China’s loss of momentum, rebuilding a bridge too far

Source– The post is based on the article “China’s loss of momentum, rebuilding a bridge too far” published in “The Business Standard” on 8th July 2023.

Syllabus GS2- International Relations

News- The Chinese economy is presenting a strange picture.

How is the Chinese economy showing a different trend from other economies of the world?

Much of the world is facing inflation. But, Beijing faces deflation in producer prices and low consumer price inflation.

Central banks in other countries have been increasing interest rates. But, the Chinese are easing up on monetary policy.

There is a stock-market boom in countries like India. But, the Shanghai Composite index is lower than it was in 2009.

Growth in last year was expected to be 5.5 per cent, but fell short at 3 per cent.This year’s official growth target is 5 per cent. But the outlook for growth is uncertain due to the lack of domestic demand and of private investment.

Industrial production is lower than the pre-Covid level four years earlier. Exports and Imports are down.

What are the factors behind the recent slowdown in the Chinese economy?

Some of these are cyclical issues. But, there are structural constraints. These are a shrinking population in the working-age bracket, massive public and quasi-public debt, over-construction in housing , shortage of consumer demand and poor project choices .

China has shifted from capital investment to private consumption as the primary driver of growth. But, it has failed to achive growth aims.

Western world is de-risking itself by reducing its dependence on Chinese manufacturing. Any meaningful de-coupling is not possible. But, more foreign investment will be headed to other countries as a result of di-risking moves by the west.

What assumptions can be from these developments about the global political economy?

Earlier assumptions were that China would become larger than the US as an economy, and challenge Western strategic dominance. It may need to be revised.

It is a rebalancing of global power, rather than a substantial power shift.