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The Chinese challenge to the global economy

by Afonso
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China is the second largest economy in the world. China has sustained decades of sustained prosperity through the opening up of agricultural markets, rapid industrialization and urbanization, development of cottage industries, private and institutional investment, foreign investment, skilled manpower, and financing the creation of economic zones across countries. By any measure, China is one of the world’s economic powers, which has made the entire West, including America, uneasy. China’s growing economy has long been a major challenge for the West, whose victory or defeat could cause major upheavals in global leadership.

China is currently the world’s number one exporter; Second in import. After the world economic shock of 2008, the world began to move on a new path, but this country, the second largest economy in the world, had to suffer due to the shock of Corona. Still, China has a monopoly on the global market. China holds the majority of world trade. As a result, many developed countries in the world are facing the Chinese challenge in occupying the economic market. Again, the negative impact on the Chinese economy during Covid is affecting the world. As a result, China’s rise and fall—both are cause for concern for the entire world.

In the 1980s, China transitioned from a rural economy to an industrial economy. According to one of the London School of Economics, China’s total exports in 1978 were 1 trillion US dollars, which was less than 1 percent of world trade. And after less than two decades, its amount stands at about 4 and a half trillion dollars. China has become the world’s largest exporter of goods. It has achieved an average of 10 percent gross domestic product (GDP) growth over the past 30 years, which has not been possible for any other country.

Then came the biggest shock during the global economic recession around 2008-09. The Chinese economy has only quadrupled since the global recession. In contrast, the debt has increased 9 times. Investment in infrastructure and property in the country has halved in the 2010s to keep growth high. As a result, employment in the construction and industrial sectors stagnated. Unemployment has increased. Many young graduates are passing out. Unable to access workplace.

With this, in 2020, the corona epidemic appeared as a ‘wound on the neck’. Naturally, the pandemic exacerbated the economic crisis. Economists say it will be difficult to recover the economy this year.

In this situation of China, the Westerners did not stop to add salt to the raw wounds. Officials from various countries, including Australia and America, have publicly expressed concern about China, the world’s second-largest economy. However, Chinese President Xi Jinping is unwilling to take this criticism into account.

The thing is, why are economists all over the world worried about China? In this regard, Atlantic Council senior fellow Joseph Webster wrote in The Diplomat, China’s economic crisis is creating a risk of recession in the whole world. Especially creating a major crisis in the export market. Countries dependent on Chinese goods are most at risk.

In an article in The Diplomat, Joseph made it clear that the impact of China’s economic crisis is now visible in all areas. If this situation continues, it will have a big impact in the geopolitical field. Especially the support that China is still giving to Russia, may change. China may press Moscow to negotiate on the Ukraine issue. Not only that, Beijing can also be softer in foreign policy. If that is the case, many policies of many countries are bound to change. Meanwhile, China’s pressure on Taiwan may increase.

At the same time, economists also say that the US may face a moderate recession if China’s economy slows down and the recovery program is not successful. As a result, the shock in the world’s two largest economies may spread globally. A large part of the products that are sold around the world come from China. If China’s economic crisis is prolonged, price deflation could have both positive and negative consequences for other countries. Then other countries will be able to buy Chinese products at relatively low prices, which can help control inflation in those countries. And on the downside, it could threaten producers in those countries.

The increase in the sale of cheap Chinese products in the markets of various countries will be a cause of great concern for everyone from local producers to traders. Inward investment will decrease, which will have a direct impact on employment. In that case unemployment may increase. Again, if the demand in the Chinese market decreases, it will also affect the export sector of the world.

Beijing has adopted a strategic plan to revive the economy. China is prioritizing qualitative growth over quantitative growth. The country is moving forward with a strategic plan to become dominant in artificial intelligence, robotics, semiconductors, etc. Artificial intelligence (AI) and 5-G technology have entered the competition to occupy the market. Besides, they have completed all the preparations for the fourth industrial revolution. As a result, the headache of Silicon Valley will increase, not decrease.

One-third of China’s total wealth was in the housing sector. The sector has been booming in China for the past two decades, particularly as a result of privatization. But in 2020, there is a crisis in this sector. Neither the Covid pandemic, nor China’s shrinking population, has been good news for the sector. The Chinese government then feared that this crisis would lead to a collapse of the entire economy, as happened in America in 2008. The recession of 2008 was triggered by excessive lending in real estate such as housing, private cars, etc. At the same time, China opened up investment in this sector and regulated the flow of money into the market, which has now boomeranged for them.

Now demand for new homes in China has collapsed, and as a result house prices have fallen dramatically. This means that China’s homeowners are poorer than before. Now this sector is in big crisis. It will take many years for the housing industry to overcome this crisis. As a result, China’s investment in the global infrastructure sector could be a major blow. With which diplomatic relations will be involved.

Chinese President Xi Jinping inspects the military parade.  Photo: Reuters

According to a recent Bloomberg report, the size of China’s economy will surpass that of America by 2031. Through this, changes in the power structure of the current world system are also inevitable. China has already thrown many challenges to the current world structure influenced by Europe and America. China, however, blames America for this. The Biden administration has also maintained the trade conflict that former President Donald Trump started with China. Its aim is to prevent the rise of China, it is easy to understand. But it cannot be denied that the rise of China has spread fear in the West as well as China’s neighboring countries.

China may be a major driver of the global economy. And behind this there are some economic policies taken by the current president of the country. What Xi clearly wanted in his policy was to make the Chinese economy more dynamic, vibrant, powerful and innovative. But after a long journey those policies are often backfiring lately.

The International Monetary Fund (IMF) predicted that China would become the largest driver of global economic growth in the next five years, even at the time of China’s New Economic Policy. China alone will contribute about 22.6 percent of global growth, while America will account for only 11.3 percent.

Currently, China’s defense budget spends $177.61 billion, which is at least three times the defense budget of neighboring India. If this rate increases, China’s defense budget will reach 200 billion, which will be close to the US defense budget. This could lead to a reshuffle of world leadership or a new polarization. The geopolitical picture may change.


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