or the euro area, China is not facing the inflationary problem that has prompted central banks to raise interest rates. On the contrary, the People’s Bank of China is easing policy to stimulate credit growth. The authorities will try to spend and export their way out of trouble.
There were costs to this policy, one economic and one political. The economic cost was that China generated a colossal amount of debt, which fuelled a property boom. Non-financial debt as a share of the economy’s annual output has more than doubled since its pre-global financial crisis levels to 290% of GDP. The problems of the property giantThe political cost started off being a matter of perception: fear in the US that China was a threat to American economic hegemony.
There will be many in the west, and in the US in particular, who will take delight in China’s discomfort. Not much unites Democrats and Republicans these days, but one of the things that does is hostility towards Beijing. Donald Trump’s trade war led to a marked cooling of relations, but they have remained chilly under Joe Biden.
There is, though, another reason to be concerned. As Charles Dumas notes in a report for TS Lombard, China’s full integration into the global economy since the early 1990s has been a key factor behind the steady rise in share prices on Wall Street.
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