OK. Bury your head in the sand and stay happy 
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Beijing is experiencing an exceptionally cold winter this year. For the first time, the Chinese regime worries about the sharply declining economy. However, during its 2008 Central Economic Work Conference, officials routinely boasted about economic growth and in the same breath complained about the overheated economy; they emphasized the need to control investments.
**The Chinese stock market has declined at a rate faster than any industrialized country and the markets of almost all developing countries. The housing industry is in a slump. Existing housing sales have declined drastically; even state-funded housing has many vacancies. The number of businesses closing and the unemployment rate are increasing. Provinces that are exporting migrant workers are experiencing tremendous pressure from the millions of returning workers; even the export business, which the Chinese economy has relied on, experienced negative growth this November for the first time in more than a decade. Many high profit-businesses, including state-owned monopolies, have seen sharp declines. **
In July and August of 2008 I published three commentaries entitled, “The Chinese Economy Is Sliding Into Crisis” for Radio Free Asia. Many economists were skeptical, and friends questioned me, wondering if my cautionary remarks were unfounded. The majority of them thought that in the face of the worldwide financial depression, China is in a unique position, enjoying a better outlook. I am certain that five months later, these doubters must realize they ought to have changed their views.
Expense of Cheap Goods
The current Chinese financial crisis has made economists who study China’s economy understand three issues better. The first one is the vulnerability of China’s economic growth. The sharp decline of the Chinese economy, i.e., 3 percent or more in one year, is an absolute rate of decrease rarely seen in any other country, aside from times of war or a devastating natural disaster. This vulnerability derives from the unhealthy nature of China’s economic growth. Specifically, the Chinese economy has relied heavily on undercutting and under-pricing of goods and services. This artificially created an ultra-low pricing system, in particular, fed by super low labor costs and [lack of] environmental protection costs. This is not sustainable and can quickly diminish the seemingly magical economic growth in China in no time.
Cheap Labor Is Volatile
The second issue is how vulnerable Chinese society is in a declining economy. Once the economy declines, the whole society, especially those who live at the bottom of society are quickly agitated. This type of vulnerability comes from prolonged and exacerbated injustices in allocating resources and manpower, coupled with political corruption at the expense of economic development.
The economic growth and the anticipated growth benefits have become a pretext for the ruling party’s legitimacy. When growth encounters problems, people soon lose their confidence and thus their tolerance of injustice and corruption. People hasten and withdraw their perceived legitimacy for the ruling party, just as they would withdraw their bank account anytime banks are collapsing. Once the phenomenon occurs, the force is unstoppable. It will not only engulf the economic achievements over the past 30 years, but also lead to an overall break-up in society.
Applauding China’s Economic Independence
The third vulnerability is China’s low immunity against international economic depression. Not long ago, both those arrogant economic nationalists and Western scholars who work for the Chinese regime praised and applauded “China’s economic independence.” They preached that the fast-moving and well-developed Chinese economy had already enabled the Chinese system to sustain growth by completely relying on its own market and economic strength. This fairy tale has been completely shattered in the face of the current crisis.
This crisis surely has its own fundamental causes; undoubtedly, the West’s financial depression is worsening China’s economic crisis. The worldwide depression is not only intensifying the failing Chinese economy, but is also limiting China’s capacity to resolve its crisis. The Chinese regime’s increasing efforts to restore the previous volume of exports clearly demonstrates this point.