Hu Jintao told China’s Politburo that the rough economic times will mean even rougher waters for China.  With global demand for consumer products declining, the engine of China’s economic boom will start sputtering.  If Beijing reacts by producing even more goods, they could amplify the problem rather than easing it:

Chinese President Hu Jintao warned at a weekend meeting of the Communist Party’s elite Politburo that China is losing its competitive edge as international demand for its products is reduced, according to official state media reports Sunday.

China’s growth rate has been forecast to be about 9 percent in 2008, down from 11.9 percent the year before and close to the 8 percent that economists say China must maintain in order to keep the labor market stable.

“China is under growing tension from its large population, limited resources and environment problems, and needs faster reform of its economic growth pattern to achieve sustainable development,” Hu said, according to the People’s Daily, the official Communist Party newspaper. He did not provide specifics.

“External demand has obviously weakened, and China’s traditional competitive advantage is being gradually weakened” as international demand is reduced, Hu told members of the Political Bureau of the party’s Central Committee, according to the state-run New China News Agency.

Chinas’ strength comes in exports, which provided steady growth during the global economic boom.  Now that a substantial recession has hit the world’s economies, demand for consumer goods will drop, likely for some time.  A recession will favor the lower-price goods in any market as people want to hunt for bargains when they buy, which would usually favor the less-expensive Chinese goods, but typically people will choose not to buy at all, except in necessities.

The Post reports that Hu has more on his mind than a cyclical business contraction.  The Chinese manufacturing sector needs constant growth above a certain level to keep its population satisfied enough not to revolt against the oppressive central government. While China is still expected to grow its economy during this downturn, the question is whether it will be enough to keep up with demand for work.

Hard-liners and reformers have already begun arguing whether more state control will safeguard their Communist revolution, or whether more openness will prevent a counterrevolution.  The last thing Hu needs is massive layoffs pushing millions of people into the street in the midst of political tension over the limits of reform.  Without a high level of manufacturing growth, above 8% according to the Post, China cannot create enough jobs to meet demand.

Hu wants to play it down the middle, but he may not have that luxury.  A little touch of capitalism and liberty goes a long way towards opening the eyes of any populace, as Mikhail Gorbachev discovered with his perestrioka and glasnost campaign while the USSR crumbled.  In the short run, the Chinese people may have been satisfied to have work while the government slowly reformed itself, but unemployment and starvation will increase their impatience rapidly.

Economic turmoil can cull the non-competitive entities from the market.  That’s true of political systems as well.  The problem is in what replaces them.