There was a distinct whiff of triumphalism in Beijing in the weeks after the collapse of Lehman Brothers. Chinese officials speculated aloud about whether it would be wise to lend the Americans the money they needed to bail out their sinking banks. There was tut-tutting about American profligacy. The famous prediction by Goldman Sachs that the Chinese economy would be larger than that of the US by 2027 was revisited – perhaps it would happen even sooner than that?

But two months into the global financial crisis, things look much grimmer for China. In fact the only recent examples of social unrest in one of the world’s main economies have come there, not in the west. Laid-off workers in factories in southern China have staged protests that had to be contained by riot police. There have also been strikes and violent protests by taxi drivers in some cities across the country. The notion that the Chinese economy has so much momentum that it has “decoupled” from the US looks like a myth.

The economic statistics tell their own story. Last week the Chinese government announced that the country’s exports fell in November, compared with a year earlier, in the first such monthly drop for seven years. There are said to be 1m new graduates looking for work. It is generally held that the Chinese economy needs to grow at 8 per cent a year to absorb all the new workers coming on to the market. But new projections suggest that Chinese growth next year will be lower than that – possibly much lower.

Chinese workers cannot express their discontent through the ballot box, so messages to the country’s political leaders are relayed through strikes and riots. Social unrest in China’s industrial heartlands will cause real alarm in the governing circles in Beijing. The urban middle-classes also have reason to be unhappy: there have been severe stock-market and property crashes in China over the past year. The government – like its western counterparts – has already made it clear that it will respond to the new downturn with a massive fiscal stimulus package.

But the next 12 months will still be very difficult. The west’s recession – and the associated drop in consumer spending – will worsen. This will have the direct effect of depressing demand for Chinese goods. And it will have the indirect effect of heightening tensions between the US and China.

China’s trade surplus hit a new record last week because imports are falling even faster than exports. The Obama administration is certain to want China to allow its currency to appreciate, to close the deficit. But the domestic pressures on China will point in the other direction – to allow the renminbi to fall in value in an effort to boost exports and keep more factories open.

An atmosphere of economic crisis in both countries is unlikely to make the discussion any more civilised. Protectionism is already gaining ground in the US, with the proposed bail-out of the American car industry. Some of America’s senior trade experts are very worried that this is just the beginning. “Obama has wise economic advisers,” says one, “but the instincts they are surrendering to are quite disturbing.” Protectionism could take many forms. But if next year’s international talks on climate change run into trouble – as seems likely – pressure could grow for some sort of “carbon tariff” on Chinese goods.

Any rise in protectionism in America is liable to be swiftly emulated in the European Union, which is China’s largest market. At the moment, the Chinese government seems to feel it can afford to treat the Europeans with a degree of disdain. China recently cancelled a summit with the EU at a few days’ notice, to express displeasure at European leaders’ meetings with the Dalai Lama.

But trade is one area where the Union has enormous powers and acts as a single bloc. At the moment the European Commission is still in the hands of economic liberals. But a new commission will be appointed in 2009 and things could change. There are already strong protectionist pressures in countries such as Italy and France.

Next year will clearly be very tough for China. But over the past 20 years predicting the demise of the Chinese economic miracle – or the Chinese Communist party – has proved to be a mug’s game. For years western analysts have pointed to fundamental weaknesses in the Chinese economy. In the 1990s, it was popular to predict that the Chinese banking system would collapse. (Perhaps we were looking at the wrong banking system?) Environmental problems, shortages of energy and water and demographic imbalances are other Chinese weaknesses that have long been pored over.

But China has powered ever onwards. The country got through the political upheavals of 1989 and the Asian economic crisis of 1997, which also led to sharply slower growth and higher unemployment.

Still, the economic crisis of 2009 could pose the toughest tests that the Chinese government has faced since the student uprisings of 1989, whose 20th anniversary will fall next year. For it is now clear that, far from being immune to the global financial crisis, China is very vulnerable. Its economy may not be hit as hard as that of the US. But as a poorer country – with a less resilient political system – it could suffer worse.

It would be a historic irony if the Chinese Communist party was thrown into crisis, not by the collapse of communism in 1989 – but by the convulsions of capitalism in 2009.

gideon.rachman@ft.com
Post and read comments at Gideon Rachman’s blog
More columns at www.ft.com/rachman

Copyright The Financial Times Limited 2018. All rights reserved.

Comments have not been enabled for this article.