China has accounted for one quarter or more of global economic growth for more than a decade. The question is whether this impressive performance would continue with its economy currently enduring a rough patch.
Cassandras pointing to the likelihood of a downturn in China's development constantly invokes the spectre of a middle-income trap. Now that China is no longer poor, they warn, the rates of growth will fall just as they have the same level of income in all but a handful of countries. We find that growth is harder when it can no longer be based on the accumulation of capital by brute force. It must now be based on innovation, which is hard to achieve in an economy that remains centrally administered.
Then there is the heavy debt burden of the corporate sector. A fall in earnings can make many of these debts unsustainable. Whether the upshot is cascading defaults or a flurry of bailouts that shift the burden to the government, the outcome would weaken the finances of the country and sap the confidence of investors.
In addition to this is the ageing population of the country, which requires a shift from industrial capacity to social services. This will mean slower growth to the degree that productivity in the service sector is chronically lagging.
Finally, a full-blown trade war with the US is possible. We are already hearing a lot of speculation about a US-China "step one" contract. But if we know one thing about the president of the United States, Donald Trump, he's a "tariff man." He will now try to deflect attention in the face of an intensifying investigation into the impeachment. Like any autocrat facing opposition at home, by concentrating on a foreign foe, he would help the marshal. This means that any agreement on "phase one" will be temporary at best.
Nonetheless, the most troubling scenario is absent from this list of usual suspects: common unrest. Sceptics claim that there is unlikely widespread outrage against the government and its policies. The politburo continues to deliver changes in living standards–and it's powerful security apparatus.
Yet look elsewhere at cases. Throughout France, the gilets Jaunes (yellow vests) demonstrated against higher fuel prices most explicitly, but more generally against a perceived lack of economic opportunity. Anti-austerity demonstrations in Ecuador represent, more fundamentally, opposition to the government of President Lenín Moreno, denounced as out of touch with the public by students, unions, and indigenous people. A rise in metro fares sparked protests in Chile but also based on which data is available.
Tags : economic growth, China is no longer poor, China's development, Cassandras ,