Let's talk!

China’s challenge to the global economic recovery

• Posted by freeamfva jack May 5, 2022 Filed in Other #Shanghai news  38 views
  click to rate

  China’s challenge to the global economic recovery

  It has long been said of the United States economy that when the U.S. sneezes, the rest of the world catches pneumonia. With China now being the world’s second largest economy and its primary economic growth engine, one has to wonder whether the same might be said of China.To get more economy news today, you can visit shine news official website.

  This comparison is all the more relevant today when the Chinese economic recovery is being challenged by a renewed outbreak of the COVID-19 pandemic at a time that several serious weaknesses cast a dark cloud over that country’s long-run economic outlook.

  In the decade following the 2008-2009 Great Recession, China’s impressively rapid economic growth made it the main engine of the world economic recovery. Its rapidly expanding economy provided growing export markets, especially for its Asian neighbors. Meanwhile, its insatiable demand for international commodities provided much needed support to the emerging market economies.
  Over the past year, after a brief COVID pause, this pattern seems to have reasserted itself as China was the earliest among the world’s major countries to bring the pandemic under control. That enabled its economy to recover rapidly from its COVID-19 induced recession. Once again this provided growing export markets for its Asian neighbors as well as substantial support to a strong rebound in international commodity prices so beneficial to the emerging market economies.

  A recent outbreak of the delta variant in China poses an immediate challenge to its continued role as the world economy’s main growth engine. Several Chinese regions have reimposed economic lockdowns as the Chinese government adopts a zero-tolerance approach to the pandemic. While such an approach is likely to be in the country’s long-term economic interest, it will cause short-term problems for the country’s economic recovery.

  Any delta-induced Chinese economic slowdown would be occurring at a time that the country faces serious longer-term economic challenges.

  The government’s recent crackdown on its high-tech sector, together with its efforts to give preference to its public sector over its private sector, represents at least a partial reversal of Deng Xiaoping’s economic reforms in the 1980s that underpinned the Chinese economic miracle.

  At the same time, slower economic growth will make it more difficult for the Chinese authorities to deal with its credit market bubble, which is among the largest in the world. That, in turn, threatens to replicate in China the Japanese economic slowdown of the 1990s, with a rise in zombie companies and the clogging up of bank balance sheets with non-performing loans.

  A Chinese economic slowdown could have serious spillover effects to the rest of the global economy. The U.S. and European economic recoveries are already being hobbled by supply-chain problems in the rest of Asia. China’s Asian neighbors are struggling with their own delta waves, which are inducing them too to lockdown parts of their economies.

  Meanwhile, the highly indebted and under-vaccinated emerging market economies are in a weak position to weather a renewed slump in international commodity prices and a contraction in their export markets.

  Equally troubling is the risk that a Chinese economic slowdown could burst the global “everything” bubble that now characterizes the world’s equity, housing and debt markets. Those bubbles are premised on the assumption that today’s ultra-low interest rates will last forever, and that the world economy will continue to recover smoothly from its COVID-induced damaged. A prolonged Chinese economic slowdown could throw that assumption into serious question and be the trigger that bursts the bubble.