China syndrome

With all the focus on Europe and its debt crisis, it's easy to forget that China is the world's second-largest economy, after the United States. New data suggest it could also be the world's next major trouble spot.

China's rapid growth over the past decade has masked major structural problems there. But that growth is slowing. The government announced in July that second quarter growth slowed to a 7.6 percent annual rate.

The United States will experience only about 2 percent growth this year, and most European countries are contracting. So 7.6 percent may sound strong, but growth was a blazing 13 percent in 2008. And because China is still a developing nation, with hundreds of millions of people living in poverty, outsized growth rates are essential to quell potential civil unrest. Unofficial reports say as many as 180,000 people took to the streets in protests that sometimes turned into riots in 2010, during a similar economic slowdown. Also, China's local governments are drowning in debt. China's central government gave a $586 billion stimulus package to local governments in 2009, but now the local governments must repay the debt-and many can't.

So what does all this mean for the rest of the world? China is the largest trading partner of Russia as well as dozens of Asian and African countries. China recently passed the United States as Brazil's largest trading partner. Brazil, the largest economy in South America, has seen GDP growth above 7 percent as recently as 2010. However, on July 16, economists surveyed weekly by the Brazilian Central Bank cut the country's growth rate to 2.01 percent. It was the ninth consecutive weekly drop in the survey. Economists give the slowdown in China at least some of the blame.

China also trails only Canada as the top trading partner of the United States, and the flow of goods is both ways. We think of cheap Chinese imports flooding the U.S. markets, but the United States exports more to China than to all the nations of South America and Africa combined.

One sign that the Chinese Tiger may be losing its roar: Even official statements are starting to acknowledge the troubles. On July 15, Chinese Premier Wen Jiabao posted a statement on the government's official website. After stating that growth "remains within the target range set earlier this year" and praising "the effectiveness of stabilization policies," Jiabao offered a statement of almost unprecedented candor: "However, we also need to soberly see that the current economy has not yet formed a stable recovery and the economic difficulties may continue for some time."

China rising

Despite the recent slowdown, two decades of growth have allowed Chinese firms to overtake their Japanese peers on the Fortune Global 500 list of the world's largest companies, the magazine announced in early July.

China had 73 firms on the list, which ranks companies by revenue. That's 12 more than last year. Japan stayed steady with 68 firms.

So if Japan stayed the same, and China grew, who lost companies on the list? That would be the United States and Europe. The United States still has the most Global 500 companies: 132, only 1 fewer than last year. But the United States had 197 just a decade ago. The number of European firms dropped by 11 in a single year, to 161.

2012 Rank Top 500 Companies

1) United States: 132 2) China: 73 3) Japan: 68 4) France: 32 4) Germany: 32 6) United Kingdom: 26 7) Switzerland: 15 8) South Korea: 13 9) Netherlands: 12 10) Canada: 11 11) Italy: 9 11) Australia: 9 13) Brazil: 8 13) India: 8 13) Spain: 8 16) Russia: 7 17) Taiwan: 6