China stands on the edge of a potential collapse, as experts have warned of an impending severe and lasting economic downturn. This looming crisis, resulting from a series of factors including a post-Covid economic struggle and a significant property market turmoil, could have significant repercussions for China’s economy.
President Xi Jinping’s efforts to drive a successful economic recovery following the Covid pandemic have been hampered by a major property crisis. The consequences are evident as Chinese exports experience a sharp decline and consumer spending takes a severe hit due to the unfolding crisis.
Hans Dau, the President and CEO of strategic consultancy firm Mitchell Madison Group, has indicated that China’s economy is on the verge of a “crash,” one that could be both serious and enduring. He emphasized that this impending crash has the potential to deal a severe blow to China’s economic stability.
Dau further stated that the United States, fortunately, is well-insulated from the impending crisis. He pointed out that both Mexico and Canada have now surpassed China as the largest trading partners of the US. Moreover, public sentiment in the US has become overwhelmingly negative toward China, spanning the entire political spectrum.
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Despite the relative protection, Prof Ivan Katchanovski cautioned that the US might not emerge entirely unscathed. He explained that China’s economic slowdown, following years of rapid growth, could affect major American companies that rely on China for production. This situation might lead to price hikes for goods imported from China. However, Katchanovski acknowledged that the Chinese economic slowdown could also lead to a reduced demand for imported oil, potentially lowering oil prices and aiding in curbing inflation in the US.
Matt Shoemaker, a former Defense Intelligence Agency officer and Congressional candidate, suggested that the US need not be overly concerned about the rising costs of Chinese-made products. He pointed out that the US-Mexico-Canada free trade agreement, which succeeded NAFTA, has encouraged companies that had previously outsourced their operations, including those in China, to return to North America. This trend indicates a shift from a globalized manufacturing system to one more centered around regional consolidation in the Western hemisphere.
However, Shoemaker cautioned that there could be some secondary effects. He predicted that the Chinese economic contraction might accelerate the departure of foreign companies from China. Given the current US political climate’s hostility toward expanding economic ties with China, a contracting Chinese economy could discourage collaboration with the country.
In terms of debt, China’s situation is concerning, with its debts amounting to a staggering 297.2 percent of its GDP at the end of the previous year. This ratio is three times the size of its annual economy. The US, though slightly behind, also faces significant debt challenges, with a debt-to-GDP ratio of 255.7 percent. The US expends approximately $1 trillion each year to cover the interest on its $13.5 trillion debt.
Recent debates over raising the US’s $31.4 trillion debt ceiling have underscored the tensions between Democrats and Republicans. Despite the disagreements, a consensus was eventually reached to increase the debt ceiling and allocate additional funds. Notably, measures like the Inflation Reduction Act have been introduced to address inflationary concerns.
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In summary, China’s economy is teetering on the brink of collapse due to a convergence of factors, including post-Covid economic struggles and a significant property crisis. While the US is relatively shielded from the immediate impacts, there are concerns about the potential ramifications for American businesses and trade. The evolving economic landscape, characterized by shifting trade agreements and regional consolidation, could reshape global economic dynamics in the coming years.