TEXT OF STORYLISA NAPOLI: Today, the Shanghai composite Index topped 4,000 and reached a new record high. China’s economic boom will be the talk of Washington with the Chinese vice premiere in town today for an economic summit. Now, we know the U.S. is flummoxed by China’s growing financial power, but Scott Tong says China itself is dealing with its own problems.
SCOTT TONG: Leaders here are fretting about several risks to China’s export economy. Here’s a quick tour of Shanghai to illustrate those fears:
Stop one, a local brokerage firm. It’s packed. Investors want in on a stock market that’s zoomed up 50 percent this year. Stephen Green of Standard Chartered Bank says it’s all connected to exports.
STEPHEN GREEN: China is exporting a ton of stuff. And when it exports stuff, it obviously gets paid money.
Many of those revenues get pumped into stocks driving up the prices.
Now leaders in Beijing are talking bubble. They warn against “blind optimism,” which is kind of their version of “irrational exuberance.”
Still, investors ignore them, the same way Americans ignored Alan Greenspan in the 1990s. Stephen Green says if there is a crash in China, the aftermath could be ugly.
GREEN: If you are a student or a pensioner you and make a 20 percent loss or a 50 percent loss, of course that’s gonna make you unhappy. And of course if you are a politician sitting in Beijing, politicians are gonna worry about people losing money and becoming angry.
If China avoids that sudden shock, there are still longer-term anxieties. Which takes us to stop No. 2, a Shanghai middle school.
In a few years, many of these kids will work in factories, but there won’t be enough of them.China’s labor force will soon shrink, because of the one-child policy.
So, fewer people making fewer things. The trick is to start producing more profitable things, says Andy Rothman of the investment firm CLSA.
ANDY ROTHMAN: Most of the world’s laptop computers, for example, are made in China. This is the kind of thing that the Chinese are looking for. They are looking for higher value added so that more and more of the value will stay here.
Leaders also want to cut exports from industries that pollute.
For instance, this local factory, stop No. 3. Its power comes from one of the dirtiest sources: coal.And Andy Rothman says the masses are starting to complain about air quality.
ROTHMAN: Chinese people, as they’ve gotten to the stage where they have enough money to have a comfortable life are starting to worry about things like the environment. And they’re putting a lot of pressure on the government.
A government that’s steering an economy that many call a speeding car. But in the words of one China veteran, the challenge is keeping the wheels from falling off.
In Shanghai, I’m Scott Tong for Marketplace.
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