It’s hard to shake the feeling of impending economic doom when China’s chronically flagging demand sits squarely at the forefront of global economic issues. This looming crisis casts a large shadow on the G20 summit in New Delhi.
While the world leaders gather, aiming to dissect and manage global financial intricacies, China’s president, Xi Jinping, is notably absent. Instead, Premier Li Qiang takes the helm, emphasizing the limited leverage other nations might have if China seeks refuge in global demand.
The Domino Effect of China’s Economic Strategies
Economic frailties in China, surprisingly, don’t directly influence other developed nations to a significant degree. Why? The crux of the matter is that China is remarkably self-sufficient. They produce a significant chunk of their necessities and rarely open up their wallet for imports. Even the colossal U.S. economy’s output that caters to China remains minuscule.
But here’s the twist. The real chaos would be unleashed if China, reminiscent of its strategy from the 1990s and 2000s, aims to propel its growth through exports. With China’s current account surplus resting at an impressive 2% of its vast economic machinery, any maneuver to augment this could wreak havoc. Specifically, any attempt to suppress the value of the renminbi exchange rate might ring alarm bells globally.
Beijing’s logic to focus on exports might appear flawed, considering the current vastness of its economy and the challenges presented by its diminishing housing market. However, if you dig deeper, it aligns well with Xi’s aspirations. He is adamant about fortifying China’s stature in the high-tech industry sector, even if it means curbing domestic consumption. The intentional nudge to motivate Chinese nationals to vacation locally rather than splurging overseas illustrates this diversion of demand.
Such internal strategies might not catapult China into a vigorous growth trajectory, but they certainly have the firepower to disrupt the global economic equilibrium. The more competitive China’s products become, the higher the chances they’ll nudge out other global products.
Global Implications: A Subtle yet Serious Threat
Here’s the slippery slope. The international community might get momentarily blindsided by the superficial allure of a blossoming Chinese surplus. After all, who wouldn’t want to benefit from reduced living costs during these trying times? However, the scales have shifted over the past two decades. Today, countries like Japan and Germany, which once thrived on exporting luxury items to China, now find themselves challenged by China’s booming automobile exports.
The U.S., unfortunately, has somewhat tied its hands by distancing itself from economic collaboration, as seen in its retreat from the Trans-Pacific Partnership. Now, with its focus majorly on military and security confrontations with Beijing, any U.S. concerns over China’s economic tactics might be met with skepticism.
One of the G20’s crowning achievements is its consensus against using currency devaluation as a competitive weapon. Yet, there’s a gaping flaw in the global financial system, originating from its inception at Bretton Woods post-WWII. No mechanism exists to rein in nations with a consistent surplus. But remember, one country’s surplus inevitably becomes another’s deficit.
The ideal solution would involve China and the U.S. joining forces, an endeavor that currently seems like a pipe dream. In the meantime, world leaders at the G20 need to send a clear message: economies shouldn’t be stabilized at the expense of global demand.
