The first China Shock in the 1990s and early 2000s flooded the world with cheap goods and redrew the contours of the global economy.

It let multinationals exploit labour arbitrage, playing off Chinese wages against the wages of blue-collar workers in America and Europe. It lifted both the profit share of GDP and the Gini coefficient of inequality to the highest levels since the Second World War.

It rewarded capital, while the West’s bottom half was left behind, poisoning our democracies. It compounded the brain vs brawn chasm caused by digital tech. It weakened our defences against the mischief of social media.

Optimists had hoped for a change of course at last week’s third plenum. Instead, they got another kick in the stomach.Credit: AP

The emerging China Shock 2.0 is even larger. The Chinese economy is today twice as big as a beast on the global stage as it was in 2007 before the global financial crisis.

Professor Michael Pettis from Peking University says we now have an untenable situation where China produces 31 per cent of the world’s manufactured goods but accounts for just 13 per cent of world consumption. The rest of us have to absorb this imbalance.

China’s soaring exports are not a quirk of nature or because its products are better (some are, most are not). It is the mechanical result of structural policies pursued by the Communist Party with the stubbornness of the Ming dynasty at its worst. This has pushed China’s trade surplus to a record $US100 billion ($151 billion) a month, surpassing the total share of global GDP reached at the peak of the China Shock 1.0.

Eternal optimists had hoped for a change of course at last week’s third plenum, an event held every five years that has set economic strategy ever since Deng Xiaoping embraced capitalist roadsters at the third plenum of 1978. Instead, they got another kick in the stomach.

“There’s nothing new under the sun: the same industrial policies, the same ideas,” said Alicia Garcia-Herrero, chief China watcher for investment banking advisors Natixis. “No consumer-led growth, no mention of market forces, nothing.”

The communiqué exhorts the Chinese people to “persist” 17 times. This means “persisting” with policies that divert a big chunk of the national pie towards state bodies and companies, which are then pushed into chronic overinvestment by warped incentives that defy market price signals........

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