Why shouldn’t China bail out the global economy again

Beijing helped the West recover from the 2008 financial crisis. Now, the country itself faces a difficult post-covid economic recovery coupled with geopolitical issues complicating the world stage. One thing Western politicians want is for China, the biggest engine of global growth since the 2008 financial crisis, to have a tough recovery. But that is exactly what is happening.

After abandoning a three-year Covid-zero policy in December, the world’s second-largest economy isn’t exactly operating at full capacity. China’s imports contracted sharply in April by 7.9%, while exports grew at a slow pace by 8.5%, compared to 14.8% in March.

Consumer prices rose at their slowest pace in more than two years in April as ex-factory price deflation picked up. In the same month, new bank lending fell much more than expected, with lenders issuing 718.8 billion yuan (about $104 billion) in new loans, less than a fifth of the amount recorded in March .

End of China’s Golden Age?

“China’s economy isn’t about to explode, but it’s not going back to the golden decade of the 2010s, when it was growing by double digits,” the director of the China Institute based at the School of Oriental and African Studies in London tells DW. Steve Tsang.

A strong recovery in China could help offset the expected slowdown elsewhere in the world, spurred by central bank tightening monetary policies over the past 12-18 months. China’s massive stimulus following the 2008 financial crisis helped the global economy recover, in part due to the Asian country’s insatiable appetite for imported raw materials for infrastructure projects.

But those measures have left China mired in a mountain of debt. In March, the International Monetary Fund (IMF) warned that China’s local government debt alone had risen to a record 66 trillion yuan, which is equivalent to half of the country’s gross domestic product (GDP).

Tsang believes that Western policymakers who had hoped China would boost their economies will now have to “look at the new political and economic realities without rosy glasses.”

The location on Taiwan isolates China

China’s threat to invade Taiwan, which Beijing claims as its territory, continues to antagonize the West. Friendly ties with Moscow and neutrality over Russia’s invasion of Ukraine are other contentious issues jeopardizing global economic collaboration.

“In Taiwan, rising tensions or war could lead to seismic change,” says Pushan Dutt, an economist at the INSEAD business school in Singapore. “Multinational corporations could leave China, their export markets will be closed and sanctions will be imposed.”

Trump-era trade tensions between Beijing and Washington persisted during the Joe Biden administration. The tit-for-tat tariffs have led the US to fine several Chinese companies and officials. The United States has further restricted China’s access to its semiconductor technology and artificial intelligence (AI) for national security reasons.

“Chinese President Xi Jinping’s assertive foreign policy has caused the United States and other Western countries to start decoupling or downsizing their economic ties with China, which means that a key driver of China’s past rapid growth is weakening “Tsang points out.

Western politicians increasingly see the BRI as a threat to their interests. The initiative involves an investment of 840 billion dollars in roads, bridges, ports and hospitals in more than 150 countries. Concerns are growing that the project is drawing developing countries into a debt trap of massive and unsustainable borrowing, weakening their ties with Western countries.

Last month, European Central Bank (ECB) President Christine Lagarde also complained about the possible fragmentation of the global economy into rival blocs led by China and the United States, warning that this could hurt growth and boost inflation.

Beijing prioritizes ‘quality growth’

Another reason for China’s unspectacular recovery is Beijing’s strategic plan to move the economy up the value chain, prioritizing the quality over quantity of growth. These reforms, however, take time.

“China is trying to transform itself from a low-value producer to a leader in future industries like artificial intelligence, robotics and semiconductors,” says Dutt. As he moves away from state-dominated heavy industry towards innovation and domestic consumption, a slowdown in growth is a “natural corollary,” he adds.

According to Tsang, while Xi clearly wants China’s economy to become more dynamic, vibrant, strong and innovative, “his policies often backfire.” “With Xi concentrating power in his hands and not admitting his mistakes, it is virtually impossible for technocrats in China to make the changes needed to revitalize the economy.”

At the same time, the IMF has forecast that China will remain the main engine of the global economy over the next five years, contributing about 22.6% to total world growth, compared to just 11.3% expected for the United States.

While the slowdown in Western demand continues to have a negative impact on Chinese exports, the domestic economy still has a lot to celebrate, mainly due to demand suppressed by the three-year lockdown due to the pandemic. “Chinese consumers have amassed $2.6 trillion in savings during the pandemic, so the service sector is expected to recoup the short-term dip,” Dutt adds.

Source: Terra

Rose

Rose James is a Gossipify movie and series reviewer known for her in-depth analysis and unique perspective on the latest releases. With a background in film studies, she provides engaging and informative reviews, and keeps readers up to date with industry trends and emerging talents.