China: A slowdown sends tremors worldwide

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The world's economic engine is sputter­ing, said The Economist. When China abandoned its draconian zero­ Covid con­trols last year, the expectation was that it "would stage a rapid recovery, even as other countries courted recession." In fact, China's economic growth has been slowing, and the troubles keep mount­ing. "Three headlines in the space of two days" last week captured the gravity of China's economic plight. Exports fell by more than 14%  from the year be­fore. Country Garden, one of the nation's biggest property developers, missed two bond­ interest payments. And consumer prices declined. "In sum: China's export boom is long over. Its property slump is not. And, therefore, deflation beckons." China's central bank cut interest rates further this week, in a sign of heightened concern from policymakers.

This isn't like the China we've come to know, said Peter S. Goodman in The New York Times. "Over the past decade, China has been the source of more than 40% of global economic growth," almost double the U.S. contribution. But in a sign of "general erosion of public faith," Chinese families have stopped spending and are stashing cash at a record pace. Weakening Chinese demand carries global implications — "from soybeans harvested in Brazil to beef raised in the United States to luxury goods made in Italy." Beijing needs to get its act together, said the Financial Times in an editorial. The "psychological malaise that besets many Chinese households" requires bolder reform and stimulus. Cutting mortgage rates and loosening housing restric­tions "would be a good start." But local governments that racked up debts to finance state­directed infra­structure overhauls are now threatening default. They could sell off pieces to pri­vate companies, but Chinese President Xi Jinping "objects to entrepreneurs get­ting their hands on 'state assets.'"

China's pain is the U.S.'s gain, said Daniel Moss in Bloomberg. Without the usual lift from China, "who will the world rely on?" The United States. "Derided as being in its sunset years," the U.S. is seeing a "resilient" labor market, "buoyant" consumers, and diminishing odds of a reces­sion. There's a great opportunity here for Washington, said Adam S. Posen in Foreign Affairs. "Instead of trying to contain China's growth at great cost to their own economy," through tariffs and technology bans, "American leaders can let Xi do their work for them." The U.S. can easily "position itself as a better alternative — a welcoming destination for Chinese assets of all kinds." 

In a visit to Beijing this spring, I didn't detect an economic mal­aise, said Steven Rattner in The New York Times. Yes, "China's rebound from Covid has been weaker than many expected," but I saw executives "mostly radiating optimism" about their busi­nesses. "A robust pipeline" of startups suggests China is continu­ing to innovate. China's economic growth may be slowing, but it's still greater than ours. The country does have a significant youth­ unemployment problem, but "much of that stems from an economy that hasn't quite revved up enough" for the close to 12 million people graduating college this year. That can change. So dismiss China at your own peril.

This article was first published in the latest issue of The Week magazine. If you want to read more like it, you can try six risk-free issues of the magazine here.