Not so long ago, nouveau-riche Chinese could be seen standing in lines several hundred yards long. They were registering to purchase luxury condos in Shanghai -- such was the demand. Hoping that prices would continue to rise -- as they have over the past four years, by a full 74 percent -- many were even buying third or fourth apartments in China's bastion of business. Speculation fever had broken out.
Meanwhile, however, the heat is off. Under massive pressure from Beijing, Shanghai's city fathers have levied a new tax on properties that are resold within a year of purchase.
Central government planners are worried. They want to steady the economy in the bellwether city at all costs -- for fear of an impending crash. Such a meltdown could spark unforeseen consequences, and deal a crushing blow to state banks that have amassed billions in distressed debt.
To ward off the apocalypse, Beijing has been curbing loans for steel, cement and, of course, real estate during the past twelve months. According to Cao Yushu, a spokesperson for China's National Development and Reform Commission (NDRC), the escalating investments are a "tumor in China's economic body." The economy has nonetheless continued at a rolling boil, growing by more than 9 percent. Provincial officials and managers customarily ignore edicts issued by the planners in Beijing.
So China continues to boom, using a quarter of the world's cement and steel, and almost a third of its coal. The country has long succeeded Japan as the world's second-largest consumer of oil.
And maintaining growth remains its only option. Compared with industrialized countries, private consumer spending comprises a relatively low share of its GDP -- arguably too low to cushion a major slump. Although Beijing's new investment rules have led to a decline in imports, exports have increased all the more. China's export surplus could break $100 billion in 2005, triple the previous year's figure.
China's boom is stoking the world economy. It has become a focus for investment goods, and offers multinationals a cost-effective production base. But how long can China sustain the rampant growth?
The state banks' distressed debts present as incalculable a risk as the country's flimsy infrastructure. Many companies are now powered by private generators, giving them increased independence from national utility providers. Projecting dramatic shortages through the winter, twenty Chinese provinces opted to ration electricity in early 2005.
Immeasurable environmental damage through air and water pollution are fanning the problems, the economic costs of which remain unclear for China and, indeed, the world. Yue Pan, Deputy Minister for the Environment, is already predicting the end of the economic miracle: "To produce goods worth $10,000, we need seven times the resources used by Japan, almost six times the resources used by the U.S. and -- a particular source of embarrassment -- almost three times the resources used by India."
The challenges are threatening to spiral out of control, as Beijing seeks to check unbridled capitalism and quell flaring social tensions.
China urgently needs a social security system. Some 134 million people over the age of 60 already live in the world's most populous country. By 2050, this age group will account for 25 percent of its inhabitants. But there's nobody to pay into their pension funds. As a result of the one-child family policy -- the Communist Party program, launched in the 1980s, to defuse the population explosion -- social welfare contributions have plummeted.
In the old days, China's state-owned companies provided for the sick and aged. Because these have been converted into joint-stock companies, Beijing is now seeking to establish a hybrid system combining basic state pensions with private retirement plans. But only a small portion of the population in urban coastal regions receives social security. The roughly 800 million Chinese in the rural regions are still dependent on more traditional forms of support: their families. Western economists are already warning: "China will grow old before it grows rich."