The biggest risk in China?

With growth of 10% per annum for more than two decades, the only thing growing as fast as the Chinese economy is the hyperbole that surrounds its ascent. Recent surveys suggest that most Americans now think the Chinese economy is the world's largest. Books with titles such as The Chinese Century and When China Rules the World capture the awe – and the fear – that Chinese growth has provoked. At least until recently.

Today the mood has changed from wonder to worry. Being bearish on China is now the new consensus. The complaints are all familiar; that China is over reliant on investment, consumption is too low, credit too cheap and property prices too high. All are worthy reasons to fret.

Yet by concentrating so much on the swings of the economy, we risk treating China like any other big country. It's not.

The Economist recently reported that China spends more money on internal security than on national defence. China's defence spending, well over US$100bn, is the second largest in the world. It funds the world's largest standing army, almost 1,000 armoured ships and hundreds of aircraft; all hugely expensive to acquire and maintain. That China spends more on policing its own people speaks volumes of where the true risks in this country lie.

It's a reminder that the Chinese 'miracle' is built on fragile ground. About 100,000 protests take place in China each year. Without the state spending $US100bn a year on police, riot control, internal spies and surveillance, would the mirage of stability disappear? Politics and economics are intimately tied, of course; lose economic growth and the state loses political legitimacy. We shouldn't necessarily worry less about the Chinese economy. But we should certainly worry more about political risk in China.