The Imperfect Storm.(World Affairs)

Byline: George Wehrfritz

After China's leadership warns of 'a most difficult year' to come, the world may need to take shelter.

China's winter of discontent could have a chilling effect around the world. When the worst January storms in living memory hit southern China, paralyzing rail traffic, stranding tens of thousands of travelers, cutting off coal deliveries to power plants and producing widespread outages, Prime Minister Wen Jiabao went into crisis mode. He traveled last week to the center of the storm, the city of Changsha, to comfort travelers massed in its rail stations, and ordered authorities to restore transit and power services posthaste. Several days earlier, he issued a warning heard way beyond Changsha: 2008 will be "a most difficult year for the economy" due to "uncertainties" internationally and "new difficulties and contradictions" at home.

Wen's warning may kill the lingering hope that China can boom despite a U.S. slowdown, and grow fast enough to help prevent a nasty global slowdown. Talk of "uncertainties" had analysts wondering whether the era of double-digit Chinese growth may be coming to a close. In new forecasts, the World Bank and the United Nations project that global growth will slow to 3.4 percent this year, down from about 4 percent in 2007. Growth below 3 percent, economists concur, constitutes a global recession. The International Monetary Fund forecasts a bullish 4.1 to 4.4 percent in 2008, down from an estimated 4.9 percent in 2007. Still, IMF chief economist Simon Johnson says emerging markets like China would not be immune to a U.S.-led slump, adding, "Reports of decoupling have been greatly exaggerated."

Wen did not spell out the "new difficulties and contradictions" China faces at home, but the storm highlights more than a few candidates. Last week's gridlock exposed a rail system and provincial power grids taxed beyond their capacity. The fact that rail disruptions led to shutdowns on the power grid exposes a new vulnerability in China's reliance on coal for power. The crisis also shows how spotty price controls, which free stock and real-estate prices but cap energy prices, can backfire.

Beijing's ceiling on electricity tariffs, maintained to check inflation and aid energy-intensive heavy industries, contradicts ...