The West might be hoping that domestic economic strains facing China will curb its appetite for global competition, even foreshadowing a retreat. But the opposite seems much more likely: an intensification of Beijing’s geopolitical assertiveness, worsening relations with the US and its allies, possibly to a dangerous degree, says Barbara Kelemen, Associate Director, in The Hill.
The Chinese economy is expected to slow significantly over the next two years, as it faces a series of domestic challenges, including a prolonged downturn in the real estate sector as well as its demographic decline. You would think, then, that in the near term, at least, Beijing might be more focused on its economy than consolidating its global posture. Yet, Chinese government actions of late, coupled with the leadership’s mindset, suggest otherwise.
Investors and economists appear to have little confidence in Beijing’s recent measures to deal with economic headwinds. Critically, Beijing seems reluctant to put in place a substantial stimulus package to boost domestic consumption, akin to the spending it delivered to tackle economic downturns in 2015 and the global financial crisis. The likely reason for the Chinese leadership’s reluctance is that it would face strong internal political challenges, as significant institutional and economic changes would be required.
In order to generate sufficient stimulus funds, Beijing would need to amortize large amounts of non-performing investments, such as property and infrastructure projects that do not seem to be generating enough returns — overcapacity is a key reason. The only other option would be to implement reforms that switch China’s growth model from one led by investment in infrastructure and property to one driven by consumption or other, more productive, sectors, such as hi-tech.
But there are problems with this. While China has been trying to reorientate its economy towards innovation, there’s insufficient capacity in this sector to absorb the capital required for such a shift…
Russian President Vladimir Putin and China’s President Xi Jinping shake hands during a signing ceremony following their talks at the Kremlin in Moscow on 21 March 2023. Photo by Vladimir Astapkovich/Sputnik/AFP via Getty Images.
