[Viewpoint] The end of China’s golden age

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[Viewpoint] The end of China’s golden age

A 118-millimeter (4.6-inch) stalagmite found in the Wangxiang Cave in Gansu Province, China, provides a stunning insight into the connection between natural phenomena and the rise and fall of ancient Chinese dynasties. The layers of stone formed by the dripping of calcium carbonate are estimated to have formed over 1,810 years and are still building up. The base dates back as far as 190 A.D., according to a study published in the journal Science.

Researchers have managed to date the layers and analyze the amount of oxygen in each, which tells them how much rainfall occurred at the time. They discovered that weak summer monsoons and the resulting dry spells coincided with the final years of the Tang, Yuan and Ming dynasties.

China’s war hero Chiang Kai-shek did not lose control of China sheerly because of competition from his Communist Party rival Mao Zedong. His Nationalist (Kuomintang) Party was defeated because of chronic inflation. During the Chinese civil war, inflation hovered at a surreal rate of 2 million percent. The army and workers turned away from the Nationalist Party. Taiwan was spared the apocalyptic inflation and it eventually provided a refuge for Nationalist exiles.

Marie-Claire Bergere, an expert on Chinese history, views the tumultuous events at Tiananmen Square in 1989 as a popular resistance to inflation rather than support for the pro-democracy movement. It was the fallout from the country’s rapid industrialization. She said the public’s grievances over rising prices and the growing wealth gap rose after a decade of industrialization, especially when inflation was over 20 percent, culminating in the 1989 protests.

Given its history, it’s no wonder the Communist Party is so sensitive to inflation. When inflation climbed over 5 percent, the central bank announced a surprise interest rate hike over the Christmas holiday. Inflation is a political as much as an economic problem in China. It remains unclear, though, whether monetary tightening can help tame inflation.

China is seeing the last of its heydays of galloping growth and low inflation driven by cheap labor and brisk overseas demand. Labor costs have been rising by double digits every year, and interest rates are now long past modest levels, sending repercussions around the world. Structural evolution is taking place on the Chinese economic landscape.

Real estate is a tricky issue in China. Rising property prices and their crushing effects on the young generation is well portrayed in a hit television series “Woju” (Dwelling Narrowness). The drama, about two sisters trying to make it in the dynamic metropolis of Shanghai, generated the new phrase “room slave,” a fate one of the sisters tries to avoid by becoming a mistress to buy a house of her own.

The series dramatized the near-impossibility of home ownership and the titanic struggle urban youth go through to pay mortgages. External circumstances also add to China’s troubles. The United States, printing money to boost liquidity and push its slow-moving economy, has caused a catastrophic ripple effect on the Chinese economy with a flood of dollars, fanning inflation and an appreciation of the yuan.

China lent and invested too much over the last two years. Its debt-driven profligacy could result in redundant productivity and insolvencies. But authorities cannot radically raise interest rates to rein in prices. If the yuan rises sharply, export industries would be devastated.

China so far maintains a brave face, confident of battling its problems with its own prescription instead of any Western formula. But few countries have succeeded in sustaining an upward growth spiral. The Chinese economy, too, must brace for a big dip.

In 1994, New York Times columnist Paul Krugman warned that the Korean economy would soon hit its growth ceiling for an economy driven solely by industrial expansion. Four years later, we sought an international bailout. The columnist is issuing a similar warning on the Chinese economy.

That’s ominous for us as well, with the Chinese market responsible for 30 percent of Korea’s external trade. We hope the stalagmite in the Wangxiang Cave continues to grow this year. But somehow, I can’t shake off a sinking feeling.

*The writer is an editorial writer of the JoongAng Ilbo.

By Lee Cheol-ho
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