China has chugged along with growth of at least 10 per cent. But it needs eight per cent growth just to absorb growth in the labour force, so with five per cent growth a possibility in 2009, social unrest could loom.
In late November, as the economy began to contract, scenes from the streets of Dongguan in southern China appeared to hint at what's to come, when hundreds of laid-off workers seeking back-pay went on a rampage, overturning a police vehicle, trashing police motorcycles and smashing the windows of their former factory.
Nearly 1,000 police had to be called in, and five workers were in hospital by the time it ended.
Riots involving layoffs are "relatively new and appear to be growing," says Christopher Hughes, professor of international relations at the London School of Economics, calling them a clear sign of "an economy under stress."
Many say that as the Chinese economy continues to contract, it is almost certain there will be more outbursts.
"I anticipate significant social unrest," says long-time China watcher David Zweig, of Hong Kong's University of Science and Technology. "There are people who are owed money and there are unscrupulous businessmen who won't pay them."
He foresees more factory closings on the way.
And that will pose a serious challenge for China's Communist leadership.
"We should be very concerned," says Hughes. "The Communist party of China has pinned its legitimacy largely – though not exclusively – on economic growth."
And for three decades, ever since Deng Xiaoping first adopted market-oriented Western ways under his Reform and Opening policy, it has delivered.
The main problem now, says Hughes, is Chinese expectations of ever-rising living standards.
But in the rough and tumble of today's reeling world economy, ever-improving standards can't be assured.
Most economists believe that to keep the Chinese dream soaring – to create enough jobs, keep people happy and avoid unrest – China must maintain an annual growth rate of at least 8 per cent.
Last year it was a scorching 11.9 per cent.
But next year, says the World Bank, China's economy will grow by just 7.5 per cent.
And The Royal Bank of Scotland is even more pessimistic: it's predicting growth could be 5 per cent.
In the West, such growth rates would be embraced with near-ecstasy. But in a nation of 1.3 billion, where nearly 45 million people live on less than $200 per year, and more than 20 million new graduates annually burst on to the job market looking for work, even 7.5 per cent just won't do.
The article also interviews Michael Pettis, a prof at Peking University's Guanghua School of Management. He maintains a blog called China Financial Markets (http://mpettis.com/).