China's Red-Hot Growth Gives Policymakers Pause

Earlier this year, Shanghai tried to slow down real estate sales by restricting some deals. It's part of a broader Chinese government plan to slow the country's staggering growth.

DAVID GREENE, host: This is MORNING EDITION from NPR News. I'm David Greene.

LYNN NEARY, host: And I'm Lynn Neary. Steve Inskeep and Renee Montagne are away. In Europe, finding a way out of the debt crisis is a daily adventure. The focus now is on Greece, which admitted today that it won't be able to meet deficit targets imposed on it by international lenders. An inspection team is there now looking over the country's financial books, trying to determine whether to approve the next round of financial aid. Greece desperately needs an infusion of more money to keep its economy afloat.

GREENE: And there is more challenging news on the other side of the world. In a case of bad timing, one of the world's fastest growing economies is trying to slow down. If Western economies are hoping for a big boost to help them through these difficult days, NPR's Frank Langfitt reports it's unlikely to come from China.

FRANK LANGFITT: Shanghai has been one of the world's hottest real estate markets. But it's too hot for Chinese officials, who are fighting high inflation and what some fear is a housing bubble. Earlier this year, the Shanghai government tried to slow down real estate sales by restricting people from outside the city from buying more than one property. James Ye says the policy is working.

JAMES YE: (Foreign language spoken)

LANGFITT: He says deals for existing homes are really bad. Ye works for Shanghai Pujing Real Estate. He's sitting in an office filled with agents hunched over computers.

YE: (Foreign language spoken)

LANGFITT: Last year, I sold one property a month, he says: Now I sell one property every two or three months.

The real estate policy is part of a broader plan by the Chinese government to slow the country's staggering growth. Andy Rothman follows China's economy for CLSA - an independent brokerage and investment group. He says the Chinese government wants to slow down the economy and improve the quality of what it produces.

ANDY ROTHMAN: Here in Shanghai over the last 10 years, the government has raised the minimum wage by 160 percent. And so this is the deliberate effort to get out of the business of focusing on assembling low-value-added shoes and toys and to move more up-market with better quality jobs that pay better.

LANGFITT: Rothman expects China's economic growth to fall below nine percent next year. That would be the slowest rate in a decade, but still fast by global standards.

ROTHMAN: Strong growth in China will put a floor underneath the global slowdown, but it's not going to save the world.

LANGFITT: One reason: Most Chinese just don't have the purchasing power.

ROTHMAN: Chinese consumers are spending a lot. Retail sales growth here is 17 percent. But the Chinese consumer doesn't have enough money to make up for American consumers not going shopping.

LANGFITT: Rothman's got a point. China's getting wealthier, but most Chinese still don't have that much money. Right now, I'm standing on China's Wall Street in Shanghai, looking up at two of the world's tallest buildings. And next to me is a guy named Xiao Yandong, who makes a living selling pancakes each morning for about 50 cents each.

(SOUNDBITE OF SCRAPING)

LANGFITT: Xiao scrapes his skillet clean and ladles on some batter.

(SOUNDBITE OF CRACKING EGG)

LANGFITT: He cracks an egg and begins cooking. Xiao makes 200 Chinese breakfast pancakes a day, seven days a week. He earns just $500 a month. Xiao doesn't have much disposable income. He hasn't taken his wife and eight-year-old daughter out to eat all year.

XIAO YANDONG: (Through translator) We buy groceries to cook at home, because eating out is too expensive. Each meal costs between 40 and 50 dollars and then it's gone. So we take the subway to friend's house to eat dinner.

(SOUNDBITE OF TRAFFIC)

LANGFITT: Whitney Wang, an English teacher, strolls by on her way to work. She earns more than three times what Xiao does. But she's saving most of it for an apartment. That leaves little to spend on Shanghai's pricy merchandise.

WHITNEY WANG, ENGLISH TEACHER: So many goods in, you know, some shopping malls, much higher than its original value. For example, the jewelry, jewelry's something I haven't buy for a long time.

LANGFITT: During the global slowdown in 2008, the government here spent billions of dollars on roads and bridges to prop up growth. This time, another dose of government stimulus spending seems less likely - unless demand for Chinese exports from Europe and the U.S. plummets. Again, Andy Rothman from CLSA.

ROTHMAN: If millions of migrant workers who are in factories, especially in southern China, assembling iPads and microwave ovens and DVD players lose their jobs, then you'll see a few quarters of a stimulus to find temporary jobs for those folks.

LANGFITT: The American and Chinese economies remain highly interdependent. But China faces its own unique challenges. And its leaders are certain to focus on the risks to their economy before addressing the problems facing the U.S. and the European Union. Frank Langfitt, NPR News, Shanghai.

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