The Chinese financial system is slowing down. It could make it harmful.

The Chinese financial system is in trouble. The juggernaut that, when deemed safe for international dominance, slows down – and not just in the short term.

The projected development of China’s financial system this year has slowed to around 3%, missing the federal government’s target of 5.5% by an embarrassingly huge margin.

After a long period of runaway enlargement, this will be the second worst performance in more than 40 years. Only 2020, with its COVID-induced recession, has been worse.

Unemployment among young employees has risen to 20%. Gasoline prices are rising due to the Russian conflict in Ukraine. The overbuilt housing industry wavers. And President Xi Jinping’s draconian ‘COVID Zero’ lockdowns have taken their toll, most not so long ago in Very technological Chengdu (21 million inhabitants).

Remember when people worried about China overtaking the United States to claim the title of the world’s largest financial system? This date has been postponed to 2033 or later, and some economists advise that it does not happen under any circumstances.

Some of these problems could also be short-lived, pushed by a slowing international financial system and Xi’s refusal to import international COVID vaccines.

But China also faces long-term challenges that won’t go away, starting with accelerating population decline.

The United Nations tasks that China’s population will decline by around 40% by the end of the century, from 1.4 billion to just around 800 million. Some demographers say the decline could be more pronounced; both methods, India will quickly take over as No.1.

Population decline stems from a low birth rate, which also means that China’s people are aging and its workforce is shrinking. By 2050, more than a quarter of the population will be over 65, according to Australia’s Lowy Institute. Lowy therefore expects China’s development costs to slow to a median of less than 3% over the next three years.

China watchers agree on these grim predictions. They disagree, however, on what this means for the future of the nation and for the coverage of the United States. How does a rising superpower react when the foundations of its power seem to be eroding?

Two students in international coverage, Hal Manufacturers of Johns Hopkins and Michael Beckley of Tufts, presented a discouraging thesis: Chinese leaders know their energy is about to dwindle, making them more inclined to take short-term risks. – to invade Taiwan, for example.

China is “losing confidence that it is on its side,” they write in a recent book, “Hazard Zone: The Coming Battle With China.”

“China could have strong incentives to lobby against its neighbors… even likely to come into conflict with the United States,” they warn. The “second most dangerous risk”, they advise, is that of this decade: the 2020s.

A refrain from different Chinese students disagree.

First, they say, there is no evidence that Xi or other leaders consider their energy to be waning; they begin to predict the rise of China and the decline of the West.

Even when China’s financial system slows, it’s likely to grow – still the second largest in the world.

“Nations can tangle with a lot of mediocre economies and still put serious pressure on world politics,” said Princeton’s Aaron L. Friedberg, author of “Getting China Flawed.”

Moreover, Xi and other Chinese leaders have a way to solve their financial problem, he argued. “They see advances in expertise as the most important thing to solving all their problems,” he informed me. “This is how they plan to achieve increased productivity and quite excessive financial development.”

“We now need to do more…to slow China’s technological growth,” he said, starting with tighter controls on the export of American and Western skills to Beijing.

A rosier situation, Friedberg and others famous, is that a slowing economy will prompt Chinese leaders to spend less on the military and more on improving the lives of Chinese people.

“We should never assume that a weaker China might be aggressive,” said Bonnie S. Glaser of the German Marshall Fund. “China can swing inwards. Perhaps China is not as committed to unification with Taiwan as to domestic stability.

So the 21st century is probably not the Chinese language anyway. China’s rise to international energy is neither inevitable nor predestined.

However, even an aging China with a slowly growing financial system could be a strong industrial, technological and military competitor. At least until the end of Xi’s third season in 2027, its leaders will still be formidable, still determined to absorb Taiwan, still determined to supplant the United States as the dominant power in Asia.

China’s problem is changing shape, but it is not going away.


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Don F. Davis