August 12, 2024 at 03:29AM
This article is concerning, titled:
China’s Real Economic Crisis – Why Beijing Won’t Give Up on a Failing Model
Here is the link. It’s a long, long piece, but, in summary:
China’s economy is struggling despite the end of zero-COVID policies, with sluggish GDP growth and sagging consumer confidence.
The main issue is structural overcapacity in many sectors, resulting from decades of prioritizing industrial production over consumption.
This overcapacity is causing problems domestically (deflation risks, debt issues) and internationally (trade tensions due to flooding markets with cheap goods).
The overcapacity stems from China’s economic strategy that incentivizes local governments to invest heavily in priority sectors, often leading to duplicative investments and debt.
Examples of overcapacity include solar panels, industrial robotics, and AI, where China has built massive production capacity without corresponding demand or innovation.
Beijing is doubling down on this strategy to achieve technological self-sufficiency, potentially worsening the problem.
Western countries, particularly the US, are responding with tariffs and their own industrial policies, but this approach has risks.
The article suggests that instead of isolating China, the West should keep China engaged in the global trading system and use multilateral institutions to negotiate changes.
It proposes that the US should be open to comprehensive negotiations with China, addressing multiple issues simultaneously, rather than a compartmentalized approach.
The article warns that pushing China towards economic isolation could be counterproductive and potentially destabilizing for global relations.
I can’t see any way this ends well.
This article was written by Eamonn Sheridan at www.forexlive.com.
