Time Running Out on China's Boom

China's economy grew 10.7% in 2006, the fourth consecutive year of double-digit growth and the highest growth rate since the 10.9% recorded in 1995.

And the Chinese economy did it last year without even breaking a sweat: Inflation, a sign of potential overheating, came in at a core rate of just 1.5%.

That's impressive enough, but if you take a slightly longer view, China's record is even more amazing. No major economy in the past 30 years has grown at the speed of China's, The New York Times noted in its story on China's latest economic performance, and no other country has been able to do it year after year for over a decade.

Does that make you even a little bit curious about how China did it? It should. The usual explanations you see -- that this growth rate is the result of unleashing market forces in a country of 1.3 billion hardworking, traditionally frugal and often intensely driven people -- do capture part of the story. But only part.

If you pop open the hood on China's growth engine, you'll see some surprising parts that explain what's happening better than the conventional wisdom -- and raise some troubling questions about the sustainability of this rate of growth.

China certainly is not about to slip backward into global economic insignificance again, but it appears that the current spate of growth has been built on nonrenewable human, environmental and capital resources. And when those resources have been mined for the easy gains, China's rate of growth will fall back to something like "normal."

China-Sized Cuts

Givebacks. Downsizing. U.S. companies bleeding red ink demand wage and benefit cuts or just cut jobs wholesale. Motorola(MOT) and Pfizer(PFE) reacted recently to slumping sales and profits by cutting 3,500 and 10,000 jobs, respectively. In the developed world, those "techniques" have become standard management tools, and the more flamboyant wielders of those tools, such as "Chainsaw" Al Dunlap, have become famous or infamous.