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China’s mixed recovery spells trouble for the West

Chinese capital investment is largely controlled by the state. Credit: Getty

June 6, 2023 - 1:00pm

At the start of the year, forecasters were enthusiastic about a substantial economic recovery in China. The argument was simple enough: China would cast off the chains of its lockdown and the economy would take off like a rocket. Now, as the data emerges, the recovery seems at best to be two-speed.

The Chinese services sector is powering ahead. Services activity has been expanding for five straight months now, and it has even been surprising forecasters to the upside recently. So, the reopening narrative seems to be keeping some promises. But the manufacturing sector has remained stagnant. This has led many to question the viability of the Chinese recovery.

But we are about to experience, once again, in real-time that the Chinese economy works differently from Western economies. In the West, capital investment is controlled by the private sector. Central banks exert some control over it by manipulating interest rates, but this control is wielded clumsily and can typically only produce either recession or recovery.

In China, capital investment is largely in the hands of the state. Through the influence exerted over the banking system, the large state-owned enterprise sector, and the housing market, the Chinese can juice the economy in a much more finessed way than is possible in the West. If the Chinese government is afraid that it will not meet its growth targets, it can simply instruct the state institutions to turn the economic knobs up a notch.

This appears to be happening now. Last week the Chinese government announced that it was considering introducing a package supporting the property market. Around the same time, we saw the first tentatively positive readings in the manufacturing sector. The Chinese government has set a GDP target of around 5% for 2023 and it looks like it is pulling out all the stops to hit it.

For some time now, the Chinese have been trying to wean their economy off its reliance on capital investment and rely more on consumption. While the recent consumption figures have been impressive, they are nowhere near high enough to put the gigantic economy on a different track. The recent interventions by the Chinese government suggest that this rebalancing is still some way off.

What do these developments mean for Western economies? If the Chinese recovery starts to take off in the second half of the year, as seems likely, this should lift Western exports somewhat. However, this will not be enough to make a meaningful difference to Western growth prospects which remain stagnant at best, recessionary or even depressionary at worst.

The most important impact that a Chinese recovery would have on the West is via its effect on energy prices. We have recently seen oil prices soften significantly, and OPEC+ has been forced to respond this week by once again announcing production cuts. But if the Chinese behemoth kicks back into gear, these prices should firm back up. Copper markets, a leading indicator, have already bounced back on talk of government intervention in the property market.

If the Chinese government succeeds in its goals and energy prices remain firm, this could be quite painful for the West should it enter a recession in early 2024. Typically in this scenario, energy prices crater, alleviating the cost burden on producers and consumers strained by the recession. But with a new two-speed multipolar economy emerging, where the developing markets can continue to grow as the Western economies sag, this pressure release valve may no longer function, and we may have to continue suffering high costs even in a recession.


Philip Pilkington is a macroeconomist and investment professional, and the author of The Reformation in Economics

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Stan Konwiser
Stan Konwiser
1 year ago

China is dependent on the trade imbalance with the West to fund its growth. The ‘China Miracle’ has been funded that way for the last 50 years. Manufacturing has migrated there from the West as orchestrated by consulting firms under the guise of maximizing share holder value. By shifting the value-added of the actual production of goods to China the multinational corporations have increased profits at the expense of Western workers who used to make things.

Now we are dependent on China to make what we need and have given the CCP the tools to hold our supply chains hostage. As the article points out, China is trying to increase internal consumption with the goal of replacing the Western cash inflow. Their population is certainly large enough, but still very poor and likely to stay that way.

The structural problems of the Communist central planning system have been concealed by mountains of Western Cash for 50 years.

The West needs to decouple from China to keep Xi from executing his stated plan for world domination.

Note: I think it is no coincidence that the WEF was formed 50 years ago.

Julian Pellatt
Julian Pellatt
1 year ago
Reply to  Stan Konwiser

The vast flow of capital into China from the West under the banner of ‘globalisation’ has been a long term economic disaster for our so-called democratic world. Political leaders like Clinton, Obama, Blair and Cameron, to name a few prominent examples, who facilitated the dismantling of Western industries in order to transplant these into China to benefit capitalist shareholders via lower production/employment costs. They thereby created an economic disaster from which the West may never recover. The current economic, political and economic instability in the world is as much a consequence of these disastrous policies and actions as anything else. These are people who (ab)used their power to implement change for the sake of change, to reconfigure the world order and in so doing to ensure their gigantic egos will be fixed in the annals of history – all of them being far too wealthy to suffer the consequences of their actions.

Stan Konwiser
Stan Konwiser
1 year ago
Reply to  Julian Pellatt

Julian- Your comment is on the mark, but I do need to point out that these policy choices were (and continue to be) based on the concept that China would yield to the lure of Capitalism. The rise of China followed the death of Mao and the Chinese Miracle was orchestrated by Deng Xiaoping (Chairman 1982-1987). That convinced the newly expanding international corporations along with the emerging WEF that China would fall in line. The collapse of the Soviet Union lulled them into the idea that Communism was dead and the world was ready for full domination by the Western capitalist. They were all in on the idea that the Third World would make and the First World would take. Xi Jinping took over in 2012. His father was a pure Communist sent to the gulag after the death of Mao who promulgated the disasterous Cultural Revolution. Xi has cashed in on the money gladly supplied by the Western World and moved the CCP and China back to a purer form of Communism. He is smart, rational and completely convinced that China is destined for world domination. The WEF is still pandering to China with their ‘Great Reset’ ignoring the likely reality that should China achieve its goal, they will be the first folks stripped of their wealth and sent to the gulag.

ï»żIt is time the Western World wakes up to this reality and understand that the real existential threat to us is China.

Henk Boosman
Henk Boosman
1 year ago
Reply to  Stan Konwiser

The real threat is China, right? Because China has been the one terrorizing the planet the past 4 centuries, hey? China is lifting its people out of poverty and is helping the Global South do the same through the BRI. No longer do poor countries need to rely on exporting real wealth for useless fiat dollars in return which can only be re-invested into the dollar economy (bonds etc) because the goods have been exported abroad. The real threat was and always will be that certain group that has acquire the “right” that our “liberal democracies” love to exercise so much, i.e. The State of Exception, as a status for itself as a group of people. The True Sovereign is the one outside the limits of the law and the limits of scrutiny. The one who decides on The State of Exception and now is, in fact, the perennial State of Exception reified in world politics. They wield the apotheosis of power on this planet, a power so all-pervasive and limitless, its unfathomable. Those whom may never be named. Stop watching Fox News and read a book ffs, your erudition is non-existent.

Stan Konwiser
Stan Konwiser
1 year ago
Reply to  Henk Boosman

I have no illusion that the Western capitalistic model is a paragon of virtue. Unfettered capitalism is abusive to the workers and the environment. However the current Western system–with government controls to moderate its excesses to a certain extent–is far better than what is currently happening in China. The innovations in technology from the first industrial revolution (1860-1910) and since then all primarily sprung from those living under an enlightened capitalistic system. The living standards of the common man/woman have improved immeasurably during those periods of innovation. The Chinese have a long history of invention under their feudal system, but under communisim they have simply appropriated technology from the West to advance their living standards. The suppression of independent thought and expression under the CCP is stifling. I would suggest the dialogue here in Unherd would not be allowed under a CCP governance.

Stan Konwiser
Stan Konwiser
1 year ago
Reply to  Henk Boosman

I have no illusion that the Western capitalistic model is a paragon of virtue. Unfettered capitalism is abusive to the workers and the environment. However the current Western system–with government controls to moderate its excesses to a certain extent–is far better than what is currently happening in China. The innovations in technology from the first industrial revolution (1860-1910) and since then all primarily sprung from those living under an enlightened capitalistic system. The living standards of the common man/woman have improved immeasurably during those periods of innovation. The Chinese have a long history of invention under their feudal system, but under communisim they have simply appropriated technology from the West to advance their living standards. The suppression of independent thought and expression under the CCP is stifling. I would suggest the dialogue here in Unherd would not be allowed under a CCP governance.

Hugo Dionisio
Hugo Dionisio
1 year ago
Reply to  Stan Konwiser

But you like the globalists and capitalists or not. First you say that they are greed and because of that the west sent it’s money to China. In the end you say that the need to wake up so capitalists don’t be the first to loose their wealth and go to goulag. As I there there are capitalists in China too. And they are so rich… And, as I know, nowadays are the capitalists that take everything from us in the so called democracies and send us to the goulag. Because poor people are going to the goulag of living in the streets, in poverty and misery. And are not the Chinese doing it. Are the ones you say that have to open their eyes. They have them opened. But China has been the most advanced country in the world since 2000 years onward, with the exception of the las 250. And why? Because of the exploitation of the ones you say that sold out economies to China. And China has the right, as a great and populated country of getting out of poverty? Or not? The consequence of that is that, because of it’s dimension, China will be the most influential country. But that doesn’t mean that they wanto to rule the world like western imperialists and globalists want. China only wants to trade. China never in its entire history expanded outside it’s frontiers. And it’s not doing it now. That’s just the propaganda done by you lovely globalists and capitalists, the ones that you want to save. We are the ones to be saved, not them.

Henk Boosman
Henk Boosman
1 year ago
Reply to  Stan Konwiser

The real threat is China, right? Because China has been the one terrorizing the planet the past 4 centuries, hey? China is lifting its people out of poverty and is helping the Global South do the same through the BRI. No longer do poor countries need to rely on exporting real wealth for useless fiat dollars in return which can only be re-invested into the dollar economy (bonds etc) because the goods have been exported abroad. The real threat was and always will be that certain group that has acquire the “right” that our “liberal democracies” love to exercise so much, i.e. The State of Exception, as a status for itself as a group of people. The True Sovereign is the one outside the limits of the law and the limits of scrutiny. The one who decides on The State of Exception and now is, in fact, the perennial State of Exception reified in world politics. They wield the apotheosis of power on this planet, a power so all-pervasive and limitless, its unfathomable. Those whom may never be named. Stop watching Fox News and read a book ffs, your erudition is non-existent.

Hugo Dionisio
Hugo Dionisio
1 year ago
Reply to  Stan Konwiser

But you like the globalists and capitalists or not. First you say that they are greed and because of that the west sent it’s money to China. In the end you say that the need to wake up so capitalists don’t be the first to loose their wealth and go to goulag. As I there there are capitalists in China too. And they are so rich… And, as I know, nowadays are the capitalists that take everything from us in the so called democracies and send us to the goulag. Because poor people are going to the goulag of living in the streets, in poverty and misery. And are not the Chinese doing it. Are the ones you say that have to open their eyes. They have them opened. But China has been the most advanced country in the world since 2000 years onward, with the exception of the las 250. And why? Because of the exploitation of the ones you say that sold out economies to China. And China has the right, as a great and populated country of getting out of poverty? Or not? The consequence of that is that, because of it’s dimension, China will be the most influential country. But that doesn’t mean that they wanto to rule the world like western imperialists and globalists want. China only wants to trade. China never in its entire history expanded outside it’s frontiers. And it’s not doing it now. That’s just the propaganda done by you lovely globalists and capitalists, the ones that you want to save. We are the ones to be saved, not them.

Susan Grabston
Susan Grabston
1 year ago
Reply to  Julian Pellatt

The chinese leadership called Cameron and Osborne “the posh boys”.

Stan Konwiser
Stan Konwiser
1 year ago
Reply to  Julian Pellatt

Julian- Your comment is on the mark, but I do need to point out that these policy choices were (and continue to be) based on the concept that China would yield to the lure of Capitalism. The rise of China followed the death of Mao and the Chinese Miracle was orchestrated by Deng Xiaoping (Chairman 1982-1987). That convinced the newly expanding international corporations along with the emerging WEF that China would fall in line. The collapse of the Soviet Union lulled them into the idea that Communism was dead and the world was ready for full domination by the Western capitalist. They were all in on the idea that the Third World would make and the First World would take. Xi Jinping took over in 2012. His father was a pure Communist sent to the gulag after the death of Mao who promulgated the disasterous Cultural Revolution. Xi has cashed in on the money gladly supplied by the Western World and moved the CCP and China back to a purer form of Communism. He is smart, rational and completely convinced that China is destined for world domination. The WEF is still pandering to China with their ‘Great Reset’ ignoring the likely reality that should China achieve its goal, they will be the first folks stripped of their wealth and sent to the gulag.

ï»żIt is time the Western World wakes up to this reality and understand that the real existential threat to us is China.

Susan Grabston
Susan Grabston
1 year ago
Reply to  Julian Pellatt

The chinese leadership called Cameron and Osborne “the posh boys”.

Julian Pellatt
Julian Pellatt
1 year ago
Reply to  Stan Konwiser

The vast flow of capital into China from the West under the banner of ‘globalisation’ has been a long term economic disaster for our so-called democratic world. Political leaders like Clinton, Obama, Blair and Cameron, to name a few prominent examples, who facilitated the dismantling of Western industries in order to transplant these into China to benefit capitalist shareholders via lower production/employment costs. They thereby created an economic disaster from which the West may never recover. The current economic, political and economic instability in the world is as much a consequence of these disastrous policies and actions as anything else. These are people who (ab)used their power to implement change for the sake of change, to reconfigure the world order and in so doing to ensure their gigantic egos will be fixed in the annals of history – all of them being far too wealthy to suffer the consequences of their actions.

Stan Konwiser
Stan Konwiser
1 year ago

China is dependent on the trade imbalance with the West to fund its growth. The ‘China Miracle’ has been funded that way for the last 50 years. Manufacturing has migrated there from the West as orchestrated by consulting firms under the guise of maximizing share holder value. By shifting the value-added of the actual production of goods to China the multinational corporations have increased profits at the expense of Western workers who used to make things.

Now we are dependent on China to make what we need and have given the CCP the tools to hold our supply chains hostage. As the article points out, China is trying to increase internal consumption with the goal of replacing the Western cash inflow. Their population is certainly large enough, but still very poor and likely to stay that way.

The structural problems of the Communist central planning system have been concealed by mountains of Western Cash for 50 years.

The West needs to decouple from China to keep Xi from executing his stated plan for world domination.

Note: I think it is no coincidence that the WEF was formed 50 years ago.

N T
N T
1 year ago

Unfortunately, when China gooses manufacturing, it has the opposite effect on western manufacturing, since China has a labor cost advantage. I don’t know of any other industries that have such a large lever effect on a nation, since the pass-through in manufacturing is so large.

N T
N T
1 year ago

Unfortunately, when China gooses manufacturing, it has the opposite effect on western manufacturing, since China has a labor cost advantage. I don’t know of any other industries that have such a large lever effect on a nation, since the pass-through in manufacturing is so large.