03/18/2014 09:04 am ET Updated May 18, 2014

China Hits a Speed Bump

The recent economic slowdown in China is rattling financial markets around the world, which is to be expected when the world's greatest economic growth engine begins to sputter after many years of steady double-digit growth.

It isn't clear just how fast China is growing now -- nothing in the Middle Kingdom is ever very clear -- but definitely slower than it was. The shift is most conspicuous in China's ebbing consumption of raw materials that sustains its aggressive manufacturing sector. China is buying much less iron ore, coal, copper and other basic materials than in the recent past. Slack demand in China is having severe impact on suppliers, most notably Australia which has enjoyed a sustained boom supplying the Chinese market.

That China has hit a speed bump there can be no doubt. Exports fell 18.1 percent in February, a far cry from the 5 percent increase predicted by economists. In fact, China actually posted a trade deficit in February of almost $23 billion, if you can believe that. Not surprisingly, China's stock market is having a dismal year to match a comparatively sluggish economy.

But I am reluctant to read too much into a few negative data about China that might suggest a serious change of Sino fortune. For many years, I have always couched my predictions of China's growth potential with warnings that it would inevitably encounter a few bumps along the way. We must keep in mind that long streak of double digit growth years was built upon a very low base. Today China is the world's second largest economy so its growth rate is quite naturally levelling off.

Still, China's industrial, retail and export growth slowed more than expected in January and February. A large proportion of China's real estate is standing empty. The credit system in China is filled with questionable real estate, natural resource and business assets. Many Chinese banks and businesses are essentially insolvent, but are too well connected to go under. Even Premier Li Keqiang seemed a little tentative about the government's growth target of 7.5 percent.

The tough part is figuring out what comes next. China today is prosperous and as we know all too well, prosperity brings its own set of challenges. Chinese workers are demanding, and getting, higher pay and better working conditions. The ranks of cheap labor are dwindling. Chinese citizens are demanding a cleaner environment.

The even more fundamental and worrisome challenge is the conspicuous hollowness of the government's claim to legitimacy. China is run by a gang of insiders intent on personal enrichment and largely indifferent to public opinion. Periodic campaigns against corruption are useless absent democratic processes and an independent court system. Efforts to control the flow of information are doomed to fail because of the keen intelligence of the Chinese people and the power of digital technology. A day will come when the Chinese people will no longer tolerate bad government. Slower growth could hasten that day.

Jerry Jasinowski, an economist and author, served as President of the National Association of Manufacturers for 14 years and later The Manufacturing Institute. Jerry is available for speaking engagements. March 2014