recently called for better protection of farmers' land rights. And one vocal advocate of such reform, Guangdong provincial party leader Wang Yang, is expected to be appointed to the Politburo Standing Committee later this year, when all but two of its nine members will be replaced. The Communist Party is mindful of the need to carefully calibrate its response to growing public dissension. The last time such a large turnover in the Party's top leadership coincided with an economic downturn was 1988. A year later, simmering frustration with the government erupted into the protests in Tiananmen Square.

End of the one-child policy?

China's policy of allowing only one child per family, introduced in 1978, has become a demographic time bomb. In the next 30 years, as a wave of older people retire, China will go from having eight workers per retiree to just two, an enormous and unsustainable change for the economy. What's more, the policy has implicitly encouraged selective abortions of girls, since the Chinese still value a single son more than a daughter. The result is a glut of boys — there are 32 million more of them under 20 today than females. Such a large mass of men who can't marry and have poor job prospects, sociologists say, is a recipe for social upheaval. Many analysts believe that authorities will soon revoke the one-child policy; propaganda posters have already been spotted showing families with two children. But the change may come too late. China "is already past the tipping point," Deutsche Bank global strategist Sanjeev Sanyal says, "because of a combination of gender imbalance and a very skewed age structure."