Cracks are appearing in the largest economic power.

Chinese imports in June were half of what was expected. This news is a bad harbinger for the GDP data, which will be officially released later this week. China's GDP growth rate was this low in 1990, when the country faced international isolation because of the Tiananmen Square massacre in 1989. That this is not just a downturn in the economy, but something much more serious, five signs indicate:

Goodbye VMV

The $586 billion in loans that enabled China to get through the 2008 global crisis with minimal losses is putting a heavy burden on local governments. Now the debts have to be repaid, which means that city halls have to tighten their belts. The first to go up for sale will be the expensive cars of municipalities whose officials bought them in the years of prosperity. The city of Wenzhou, this year, plans to auction off 80 percent of such cars, a total of 1,300 cars - similar sales will begin across the country. In the second phase, municipal and state-owned real estate will be auctioned off.
The headache for municipal governments has been the lack of land for sale, as they were previously sold off cheaply, according to a government directive, in order to cool the overheated real estate market. In June, the average home price in China's 100 largest cities rose for the first time in nine months.

Revolt in Guangdong Province

If GDP growth falls below the 8 percent mark (in 2012 GDP growth is planned at -7.5%), China's social structure could come under strain for the first time in years, especially since thousands, if not millions, of migrant workers will be out of work. "Clearly, slowing export growth as a result of weakness in Europe and the U.S. will continue to put pressure on the Chinese economy," said Lu Ting, an economist at Bank of America in Hong Kong, "Exporters will go bankrupt, and some remaining factories will switch from three shifts to one."
This is confirmed by events that took place a month ago. About 30 people were injured and two police cars were smashed when riots broke out in Shaxi, a city in Guangdong province - known as "Shop World. Migrant workers are the main labor force in China, and their discontent could have a devastating effect on the country.
To be continued...

 

Based on foreign press for ForTrader.org