U.S. Markets open in 19 mins

The Wheels Are Coming Off China’s Economy: Gordon Chang

Daily Ticker

Follow Yahoo!'s The Daily Ticker on Facebook here!

Nothing lasts forever, and that includes China's explosive growth over the past few years. There have been reports of Chinese "ghost cities," "forests of skyscrapers" and an abandoned amusement park called "Wonderland."

Many economists today forecast future quarters of mid-to-high single digit growth in China, a pullback from the boon years, yet still impressive in a depressed global economy.

Gordon Chang, author of "The Coming Collapse of China" and a columnist at Forbes.com, has been sounding the alarm bells about China for years and backs up his prognosis with recent government data:

-electricity consumption is flat

-car sales - a bellwether for consumption - are flat

-property prices are collapsing - even in cities like Shanghai and Beijing

-industrial orders are down - especially those relating to the domestic economy

"If you look at all the indicators, they all point down," he says in the attached clip.

The most troubling trend has been the rapid decline in China's inflation - a positive sign for most countries but not for the world's second largest economy. Chinese consumer inflation fell to 4.2% in November from 5.5% in October. The Chinese government raised interest rates at least three times in 2011 to fight inflation, which hit a three-year high of 6.5% in July. November's inflation reading was the lowest since September 2010. Gordon says China cannot pump more money into the system to stimulate growth because of "questionable bank loans" and the high number of local Chinese provinces in debt.

There are several factors contributing to China's slowdown, and Europe certainly plays a big factor. Europe is China's largest trading partner and Chinese export orders in November dropped sharply from October, rising 13.8% last month from 15.9% in October. As reported by The Wall Street Journal, China's labor costs are no longer considered "cheap" as fewer migrant workers choose factory jobs, thus "pushing up labor costs."

"We'll see more obvious signs of deterioration in the Chinese economy over the next six months," says Chang.

China's recent economic problems may be disconcerting, but the country faces a much bigger dilemma: its political system. Chinese officials have cracked down on recent protests, such as last week's social unrest in the village of Wukan. The Chinese government has been unable to silence media reports, an unusual outcome for a country that closely monitors and censors the daily interactions and Internet activity of both dissidents and citizens. Chang says the riots, bombings and insurrections taking place in local villages and provinces has led to an "unprecedented campaign of coercion" by Chinese military and police but "the more they clamp down, there more protests" will result.

As China prepares to transition to its new government in October, the country of 1.3 billion people will continue to suffer, says Chang. Chinese officials will be reluctant to initiate and push through new reforms meaning more economic and civic hardship.

"China has political paralysis right now," he says. 'This is a critical period for not only the economy but also for society."