TIME Egypt

A Tale of Two Sisis

Egypt's Military Chief Visits Moscow
Field Marshal Abdul Fattah al-Sisi Sasha Mordovets—Getty Images

The extraordinary rise of Abdul Fattah al-Sisi will be complete this week with his all-but-certain election to Egypt's presidency. But the story of a man who shares his last name illustrates the enormous challenges facing the former military commander when he takes office

For Abdul Fattah al-Sisi, life has gotten better and better since the overthrow of Hosni Mubarak.

The career military man was doing well even before the popular revolt of January 2011 ended the three-decade reign of the Egyptian president: al-Sisi sat on the general staff, holding the delicate portfolio for military intelligence.

But he was just getting started. When the Muslim Brotherhood’s Mohamed Morsi was elected president in 2012, al-Sisi was named minister of defense, as well as chief of general staff. And when Morsi fell out of favor with Egyptians a year later, with millions marching for his removal last June 30, al-Sisi rose to the occasion, removing the country’s first and only freely-elected president in a coup that most Egyptians call a second revolution.

In January he was promoted to Field Marshal, and polls say that in balloting that begins Monday, he will be elected president.

The scope of the challenge now facing the next president might best be understood by the post-Revolution experience of another al-Sisi. Mohamed Mahmoud al-Sisi shares the family name with the candidate, but that’s all. In 2011, he had his own business selling finely crafted gold jewelry made in a shop he owned. He commuted daily from a Cairo suburb, and says he took home 5,000 Egyptian pounds a month, worth about $870 at the time. His wife and four daughters, aged 12 to 3, ate fish one night, chicken the next, beef when they liked. Money was not a problem—he had so much, he says, he was investing in the Egyptian stock market–but governance was. So he joined the throngs in Tahrir Square, chanting the slogan of the Revolution, “Bread, Freedom, Dignity, Social Justice,” and cheered when Mubarak surrendered his office.

Then his troubles began, he says. First, the stocks collapsed. The father of four had invested in companies that looked rock solid under Mubarak, including Ezz Steel; its shares plummeted from $25 just before Tahrir to $5 after its president, a Mubarak man, was convicted of money-laundering.

Egypt became a dangerous place, and not just to investors. The political uncertainty created a security vacuum, and crime rates soared. One day men with knives confronted al-Sisi as he left his workshop, carrying finished gold jewelry to client shops. The thieves took it all.

“I was a gold maker and I had my own workshop, and I lost all my money and now I’m doing this,” says al-Sisi.

He stands in a Cairo alley, holding a platter. On the platter are paper plates. Some hold peanuts. Others, chick peas. Each plate sells for two Egyptian pounds, or about 23 cents. His government ID card still reads “gold maker” but al-Sisi, 40, spends his workdays moving through the side streets of Zamalek, a relatively prosperous island in the Nile, imploring people smoking water pipes to buy one of his snacks.

On a good night, he makes 70 Egyptian pounds, or $10. On a bad night, 50 pounds, or $7. “From bad to worse,” he says. “The economy is going lower and lower and lower.”

His monthly income, which formerly approached $900, now ranges from $84 to $125. Most nights the girls eat macaroni and rice. “Some vegetables, but not much,” he says. The family has meat only on feast days, two or three times a year. “Now fruit is the third priority. I know it’s important to my children, but first I have to feed them,” al-Sisi says. “My children love apples, the red and the yellow. Now when they are asking for it, I just cry. I cannot afford it any more.”

The candidate al-Sisi is asked constantly about the economy. By some measures, 25 percent of Egyptians live in poverty. By others, the measure approaches 50 percent. A poll released Thursday by Pew Research Center found that 76 percent of Egyptians describe the economy as “bad,” up from 64 percent just after the revolution. Tourism is staggering, and hard currency is so scarce the government has been failing to pay the international firms that pump its oil.

“If things go according to the plan we have prepared, we will see an improvement in two years,” the former field marshal told Sky News Arabia in a May 11 interview. Except for championing energy-saving lightbulbs, however, he has declined to share his economic plan with Egyptians, or anything else that would constitute a platform.

A few days before balloting began, his campaign released a color-coded “Map of the Future,” which appeared to recycle a 30-year-old plan to create a band of cities in what is now desert. Critics say the expense would be beyond Egypt’s means, already burdened by subsidies that keep the prices of food and fuel artificially low, and deter investment.

The al-Sisi selling peanuts says he might not even vote. “Most likely he will be like Mubarak,” he says, of the candidate who shares his name. “This is their nature, the men from the army.” He admits only to the dimmest flicker of hope, rising from the general’s personal religious piety. “Yes,” he says, “this is a very good and important point, and yes it gives hope. But only if the whole system is changing. Otherwise it’s not enough.”

“I will not speak big words,” Mohamed al-Sisi says. “All I care about is that they give people the minimum wage, not less. And that they cast a kind look to the poor people. Social justice.”

TIME Economy

These 7 States Are Running Out of Water

California Drought
Cracks in the dry bed of the Stevens Creek Reservoir in Cupertino, Calif., on March 13, 2014. Marcio Jose Sanchez—AP

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This post is in partnership with 24/7Wall Street. The article below was originally published on 247wallst.com.

The United States is currently engulfed in one of the worst droughts in recent memory. More than 30% of the country experienced at least moderate drought as of last week’s data.

In seven states drought conditions were so severe that each had more than half of its land area in severe drought. Severe drought is characterized by crop loss, frequent water shortages, and mandatory water use restrictions. Based on data from the U.S. Drought Monitor, 24/7 Wall St. reviewed the states with the highest levels of severe drought.

In an interview, U.S. Department of Agriculture (USDA) meteorologist Brad Rippey, told 24/7 Wall St. that drought has been a long-running issue in parts of the country. “This drought has dragged on for three and a half years in some areas, particularly [in] North Texas,” Rippey said.

While large portions of the seven states suffer from severe drought, in some parts of these states drought conditions are even worse. In six of the seven states with the highest levels of drought, more than 30% of each state was in extreme drought as of last week, a more severe level of drought characterized by major crop and pasture losses, as well as widespread water shortages. Additionally, in California and Oklahoma, 25% and 30% of the states, respectively, suffered from exceptional drought, the highest severity classification. Under exceptional drought, crop and pasture loss is widespread, and shortages of well and reservoir water can lead to water emergencies.

MORE: 10 Companies Paying Americans the Least

Drought has had a major impact on important crops such as winter wheat. “So much of the winter wheat is grown across the southern half of the Great Plains,” Rippey said, an area that includes Texas, Oklahoma, and Kansas, three of the hardest-hit states. Texas alone had nearly a quarter of a million farms in 2012, the most out of any state, while neighboring Oklahoma had more than 80,000 farms, trailing only three other states.

In the Southwest, concerns are less-focused on agriculture and more on reservoir levels, explained Rippey. In Arizona, reservoir levels were just two-thirds of their usual average. Worse still, in New Mexico, reservoir stores were only slightly more than half of their normal levels. “And Nevada is the worst of all. We see storage there at about a third of what you would expect,” Rippey said.

The situation in California may well be the most problematic of any state. The entire state was suffering from severe drought as of last week, and 75% of all land area was under extreme drought. “Reservoirs which are generally fed by the Sierra Nevadas and the southern Cascades [are] where we see the real problems,” Rippey said. Restrictions on agricultural water use has forced many California farmers to leave fields fallow, he added. “At [the current] usage rate, California has less than two years of water remaining.”

The U.S. Drought Monitor is produced by the U.S. Department of Agriculture (USDA), the National Oceanic Atmospheric Administration (NOAA), and the National Drought Mitigation Center at the University of Nebraska-Lincoln. 24/7 Wall St. reviewed the seven states with the highest proportions of total area classified in at least a state of severe drought as of May 13, 2014. We also reviewed figures recently published by the USDA’s National Agricultural Statistics Service as part of its 2012 Census of Agriculture.

MORE: The Most Polluted Cities in America

These are the seven states running out of water.

1. California
> Pct. severe drought: 100.0%
> Pct. extreme drought: 76.7% (the highest)
> Pct. exceptional drought: 24.8% (2nd highest)

California had the nation’s worst drought problem with more than 76% of the state experiencing extreme drought as of last week. Drought in California has worsened considerably in recent years. Severe drought conditions covered the entire state, as of last week. Governor Jerry Brown declared a state of emergency earlier this year as the drought worsened. California had 465,422 hired farm workers in 2012, more than any other state. Farm workers would likely suffer further if conditions persist. The shortage of potable water has been so severe that California is now investing in long-term solutions, such as desalination plants. A facility that is expected to be the largest in the Western hemisphere is currently under construction in Southern California, and another desalination facility is under consideration in Orange County.

2. Nevada
> Pct. severe drought: 87.0%
> Pct. extreme drought: 38.7% (5th highest)
> Pct. exceptional drought: 8.2% (4th highest)

Nearly 40% of Nevada was covered in extreme drought last week, among the highest rates in the country. The drought in the state has worsened since the week of April 15, when 33.5% of the state was covered in extreme drought. According to the Las Vegas Valley Water District (LVVWD), the main cause of the drought this year has been below average snowfall in the Rocky Mountains. Melting snow from the Rocky Mountains eventually flows into Lake Mead, which provides most of the Las Vegas Valley with water. John Entsminger, head of both the LVVWD and the Southern Nevada Water Authority, said that the effects of the drought on the state has been “every bit as serious as a Hurricane Katrina or a Superstorm Sandy.”

3. New Mexico
> Pct. severe drought: 86.2%
> Pct. extreme drought: 33.3% (6th highest)
> Pct. exceptional drought: 4.5% (5th highest)

More than 86% of New Mexico was covered in severe drought as of last week, more than any state except for Nevada and California. Additionally, one-third of the state was in extreme drought, worse than just a month earlier, when only one-quarter of the state was covered in extreme drought. However, conditions were better than they were one year ago, when virtually the entire state was in at least severe drought, with more than 80% in extreme drought conditions. NOAA forecasts conditions may improve in much of the state this summer.

Visit 24/7 Wall St. to see the remaining states on the list.

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TIME Saving & Spending

We’re Traveling, Video Gaming and Hitting the Bars Like Before the Recession

Household spending on consumer goods hit $10 trillion for the first time, driven by experience-craving Millennials and retiring boomers.

Americans spent a record $10 trillion on consumer goods last year, signaling a level of confidence not seen since the meltdown, according to trend watcher Mintel Group. Spending should outpace inflation this year and reach $12 trillion by 2018.

U.S. consumer expenditures grow almost every year. But they fell during the recession, and the projected 20% rise over the next five years is impressive in light of polls and indicators that suggest a great many people continue to struggle.

Some of the renewed optimism and increased spending owes to the greater wealth of the wealthiest Americans, who have benefited from the stock market rebound and housing recovery. This could add more fuel to the debate over rising income inequality, which has propelled Thomas Piketty to overnight stardom. Income inequality is now the fourth most important trend in America, based on an informal poll by Strategic Business Insights. The issue rates behind demographic shifts, mobile technology, and cyber concerns; ahead of youth unemployment and climate change.

But the spending rebound can’t be entirely a story of the rich getting richer. Home ownership rates may have fallen from nearly 70% before the recession, and many homeowners remain underwater on their mortgage. Still, 64.8% of Americans own their homes, according to Census data from the first quarter. They have benefited from the recovery as well. The jobs picture has brightened a bit too.

Mintel describes a broad-based spending rebound: Twice as many Americans now say they spend—not save—“extra” money and a greater share say they regularly have extra money. Much of the spending is coming from young adults, Mintel says. Social media gives this experience-craving generation unprecedented insight into travel and other possibilities, and they are willing to pay. Boomers able to retire are also driving spending. This helps explain the hottest categories:

  • Vacation A year ago, 41% of families said they were spending less on vacations than the previous year. Now just 30% say they are spending less. Mintel projects outsized total spending growth in this category of 27.3% the next five years.
  • Leisure Millennials’ spending in this category remains below average but is on the rise. Young adults, especially men aged 18 to 34, are most likely to say they are spending more. Video gaming is a top choice, and more than half of Millennials prefer to engage in this activity alone. Mintel expects outsized spending growth of 28.5% over five years.
  • Bars Nearly one in 10 adults say they have increased spending on alcoholic drinks outside the home, and more now say they are spending about the same on drinks while fewer say they are spending less. Mintel projects outsized growth of 23.7% over five years to $115 billion a year. Perhaps good times are back after all—at least for some.
TIME Economy

Obama Pushes U.S. Investment Opportunities

US President Barack Obama hosts SelectUSA summit
U.S. President Barack Obama speaks at the SelectUSA Investment Summit on Oct. 31, 2013, in Washington, D.C. Anadolu Agency—Getty Images

With efforts to boost the economy foundering in a divided Congress, the President is taking an Executive initiative to encourage job creation

President Barack Obama will promote investment opportunities in the U.S. on Tuesday, hosting a summit at the White House with business leaders to encourage more job-creating projects.

According to the White House, Obama will meet with executives from Ericsson, Ford, GlobalFoundries, Hankook Tire, K’Nex, Lufthansa, Novozymes, Richelieu, Umicore, Zurich Insurance and other companies that have made investments in the U.S.

The meetings come as the Administration releases a report on existing efforts to promote investment, including SelectUSA, an Obama-backed program designed to market the U.S. to overseas investors while helping them navigate federal, state and local regulations.

The White House credits the program with helping to bring in $18 billion in investments to the U.S. and plans another SelectUSA summit in Washington next spring.

The latest push comes as Obama looks for ways to use his Executive authority to boost the economy at a time when other efforts have been stymied by a divided Congress.

TIME Fast Food

This Is Exactly How Bad Things Have Gotten for Red Lobster

As Darden Restaurants jettisons the ailing seafood chain, its upscale brands prepare for blastoff

With the sale of Red Lobster, Darden Restaurants said its remaining restaurant chains, including Olive Garden, LongHorn Steakhouse and a growing roster of upscale brands, could now focus on reeling in their “core customers.” Darden CEO Clarence Otis Jr. offered a clue as to who those core customers might be. Hint: they’re “more financially secure.”

“At Olive Garden,” he explained during a recent investor call, “we had 11% more visits last year, fiscal 2013, from guests with household income over $100,000 than we did five years earlier.” And that was small potatoes compared with LongHorn Steakhouse, which wrangled 50% growth out of the same income bracket.

“In contrast,” Otis said, “Red Lobster traffic from this income demographic was flat.”

Lodged squarely in the middle-income bracket, Red Lobster’s sales have trailed behind Dardene’s upscale brands, particularly Eddie V’s, a premium seafood restaurant where diners can sip on world-class wines and enjoy live jazz performances at the “V Lounge.” The columns bookending this chart tell a tale of two seafood chains.

Red Lobster

Source: Darden 2013 Annual Report

It was the best of times, it was the worst of times for Darden’s 2013 income statement, and it’s a sign of the times that it seems to be luring upscale diners with promotions that are a little more understated than a never-ending pasta bowl. Olive Garden, for example, has garnished its dishes with more exotic (read: Italian) ingredients, including capers, kale and polenta.

It may be a discouraging, lopsided, sluggish economic recovery, but at least it came with capers.

 

TIME Japan

Japan Is Desperate to Rescue Its Economy from an Early Grave

General Images of Economy Ahead Of Nationwide Quarterly Land Price Data Release
Pedestrians cross an intersection in the Shibuya district of Tokyo, Japan, on Friday, Nov. 22, 2013. Kiyoshi Ota—Bloomberg/Getty Images

Any less than 100 million people would spell doom for the nation's economy, officials warned, while neglecting one glaringly easy fix

Japan’s battle against gray hairs took an unusual turn this week when the Ministry of Commerce set the very lowest acceptable bound for its aging population: 100 million people. Beyond this point, there lays a “crisis.”

Or so warned Akio Mimura, head of Japan’s Chamber of Commerce and Industry. Mimura urged the government to make 100 million the official population target, backed by policies that would promote childrearing. “If we don’t do anything, an extremely difficult future will be waiting for us,” Mimura said.

His concerns are well founded. Japan has one of the lowest fertility rates in the world, with each woman bearing an average of 1.4 children. At that rate, demographers project a plunge from 127 million people today to 87 million by 2060, sapping the workforce of its vital young workers and putting an enormous strain on state finances.

The shrinkage has already begun. In 2013, Japan’s population declined by a record-breaking 244,000 people.

All of which has led to some rather creative policy proposals from the Chamber of Commerce, such as retaining 70-year-old’s in the workforce, doubling government expenditures on childcare and encouraging men to ask working women out on a date.

But once again, policymakers dodged the quickest fix, namely to import workers from abroad. The island nation has an outstandingly small number of immigrants. They form less than 2% of the population, compared with a wealthy country average of 11%. Japan could triple the number of foreigners and still not approach the norm among wealthy nations.

Migrants
Source: UN Population Division of the Department of Economic and Social Affairs

Of course there’s a reason for policymakers’ skittishness around the issue. Immigration reform consistently takes a beating at the polls. One recent survey by Asahi Shimbun newspaper asked respondents if they would accept more immigrants to preserve “economic vitality.” Even with the positive spin, 65% opposed.

Japan Immigration Bureau’s motto is, “internationalization in compliance with the rules.” A simple rule rewrite could alleviate Japan’s demographic fix. It certainly would be easier than prodding the nation’s families to have another 13 million babies. But judging from this week’s presentation from the Chamber of Commerce, it remains politically stillborn.

 

TIME Economy

Dow Falls 1% Just Days After Record Peak

Analysts blame poor earnings from retailers and glum economic reports

The Dow Jones Industrial Average closed down on Thursday, marking the index’s second slump since last week’s record peaks and the worst day since early April.

The Dow suffered a steep fall on Thursday, dropping 1%, or 167.16 points, to end the day at 16446.81. S&P 500 had a similar fate, falling 17.68 points, or 0.94% to close at 1870.85. Lackluster earnings reports from retailers Wal-Mart and Kohl’s helped bring the Dow down, CNBC reports, as did disappointing outlooks from homebuilders, a decline in industrial production and higher consumer prices in April.

TIME Economy

Timothy Geithner: This Is Why We Didn’t Hang the Bankers

+ READ ARTICLE

In the midst of the financial crisis, anger at bankers (who helped create the crisis) was at an all-time high. Former Secretary Treasurer Timothy Geithner explains why the government had no choice but to bail out big financial institutions.

TIME Economy

Job Growth Good, Labor Market Bad

What happens with workforce participation will determine how you experience the recovery

Midway through the year, how is America’s economic recovery really doing? It’s complicated.

We’ve just gotten what in many ways appears to be a stellar jobs report. The U.S. economy created a whopping 288,000 jobs in April, and the unemployment rate fell to 6.3%, its lowest level since 2008. Unfortunately, it didn’t fall just because tens of thousands of new jobs were created in construction and retail, for example. A bigger reason it fell is that fewer people are looking for work. In fact, the workforce-participation rate–the percentage of people who are actually in the labor market–dropped to its lowest level since 1978.

The question now is whether or not people who are shut out of the labor market for various reasons will be able to return to work as the recovery strengthens. Ultimately, the answer will determine how most Americans experience the next few years–how much it will cost you to buy a new car or home or what you will pay in student loans.

It’s not hard to see why workforce participation is such a hot topic. Over the past five years, the percentage of the population working in America has dropped to the levels of Europe as a whole. Typically in the U.S., about 15% of unemployed people are among the “long-term unemployed,” meaning they’ve been out of a job for more than six months. After the Great Recession, that share reached 45%, and even today it’s still 37%. The long-term unemployed suffer not just economically but also socially: they have higher rates of divorce, depression and suicide.

Will those people ever work again? Many experts say no, because research shows that employers often discriminate against the long-term unemployed and also their skills tend to atrophy. “More than ever before, skill erosion will be a major obstacle for those who wish to return to the workforce,” declared a recent Conference Board report. And then there’s another group: the baby boomers dropping out of the workforce who had likely planned to retire anyway but may have pushed the decision up by a few years because of gloomy work prospects. Historically, few such people ever return to the workforce once they leave.

So what does all this mean for the price of your mortgage or car loan? The amount of slack in the labor market is one of the key factors helping the Fed decide whether to raise interest rates. When markets are slack, or too many people who want work don’t have it, wages and prices stay down. But if labor markets get tight, wages go up, and that causes inflation. When inflation starts to rise, so do interest rates.

But inflation is tricky. It moves fast and often unexpectedly, which means it’s important for central bankers to try to anticipate it. That’s why there are vigorous disagreements about what to make of these latest numbers. Economists who see the bulk of labor-market dropouts as a lost cause believe they don’t really matter with respect to inflation. The short-term unemployment rate, which they believe is a better measure of the true slack in the labor market, is just a little more than 6%, right around where it ought to be historically. And important metrics, like the National Federation of Independent Business survey, show the labor market is as tight as it was in 2005. Whatever the unemployment rate, we may not have enough workers with the right skills. And a tighter labor market implies that inflation could come on sooner rather than later–and that rates could rise as early as 2015.

Plenty of people in the fed believe that could and should happen, but chair Janet Yellen isn’t one of them. Yellen recently said, “My own view is that a significant amount of the decline in [labor] participation during the recovery is due to slack, another sign that help from the Fed can still be effective.” The data on her side include the recent disproportionate declines in the unemployment rate for lower-income workers. The idea is that companies are starting by hiring cheap labor and they’ll eventually hire more workers higher up the pay scale. There’s also the fact that right before the Great Recession, there was a nascent trend toward older workers staying in the workforce longer, in part because of better health and the desire to work but also perhaps out of necessity: the average retirement savings of Americans ages 55 to 64 is about $120,000, not enough to fund anyone’s golden years.

If that’s the case, we may see many of those longer-term unemployed people come back into the workforce, keeping inflation (and rates) lower for longer. In economics, three’s a trend. The next two months of data will be crucial in understanding where labor markets, interest rates and the price of your debt are headed.

TIME Asia

China’s Great Property Boom May Be Coming to a Desperate End

A laborer works on the scaffolding of a construction site for a new residential building in Beijing on May 8, 2014 Kim Kyung-Hoon—Reuters

Analysts have warned for years that China is in the midst of a gargantuan property bubble and the inevitable reckoning may have finally arrived as massive oversupply and a tightening of credit appears to be crushing the market—with consequences for the global economy

You know a property market is in trouble when developers stage long-jump contests to attract buyers. That’s what happened earlier this month in the eastern city of Nanjing. Looking to sell apartments in a new residential complex, a local newspaper reported that agents from the developer, Rongsheng Group, lined up potential customers behind a queue and asked them to leap forward. Those who jumped the farthest got the biggest rebates — up to $1,600.

Chinese newspapers these days are riddled with such tales of desperation. On May 9 in the central Chinese city of Changsha, pretty girls were enlisted to hand out 50,000 tea eggs to lure people into a housing fair. Developers in Shenzhen and Fuzhou are offering to sell apartments with no down payment. In Hangzhou in April, two real estate agents competing for buyers got into such a vicious fistfight that the police had to intervene.

Are we witnessing the end of China’s great property boom? For years now, some analysts have warned China was in the midst of a gargantuan property bubble, ready to burst at any moment, with dire consequences. But Chinese real estate defied the naysayers and continued to soar. Both developers and customers, bypassing restrictions imposed by policymakers to constrain the industry, continued to build, invest and propel prices higher.

Now, though, the inevitable reckoning may have finally arrived. Massive oversupply combined with a tightening of credit orchestrated by the government appears to be crushing the market. Government statistics show that the amount of unsold commercial and residential property hit an all-time record in March. “We are convinced that the property sector has passed a turning point and that there is a rising risk of a sharp correction,” analysts at investment bank Nomura commented in a May report.

Falling apartment prices spell bad news for China’s economy. Real estate is one of the main drivers of China’s growth, with property investment accounting for 16% of GDP by Nomura’s calculations. A downturn could dash hopes for a recovery of the world’s second largest economy, already suffering through its worst slowdown in more than a decade, and the impact would be felt across the world. Real estate investment in China affects global prices of commodities like iron ore, so a slowdown can send shockwaves from Australia to Brazil. Falling property prices could also subvert the wealth of the Chinese middle class, dampening consumption of everything from cars to coffee. That could hurt companies like General Motors, McDonald’s and Starbucks.

Beijing’s leaders got themselves into this mess with their go-slow approach to reform. In the country’s tightly controlled financial markets, the average Chinese citizen has few options when investing his or her newfound wealth. That has made property option No. 1 for investors, pushing up the market to dizzying heights. Now the declining market presents some tough choices for policymakers. A sharp downturn in property could lead to serious financial problems at the nation’s indebted developers, causing bad loans at the banks to rise. Developers that borrowed from the country’s poorly regulated shadow-banking industry could cause even worse problems for the financial industry. Depressed property could also present the government with a major social issue. With so many Chinese families having invested their savings in apartments, falling prices could lead to widespread discontent.

There is ample evidence to suggest that the deflating of Chinese property could turn very ugly. A Barclays economist warned that the “risks of a disorderly adjustment are real and rising.” Nomura points out that new housing starts, an important indicator of where the market is headed, plunged in the first quarter of 2014. Property sales declined too in 2013. “It is no longer a question of ‘if’ but rather ‘how severe’ the property market correction will be,” the investment bank asserted.

The question now is: What will Beijing do? So far, the country’s top leaders have been (wisely) allowing China’s overall growth to slow while they focus on controlling debt and reining in the out-of-control financial sector. A tumbling housing market, however, will put more pressure on the government to reverse course by loosening credit to pump up growth — a strategy that might alleviate pain in the short run, but only intensify the economy’s long-term problems of debt and excess capacity. The central bank this week already issued guidelines encouraging banks to speed up mortgage approvals and offer reasonable rates of interest for some home buyers.

China’s problems with property shine a spotlight on how the country’s continued foot-dragging in liberalizing and strengthening its financial sector and altering its investment-obsessed growth model are creating major threats to its stability. And it is yet more evidence of how China’s role in the world has jumped from being a critical support for growth amid a disastrous downturn in the West, to becoming a primary risk to the health of the global economy.

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