Restaurants in Beijing are fully booked, malls are filled with shoppers. Property prices in the capital are buoyant, defying the historical pattern of a post-Olympic Games slump.
Chinese banks are busy lending to allcomers, in stark contrast to their Western counterparts. Even the Shanghai stock exchange, which lost more than 70% off its peak value last year, has something of a spring in its step - the benchmark Shanghai Composite Index has gained 24% this year. On Friday, Wall Street watcher Jim Cramer cited China as number four of his "Top 10 Reasons for Optimism" about the world economy.
So what's going on here? Has China escaped the fate of more mortal economies?
Government spokesmen are cagey, but the unofficial line - for the moment - appears to be that China's system of state-influenced markets has proven itself superior to the more "unregulated" Western model. Cleverly insulated from market turmoil, the claim goes, China is poised to surge ahead as the world's new economic superpower.
Not so fast. The ripples emanating from the global recession may have seemed tiny at first as they traveled across the Pacific, but they are about to hit China with the full force of a tsunami. And there is real concern among the Chinese leadership that the impact may well surpass anything we've seen in the US or Europe. That's because the economic crisis in China is taking on a fundamentally different shape than in the countries where it originated.
The crisis in Western markets began at the top and worked its way down. When the US property bubble burst, it hurt some homeowners, but the real damage it inflicted was to undermine confidence in complex financial instruments and the banks that owned them. It was essentially a financial panic, and the first people to be laid off were Wall Street MBAs working at investment banks and hedge funds.
The effect on the real economy only came later. As big-name banks failed, consumer confidence took a nosedive, and as surviving banks retrenched, credit to consumers and business dried up. Only in the fourth quarter of last year - six to nine months after the first big bank, Bear Stearns, collapsed - did these factors result in significant working-class job losses.
The process unfolding in China is precisely the opposite. The threat comes not from the commanding heights of the economy, but from the grassroots. All along the coast, thousands of small factories that rely entirely on US and European export markets are cutting back production or shutting down. Their margins were thin to begin with, and now their orders are being slashed. The first to be affected aren't the global professionals that populate China's big cities, but the migrant workers that made those factories hum.
Last week, Chinese officials admitted that at least 20 million migrant workers - one out of every six - who journeyed back to their hometowns this lunar new year won't have a job to return to. Compare that to roughly three-and-half million American job losses so far. For the moment, China's army of unemployed seems disheartened rather than angry. Many of them took extended holidays among family back home and only now, out of desperation, are resuming their job hunts in earnest. No one knows how long their patience will last, or how much larger their ranks will grow in coming months.
China's government is keenly aware of the problem and has adopted a three-pronged strategy. First, it has directed state-owned banks to extend generous loans to support struggling exporters. Second, it announced a huge package of big-ticket infrastructure projects to sustain employment. Third, it is adopting a variety of measures to boost domestic consumer demand as an offset to failing exports.
But the hoped-for results may be limited. Infrastructure-focused stimulus will take time to implement and benefits only certain industries, such as steel and construction, leaving textiles and other major sources of employment untouched. Even worse, analysts are underestimating the degree to which domestic Chinese demand is driven by all the remittances sent by migrant workers to their extended families in the interior - income that will now disappear as job losses mount. Contrary to popular belief, domestic demand is in the process of being undercut, not strengthened. All the cheap loans in the world won't replace lost customers, at home and abroad.
The fact that China's slowdown is originating from the bottom up, rather than the top down, carries important implications. The first is the visibility of the problem. Today, China's high-income urban areas are experiencing a false dawn as banks churn out easy cash to prop up the economy. But quietly, behind the scenes, Chinese companies are revising their profit estimates downward, by as much as 50% for 2008. The bad news just hasn't hit home yet.
The second difference is the solution. Unlike the West, China does not face a liquidity problem, where financial markets have frozen and the government can thaw them out with easy money. China faces a breakdown in real demand due to an over-reliance on external markets, a core element of its growth model that will require a wrenching structural shift in the economy to correct.
Of greatest immediate concern are the social implications. Job cuts are starting to bite in the US and Europe, but at least there the working stiff had the (somewhat ephemeral) satisfaction of seeing the so-called "masters of the universe" get their comeuppance first. Pain has been felt both high and low.
China's slowdown, in contrast, threatens to drive a wedge between the rural have-nots, who are bearing its entire brunt, and the urban haves, who are still living it up. It's a worrisome vision that is giving top Chinese leaders some long sleepless nights, and ought to have the world's attention.
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