Nathan Sperber in Sidecar:
Nobel Prize-winning economist Paul Krugman does not mince his words:
the signs are now unmistakable: China is in big trouble. We’re not talking about some minor setback along the way, but something more fundamental. The country’s whole way of doing business, the economic system that has driven three decades of incredible growth, has reached its limits. You could say that the Chinese model is about to hit its Great Wall, and the only question now is just how bad the crash will be.
That was in the summer of 2013. China’s GDP grew by 7.8 per cent that year. In the decade since, its economy has expanded by 70 per cent in real terms, compared to 21 per cent for the United States. China has not had a recession this century – by convention, two consecutive quarters of negative growth – let alone a ‘crash’. Yet every few years, the Anglophone financial media and its trail of investors, analysts and think-tankers are gripped by the belief that the Chinese economy is about to crater.
The conviction reared its head in the early 2000s, when runaway investment was thought to be ‘overheating’ the economy; in the late 2000s, when exports contracted in the wake of the global financial crisis; and in the mid-2010s, when it was feared that a buildup of local government debt, under-regulated shadow banking and capital outflows threatened China’s entire economic edifice. Today, dire predictions are out in force again, this time triggered by underwhelming growth figures for the second quarter of 2023. Exports have declined from the heights they reached during the pandemic while consumer spending has softened. Corporate troubles in the property sector and high youth unemployment appear to add to China’s woes. Against this backdrop, Western commentators are casting doubt on the PRC’s ability to continue to churn out GDP units, or fretting in grander terms about the country’s economic future (‘whither China?’, asks Adam Tooze by way of Yang Xiguang).