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Will Beijing undergo a revolution of rising expectations?

20 3 0
17.11.2019

ZURICH – For more than a decade, China has accounted for a quarter or more of global economic growth. With its economy currently navigating a rough patch, the question is whether this impressive performance will persist.

Cassandras pointing to the possibility of a Chinese growth slowdown regularly invoke the specter of a middle-income trap. Now that China is no longer poor, they warn, growth rates will fall, just as they have in all but a handful countries that have reached the same income level.

Growth is harder, they observe, when it can no longer be based on brute-force capital accumulation. Now, it must be based on innovation, which is difficult to bring about in an economy that is still centrally directed.

Then there is the corporate sector’s heavy debt load. A decline in earnings could render many of these debts unsustainable. Whether the upshot is cascading defaults or a flurry of bailouts that shift the burden to the government, the result would weaken the country’s finances and sap investor confidence.

On top of this is the country’s aging population, which requires shifting investment from industrial capacity to social services. This will imply slower growth insofar as productivity chronically lags in the service sector.

Finally, there is the possibility of a full-blown trade war with the United States. We currently hear much talk of a “phase one” deal between the U.S. and China.

But if we know one thing........

© The Japan Times