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China’s flagging economy will drag the West down too

Is there more to Beijing's growth figures than meets the eye? Credit: Getty

January 18, 2024 - 4:00pm

News this week about China’s falling stock values suggests the country’s economy may be in worse shape than we thought. Even if most countries would look enviously on last year’s official growth rate of 5.2%, the trend points towards further economic slowing. What’s more, this figure may have been flattered by base effects that resulted from the pronounced slowdown of the Covid-19 lockdowns, which hit China especially hard. Some economists thus estimate the true figure for the country’s growth last year to be closer to 3%. 

Nevertheless, the Beijing leadership is still expected to once again set a 5% target for growth this year. Reaching it may prove difficult. Last year, the government borrowed the equivalent of 15% of GDP to stimulate its economy. If what it received in return was the expansion being mooted, China will have to borrow a whole lot more to sustain its momentum. Unfortunately, many of the indicators don’t inspire confidence that things are moving that way. Since China’s strategy depends heavily on its exports, the fact that they fell 4.6% last year is concerning. Exports to the US did even worse, dropping by 13.1%

As one might therefore expect, Wall Street has its doubts about that 5% goal. As China begins to look less appealing as an investment destination, Beijing has ordered local fund managers to stop selling shares in the hopes of stabilising the country’s stock market, hardly a sign of a government with confidence in its businesses. All the same, the intervention has done little to reverse the market’s recent underperformance relative to the rest of the world.

It is thus becoming ever more clear that China’s economic strategy needs revamping. The country has to shift away from an investment-driven, export-oriented model to one which relies increasingly on domestic consumption. While in Chinese policy circles the need for this is openly discussed, it is still proving a tough sell for a Communist Party leadership anxious about loosening its hold on society.

Of course, China’s travails carry a broader global significance. As the world’s biggest trading nation, its slowing growth will continue to weigh on the global recovery from the pandemic, which remains weak. Yet China’s excess capacity and surplus production will be disinflationary, which could help keep a lid on prices among its trading partners. This latter effect will be strongest in those countries most open to trading with China; in the United States and Europe, where the current preference is for “de-coupling”, the benefit of Chinese disinflation may be somewhat muted.

What this reorientation of Western economies could mean for the longer term is that China’s strategy of building ties to the developing world through its Belt and Road Initiative will assume even greater importance. Beijing has an interest in continuing to invest in its Asian and African partners, since economic growth there will continue to widen the markets for its products. As Western countries cut aid budgets and pull back from their former colonies, China has quietly stepped in to forge partnerships that strengthen its presence across the rising periphery. More recently, the West’s preoccupation with and stance on the Gaza war has weakened its standing in many developing countries, further burnishing China’s credentials.

The CCP does not currently look up to meeting these myriad challenges alone. While it’s still too early to count out the Middle Kingdom, the latest rosy growth figures don’t tell the full story.


John Rapley is an author and academic who divides his time between London, Johannesburg and Ottawa. His books include Why Empires Fall: Rome, America and the Future of the West (with Peter Heather, Penguin, 2023) and Twilight of the Money Gods: Economics as a religion (Simon & Schuster, 2017).

jarapley

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Alex Lekas
Alex Lekas
5 months ago

As the world’s biggest trading nation, its slowing growth will continue to weigh on the global recovery from the pandemic, which remains weak.
It’s almost as if there is a feedback loop within this statement. The global “recovery,” meanwhile is shifting from the post-pandemic rebound to a question of when, not if, recession will occur and how long it will last.

Arthur G
Arthur G
5 months ago

China’s growth numbers have always been fictional.

Liakoura
Liakoura
5 months ago
Reply to  Arthur G

Then I suggest you take the matter up with the World Bank:
Lifting 800 Million People Out of Poverty – New Report Looks at Lessons from China’s Experience
Over the past 40 years, the number of people in China with incomes below $1.90 per day – the International Poverty Line as defined by the World Bank to track global extreme poverty– has fallen by close to 800 million. With this, China has contributed close to three-quarters of the global reduction in the number of people living in extreme poverty. At China’s current national poverty line, the number of poor fell by 770 million over the same period.
https://www.worldbank.org/en/news/press-release/2022/04/01/lifting-800-million-people-out-of-poverty-new-report-looks-at-lessons-from-china-s-experience

Sayantani Gupta
Sayantani Gupta
5 months ago

The first part of the article is eminently sensible. There has long been a suspicion about the veracity of growth data put out by China .

Subsequently the article turns disingenuous.
I am not sure the writer should plug BRI. Under Xi Jinping this CCP initiative is increasingly a mode to debt trap developing countries and demand strategic concessions – Sri Lanka and Hambantota port being an important instance.
When the world is under increasing threats from CCPs wolf warrior diplomatic moves to gain control, BRI is an economic weaponizing of this strategy
Instead of showing that up, the writer seems to be meekly endorsing BRI.

R.I. Loquitur
R.I. Loquitur
5 months ago

I’ve never really understood the BRI. China convinces 3rd world countries to build often superfluous projects which it–China–finances. When the country falls behind China threatens to foreclose–or what? Take the bridge or highway back to China? The same goes for China buying land in the USA and elsewhere. Politicians rail against it, but who really cares? It’s not like they can take it home. SMH.

Sayantani Gupta
Sayantani Gupta
5 months ago
Reply to  R.I. Loquitur

China extracts crucial concessions of long term territorial leases/ mineral extraction preference/ strategic choke point entries etc to block out it’s rivals/ or build naval cum military bases

laurence scaduto
laurence scaduto
5 months ago
Reply to  R.I. Loquitur

Think of what the EU did to Greece.
When the original debt comes due and the borrower can’t pay the lender arranges another loan, which is promptly handed right back to the lender. The new deal gives the borrower some breathing room but in a few months they’re in an even worse spot.
Of course all of these loan agreements specify that the debt is paid first; nothing can take precedence, not war, or famine or… (Haiti has been paying off France for more than 200 years. Look what a wreak they’re in.)
Whatever one might think about capitalism, it’s undeniably cruel. Early Christians were right to consider usury a sin.

R.I. Loquitur
R.I. Loquitur
5 months ago

So what happens if the country defaults? They can’t get more loans? They shouldn’t take them anyhow. Their currency collapses? That helps domestic industries compete. The Olympic stadiums are still in Greece. They couldn’t maintain them? Oh well, the lenders should have known that before they lent the money. Haiti should have defaulted long ago. What difference would it have made.

laurence scaduto
laurence scaduto
5 months ago
Reply to  R.I. Loquitur

You’re awfully quick to sentence millions of people to misery and ruin.

L Brady
L Brady
5 months ago

Nowhere near as cruel as the alternatives to capitalism e.g communism, anarchism, socialism etc.

Russell Hamilton
Russell Hamilton
5 months ago

‘the writer seems to be meekly endorsing BRI.’

I didn’t get that impression at all – the author simply pointed out that as the west de-couples from China, the BRI will become more important to China and so they will develop it.

I was reading about the Chinese economy this morning and that author painted a bleak picture which he summarised as: demography, deflation, deglobalisation, debt and dictatorship.

Sayantani Gupta
Sayantani Gupta
5 months ago

Read his second last paragraph.
Endorsing BRI in the developing world
Instead of bringing out it’s actual performance in Sri Lanka etc

Russell Hamilton
Russell Hamilton
5 months ago

He is not endorsing it, he is describing it.

Sayantani Gupta
Sayantani Gupta
5 months ago

Not my reading. If you are defending him it’s your view.

Russell Hamilton
Russell Hamilton
5 months ago

Can you be specific about the words he uses to ‘endorse’ China’s BRI?

Flibberti Gibbet
Flibberti Gibbet
5 months ago

I have reached saturation point with stories portending economic woes in China. They resonate with similar editorials predicting the end of the Putin presidency or collapse within the Russian military.
For many years western journalism pursued a formula of “say it often enough and it can be made to happen”. This inhouse groupthink journalism formulated by single-issue policy institutions is the past. The west is no longer the global puppet master.
Can we return to, say it as it is right now journalism?

Liakoura
Liakoura
5 months ago

Most countries would almost give their right arm for a 3% growth rate, however from Caixin Global: (and note the “likely”)
China’s economy likely grew around 5.2% in 2023, Premier says(Davos, Switzerland) — China’s economy is expected to have grown 5.2% in 2023, Premier Li Qiang said Tuesday in a speech at the World Economic Forum in Davos, Switzerland, exceeding the government’s target of “around 5%” set in March.
Li’s estimate is broadly in line with the average 5.3% pace in a Caixin survey of economists and compares with the 3% expansion reported for 2022, which was the second-lowest growth rate in more than four decades as the “zero-Covid” strategy in place for most of that year curbed economic activity.
https://www.caixinglobal.com/2024-01-16/chinas-economy-likely-grew-around-52-in-2023-premier-says-102157009.html
Then:
Anyone here who is over 45-50 can remember having to queue to buy basic food items yet today the country is one massive food emporium, with every province having its ‘signature dish’. Yet the possible return of ‘bad times’ makes people somewhat reluctant to spend so that personal cash saving is some of the highest in the world. See this article from statista on savings:
https://www.statista.com/statistics/1328773/china-share-of-savings-in-monthly-income-young-people/
So as the writer hints but doesn’t specify, the problem is to get people to spend some of that cash, rather than save it ‘just in case’.
I live in one of the country’s second tier cities ranked somewhere in the mid forties, and I see more top of the range motor cars than anywhere in the UK, other than the West End of London.

Steve Jolly
Steve Jolly
5 months ago

The author neglects another possibility. Economic nationalism is rising around the globe. Countries are either trying to replicate China’s economic nationalism themselves or trying to protect themselves from what China is still doing. The US anti-China stance isn’t going away regardless of who wins in 2024. As radically opposed as Trump and Biden are, neither is going to make things easier for Chairman Xi. With the demand for their productive capacity in terminal decline, there is another easily accessible outlet. They can turn to building weapons, mostly for themselves but also for allies, who will become dependent on China for security reasons. A rapidly militarizing China with a far greater productive capacity than the US starts an arms race and builds a pact of allies/customers for their weapons far more formidable than the Soviets’ greatest aspirations. We won the last Cold War easily. I’m not nearly as optimistic about our chances the second go round. If it becomes a hot war, well, the old saying from the first Cold War comes to mind. Duck and cover, then kiss your a** goodbye.