China's Looming Crisis: Daunting Troubles Mount

Article excerpt

China's in deep, deep trouble, and its new leaders know it.

The growth of the nation's GDP has continued to slow every quarter since late 2010--though it did tick up slightly in the state's latest quarterly report, published in January. But that's just one of many problems. In the simple words of D&B Country RiskLine Reports' year-end assessment of China, "Trend: deteriorating."

Xi Jinping, the nation's new Communist Party leader, assumes the presidency this March, and the country is hoping, albeit with considerable trepidation, that he will bring positive change. But China's troubles--economic, political, social--are daunting. And as the full government transition approaches, these problems seem to be converging. One significant symptom: Money is flowing out of the state at an alarming rate, a sign that wealthy Chinese have lost faith in the country.

Of course, China does not make public any figures of this capital flight. But reliable estimates from several journalists and economists published late last year estimate that between $225 billion and $300 billion has left the country in the past year, three to four percent of China's economic output for that period. And this has happened even though moving significant amounts out of the country is strictly illegal. The outflow is growing larger every year, just as the GDP continues to fall--not a coincidence.

In fact, wealthy and successful Chinese aren't just moving their money. Many are making plans to leave for the West along with their money, with America being the primary destination. Last year, the Chinese magazine Hurun Report, which chronicles the lives and foibles of the wealthy, published that finding after interviewing nine hundred people in eighteen cities.

The sample was clearly not scientific, but it was given added credibility when many thousands of people responding to the article on Weibo, China's version of Twitter, said they would leave, too--if only they had enough money.

The wealthy who are moving to America most often use the EB-5 visa, which goes to foreigners willing to invest at least half a million dollars in a business that offers new jobs for at least ten Americans. The Chinese call that "investment migration." And the China Merchants Bank, along with global consulting firm Bain & Company, concluded in a joint report that it's "quickly increasing."

The two companies said investment migration from China to the US "grew at a compounded annual rate of seventy-three percent over the past five years." The companies also surveyed wealthy Chinese (one of several organizations to do so) and found that almost sixty percent of them "have either completed investment immigration, applied for investment immigration or are considering it."

The Department of Homeland Security reported that seventy-eight percent of the EB-5 applicants last year were Chinese.

While the wealthy vote with their feet, the lower and middle classes are in open revolt. The Ministry of Public Security estimated that in 2011 the Chinese staged more than 128,000 "mass incidents"--large local protests over corruption, land seizures, pollution, job safety, and a dozen other social ills. The numbers are certainly approximate. But they are almost certainly increasing. In 1993, the official number was 8,709. By 2009, the ministry said the people staged about 90,000 mass incidents. Nearly all the protests are aimed at local authorities, not the national government. For many, the memory of Tiananmen Square apparently remains burned on the brain.

Not surprisingly, the Chinese government has stopped releasing statistics on mass incidents. But Xia Yeliang, an economics professor at Peking University, said the number has risen "to more than two hundred thousand a year"--more than five hundred every day. "We have our own sources in the central security office," he said in an interview.

One of the people's gravest grievances, the motivation for many demonstrations, is the nation's growing income inequality. …