Warren Buffett had it right, “Only when the tide goes out do you discover who’s been swimming naked.” Peer through the fog of commentary on recent share price gyrations and you can see the unclothed figures of Chinese president Xi Jinping and his fellow managers of the Chinese economy, the very one that in recent years has been providing about half of global economic growth even though it accounts for only about 15% of world output. The rulers of the world’s second largest economy first attempted to shore up their collapsing stock markets by intervening – no short sales, limited ability to sell shares, massive purchases by government entities — then managed a devaluation of the renmimbi that went about twice as far as they intended, and finally directed the central bank to cut interest rates and ramp up liquidity in an effort to maintain a 7% growth rate. Which succeeded, if you believe Chinese government statistics, which no one does, not even premier Li Keqiang, who years ago said that his country’s GDP figures are “man-made … for reference only”. Many analysts, among them economists at Capital Economics Ltd., reckon that the Chinese economy is growing at around 5% rather than the officially reported 7%. Not bad, but the aggregate figure conceals a structural shift.

The Chinese economy has relied on export-led growth, fueled by massive government borrowing and lending to state-owned enterprises in the heavy-industry sector, resulting in a banking system loaded with uncollectable IOUs. But rising wages and increased competition have driven China’s exports down by 8.3% in July compared with last year, while construction starts have fallen 16.8% so far this year. In a market economy, capital would flow out of those industries into the consumer goods sector. Some of that is happening, but not much, and slowly. Xi knows that abandonment of the export-led, debt-fueled, heavy-industry model will have a negative effect on job creation, at least until any transition to a more market-driven allocation of capital is complete. According to Hong Kong-based China Labour Bulletin, there were three times as many strikes and worker protests in the fourth quarter of 2014 as in that same period in 2013, and the number rose by an additional 14% in the first quarter of this year. With no democratic outlet for unhappiness, these are a good indicator of troubles to come for the regime if unemployment ratchets up.