Why China will remain an economic powerhouse
Some analysts think China is on a path to economic disaster. They are kidding themselves, says Matthew Lynn. He explains why China is not in any type of serious economic trouble.
Tensions between China and the West are rising all the time. Over the last week, the country has been launching a series of alarmingly aggressive military exercises around Taiwan.
Even if that does not lead to an invasion, or a blockade, it is a scary escalation of the simmering conflict in the Pacific. In the background, China has been actively supporting Russia’s brutal invasion of Ukraine, while Xi Jinping’s regime has been becoming increasingly autocratic. Led by the US, the Western powers’ relationship with China is more fraught than at any time in the last half century. A cold war has opened up, and one day that may turn hot.
An emerging powerhouse
There are plenty of predictions that China’s powerhouse economy, already on track to overtake the US as the world’s largest, is about to crash. And, true, there are challenges. While most of the rest of the world has adjusted to Covid-19 and moved on, China is still locking down whole cites, along with their factories and offices. Its debt-fuelled banking and property industries look poised to collapse, with reports of local riots as banks close their doors.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
The state is taking a larger role in many of its bigger companies and that is seldom good for competitiveness, and the increasing levels of military adventurism, along with domestic repression, will all prove expensive.
Perhaps most importantly, the legacy of the one-child policy is that the country faces a demographic crunch. Its population is ageing rapidly and will soon be falling in absolute terms, and that will hit the economy very hard. Add it all up, and you can make a case for a China crash.
The trouble is, there is a lot of wishful thinking and confirmation bias in that analysis. Lots of people in the West want China to fail and are simply looking around for whatever evidence they can find to back that up.
In fact, China’s economy is still an emerging powerhouse. Only this week we learned that its trade surplus reached another record high. It hit $101bn for July, the first time it has broken through the $100bn level, and up by 18% on a year earlier. There is not much sign of a slowdown there. In the first half of this year, the Shanghai stockmarket took the global lead in new initial public offerings (IPOs), with 680 firms coming to the market; new Chinese firms are still listing and raising capital in record numbers while IPOs are virtually dead in the US and Europe. Growth may come in a little below target, but China is still predicted to expand by 4% this year, while inflation is running at just 2.2%. Britain, the US, Germany or France would kill for numbers as good as that.
A helping hand from the US
Meanwhile, US president Joe Biden is lifting Trump’s tariffs on Chinese imports into the US, mainly as a way of trying to bring inflation down.
Right or wrong, there is no question that will help Chinese companies sell more into their biggest foreign market. China’s alliance with Russia effectively insulates it from shortages of energy and commodities that are driving inflation in so much of the rest of the world.
It will also benefit from cheaper Russian raw materials, for which it is now the only buyer. And China is also switching increasingly to internal demand as a driver of growth. Exports are hitting record levels, but with every year that passes China is becoming less and less an offshore manufacturing centre for the rest of the world and increasingly a highly developed domestic economy that exports stuff too.
China may or may not be a deadly threat to the West. It may become more autocratic over the next few years, or it may pivot back towards gradual democratisation and liberalisation. We will see over the next few years. But whether or not there is a new cold war between China and the West, we should not start kidding ourselves that the country is in any kind of serious economic trouble. There is no substantial evidence for that and most analysts pushing that view are deluding themselves. China is still racing towards becoming the world’s dominant economy, and its largest as well – and there is no point in pretending otherwise.
See also:
- Will China invade Taiwan?
- China’s zero-Covid labyrinth
- Why China's Covid lockdowns will be the next big shock for global growth
Matthew Lynn is a columnist for Bloomberg, and writes weekly commentary syndicated in papers such as the Daily Telegraph, Die Welt, the Sydney Morning Herald, the South China Morning Post and the Miami Herald. He is also an associate editor of Spectator Business, and a regular contributor to The Spectator. Before that, he worked for the business section of the Sunday Times for ten years.
He has written books on finance and financial topics, including Bust: Greece, The Euro and The Sovereign Debt Crisis and The Long Depression: The Slump of 2008 to 2031. Matthew is also the author of the Death Force series of military thrillers and the founder of Lume Books, an independent publisher.
-
FCA targets finfluencers with new social media guidance
So-called finfluencers have been warned by the UK financial watchdog that they could face prosecution if they fail to follow new rules.
By Henry Sandercock Published
-
First Direct’s £175 switch bonus returns – should you move banks?
The £175 switching deal may not be the biggest on the market, but First Direct offers a host of perks including 7% on regular savings plus excellent customer service. We look at whether it’s worth taking advantage of the deal
By Vaishali Varu Published
-
Should your business invest in a VoIP phone service?
Here's what you need to know about VOIP (voice over IP) services before landlines go digital in 2025.
By David Prosser Published
-
The end of China’s boom
Like the US, China too got fat on fake money. Now, China's doom is not far away.
By Bill Bonner Published
-
What is the future of Royal Mail in the UK?
With fewer of us sending letters and parcels, the Royal Mail is finding dealing with the nation’s post is an increasingly unprofitable and costly business.
By Simon Wilson Published
-
What's the secret of Manolo Blahnik's success?
Fashion maestro Manolo Blahnik shows little sign of slowing down at 81, and his company notched up a record financial year in 2022. What is the secret of his success?
By Jane Lewis Published
-
Michelle Mone's "tough year of pain"
Michelle Mone liked to portray herself as a working-class heroine who worked her way to the top through grit and determination. But her pedestal is built on sand.
By Jane Lewis Published
-
Trevor Milton, the Elon Musk wannabe, is jailed for fraud
The former CEO of Nikola, Trevor Milton, has been found guilty of lying about the development of the company's electric trucks.
By Jane Lewis Published
-
Directors should think twice before waiving limited liability
Should small-business directors ever provide a personal guarantee in return for bank finance?
By David Prosser Published
-
Why Russia's economy is doing better than predicted
Sanctions were supposed to strangle Russia’s economy, but it seems to be thriving. What’s going on?
By Simon Wilson Published