China’s struggle delights some – but should make us all nervous

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15.05.2022 - 16:01

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theguardian.com:

China has been central to the story of globalisation over the past 30 years but now it is struggling. More than two years after Covid-19 cases were discovered in Wuhan, the world’s most populous country has yet to get on top of the virus. Draconian lockdowns have been imposed because China’s vaccines are less effective than those available in the west, and immunity levels are lower as well.

Growth is slowing and not just because of the tough restrictions insisted upon by President Xi Jinping. Flaws in China’s economic model coupled with a more hostile geopolitical climate mean the days of explosive expansion are over.

Unlike the US the UK or the euro area, China is not facing the inflationary problem that has prompted central banks to raise (or think about raising) interest rates. On the contrary, the People’s Bank of China is easing policy to stimulate credit growth. The authorities will try to spend and export their way out of trouble.

China’s emergence as an economic superpower was finally recognised in the aftermath of the global financial crisis of 2007-09. With its banks unable to function normally, the US was incapable of assuming its traditional task of hauling the global economy out of recession. Instead, the locomotive role went to China, which provided a twin boost to its economy through public investment and credit expansion. China grew at double-digit rates, sucking in goods from Germany and Japan.

There were costs to this policy, one economic and one political. The economic cost was that China generated a colossal amount of debt, which fuelled a property boom. Non-financial debt as a share of the economy’s annual output (gross domestic product) has more than doubled since its pre global financial crisis levels