Closure of entire cities over and over again to control the Covid. A debt-fuelled real estate boom that is getting out of control and may collapse the banking system. And the rising cost of military adventurism, coupled with impending demographic disaster as they have to deal with the legacy of restricting families to one child. There is no doubt that China faces many challenges, just like any country. However, the fact that we see it more and more as a rival, and potentially dangerous, should make us avoid illusions: in reality, the Chinese economy is not going to collapse just because we want it to.
In fact, the Chinese economy is still an emerging powerhouse. Earlier this month, his interest rate cuts aside, we learned that his trade surplus hit another record.
That balance reached $101 billion in July, the first time it had broken the $100 billion barrier, and an 18% increase over the previous year. There aren’t many signs of slowing down. In the first half of this year, the Shanghai stock market has led the way in new public offerings (IPOs), with 680 companies going on the market; Chinese startups continue to list and raise capital in record numbers, while IPOs are virtually dead in the US and Europe.
Meanwhile, growth may be a bit below target, but China is still projected to grow 4% this year, while inflation is only 2.2%. Great Britain, the United States, Germany or France would kill for such good figures.
Of course, there are some challenges, as in most developing countries. But there are also some positives to balance them out. For example? First, President Biden is lifting Trump’s tariffs on Chinese imports into the United States, as a way of trying to bring down inflation. This can be confusing, like many of Biden’s policies (it’s hard to see the point of lowering tariffs and increasing support for Taiwan at the same time). But there is no doubt that it will help Chinese companies to sell more in their biggest foreign market. Next, there is his alliance with Russia. Of course, this is morally wrong. No country should support a brutal invasion of Ukraine, where there is mounting evidence of horrific war crimes. Still, it insulates China from the energy and commodity shortages that are fueling inflation in much of the rest of the world. In fact, seen in an even more cynical way, it will benefit from cheaper Russian raw materials, of which it is now the only buyer and will remain so for a long time. It’s easy to negotiate with someone who has no one else to sell to. Lastly, it is increasingly turning to domestic demand as the engine of growth. It is true that exports may be reaching record levels. But with each passing year, China is less and less an overseas manufacturing hub for the rest of the world and more and more a highly developed domestic economy that happens to also export quite a bit.
China may or may not be a deadly threat to the West. It may become more and more autocratic in the coming years, or it may pivot towards gradual democratization and liberalization. We will see it in the coming years. But whether or not there is a new Cold War between China and the West, we must not start deluding ourselves that the country has some kind of serious economic problem. There is no serious proof of this, and most of the analysts who push that opinion are deluding themselves. It keeps racing to become the world’s dominant economy, and also the largest, and there is no point in pretending otherwise.
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