Why the deep Chinese gloom?

Armed Police in Tibet

It is not only Tibet which has witnessed unrest in the recent weeks.
The Financial Times mentions: "Beijing has underlined its concern that an economic slowdown could lead to social unrest in China, with the country’s security chief urging local officials to do more to prepare for the 'negative effects of the market economy'."
It quotes Zhou Yongkang, a member of the Standing Committee of the Politburo telling some provincial officials that they needed "to find better methods of 'social management' – a euphemism which can include everything from better internet censorship and strategic policing of violent unrest, to a better social safety net. It is an urgent task for us to think how to establish a social management system with Chinese characteristics to suit our socialist market economy.”
Gordon C. Chang says in The Daily: "An economically weak China could be more dangerous than a strong one".
He considers that "after 35 years of virtually uninterrupted growth, the Chinese economy has reached an inflection point. September may have been the peak. Since then, the signs of contraction are unmistakable: falling car sales, declining electricity consumption, plunging industrial output, collapsing property prices, you name it. There were large transfers of money out of the country in October. The deterioration has been as rapid as it was unexpected. In short, the wheels are coming off the Chinese economy".
Chang says that "protests — 'mass incidents' in Communist lingo — have been skyrocketing, especially during the last couple years, going from around 127,000 in 2008 to perhaps as many as 280,000 in 2010". 
It might be exaggerated, but the point is that China (and India) will find it more and more difficult to escape the effects of 'economic crisis'. 
If the Chinese leaders are worried, it does not seem the case of their Indian counterparts.

Are China's leaders worried?
BBC
Damian
December 2, 2011
This has been the week when China's economy suddenly looked vulnerable and its Communist Party leaders sounded worried.
That may sound hard to believe. China's GDP is growing at around 9% a year, its foreign exchange reserves are the biggest in the world and Western nations keep looking to China suggesting, perhaps implausibly, that it may be able to help them out.
But listen to what China's Vice Finance Minster Zhu Guangyao told a forum in Beijing on Thursday about the global economy. "The current crisis is grimmer and more challenging than the global financial crisis triggered by the Lehman Brothers bankruptcy in 2008," he said.
That's right - here in China, the place most people look to with economic envy, senior officials think things are "grimmer and more challenging" than the dark days of 2008.

So why the deep Chinese gloom?
Mr Zhu gave some clues when he went on: "At that time, the world economy maintained growth, and world leaders... rolled out a massive fiscal stimulus and monetary measures... so that the crisis was to a large extent contained and economic recovery was achieved in a relatively short time."
China's fear seems to be that the world economy as a whole could shrink, something it avoided three years ago in large part because China and others kept growing.
The problem is that now things are different. It is far harder for China and other nations to roll out new stimulus measures.
So China's senior Communist officials seem to be deeply troubled by what is happening in the world around them. The deepening debt crisis in the Eurozone and the anaemic state of the US economy, China's two biggest export markets, are already hurting China's own economy.
But I think what is probably worrying them even more is the difficult position they now seem to be in at home.

Housing market woes
The shock this week was the news that China's massive factory sector, responsible some say for 40% of GDP, is now contracting for the first time since 2008.
The reasons are revealing. The official Purchasing Managers Index showed a sharp drop in export orders was responsible for one part of the contraction, but there was also a fall in domestic orders too.
The unpleasant message had two components. First China has not "decoupled" from the rest of the world - its economy is still, in part, export dependent and vulnerable to what happens elsewhere.
But crucially too, the idea that China's domestic economy is sailing ahead and can pick up the slack is also looking shaky.
While China's manufacturing is having a tough time, so too is another important part of its economy, the housing sector.
After 2008 China splurged vast amounts of money in a huge expansion of credit to keep the economy growing at 10%. House prices soared. That led in recent months to worries about inflation and asset bubbles.
So China had been tightening bank lending, trying to curb price rises and rein in property purchases.
The credit squeeze has had a visible impact. Businesses are hurting, while in October house prices in many cities started falling fast and the number of transactions is declining fast too. The OECD warned in a report that property price falls risk triggering the collapse of big developers.
That warning was repeated by the People's Bank of China on Friday after officials met representatives of commercial banks and property companies.
"Some banks think the banking system and developers can withstand home price falls of 20-30%," it said in a statement on its website. "But they are more concerned about whether a fall of 20% in home prices will trigger panic sales and whether the government can take effective measures to control chain reactions afterwards."
We have already, this week, had a signal of how worried Chinese officials are. On Wednesday the People's Bank of China cut bank reserve ratio requirements by 0.5%, basically meaning banks have to hold less cash and can lend more.
It was a surprise to many, and taken as a signal that all of a sudden China's leaders have shifted - over-riding their fears about inflation are now new fears about how to keep the economy growing fast.
Their problem is that inflation still stands at 5.5%, well above the government's target. So if they free up lending once more they risk fuelling new price rises and inflating the bubble again. More reason to be worried.
Patrick Chovanec, professor at Tsinghua University's School of Economics and Management in Beijing, says the People's Bank of China had been resisting pressure to ease up for months but has reluctantly conceded.
"The PBOC resisted loosening because it fears - and I agree with them - that pumping more money into the economy will reignite inflation and reinflate the property bubble," he wrote on his blog this week.
"Chinese leaders were hoping that vibrant export demand would offset the need for a more substantive adjustment within the Chinese economy, and that hasn't materialised. So their sole - and highly problematic - alternative is to try to reflate China's investment boom through monetary easing. The PBOC, and China's more perceptive leaders, know this is not a sustainable solution, but they're stuck."
As he put it: "One-time Fed Chairman William Mcchesney Martin famously observed that the job of a central banker is to 'take away the punch bowl just when the party is getting started'. To put it simply, the PBOC just handed back the punch bowl."

Strike fears
China, like the West, Professor Chovanec says, is facing a domestic credit crunch, but they are crucially different: "China stands at the peak of a bubble, while Europe and the US stand in the trough of a recession."
So China's leaders have many reasons to be worried. Export markets are grim. Manufacturing is contracting. Inflation is higher than they would like. The central bank is warning about events that could "trigger panic" in the property market. They need to sustain growth but without inflating the bubble even more.
China's leaders are, of course, still in a much more enviable position than their Western counterparts. The central government has cash to spend and the economy is growing.
But there is one more reason why China's authoritarian rulers might be worried. All the economic concerns are having a very real impact and it can be seen in growing labour unrest.
Friday brought news of a new strike in Shanghai. Several hundred workers were striking outside a factory. Their employer Hi-P international, a supplier to the electronics, automotive and telecoms industries, was reported to be cutting jobs and shifting production elsewhere.
Hi-P's latest financial report on its website indicated that the costs of its labour and materials had gone up so its net profit margin had plunged from 10% to just 2%.
A group of the workers outside the factory was displaying a banner reading: "We want an explanation! We want truth! Where is Hi-P's truth? Where is the government's credibility?"
The Communist Party's credibility is now built on the idea it can keep the economy growing fast and keep creating jobs. These look like troubling economic times.