China’s economy is coming to a dramatic halt. Professionals in the field expect this trend to continue for at least the next 10 years and possibly even further out. The second is that China’s economic growth is slowing down relative to the United States and other major global markets. Analysts point to several major causes for this trend, including persistent deflation and a depreciating yen. These interlocking dynamics are rapidly upending the long-standing geography of global economic power, spelling doom for what had been China’s unquestioned hegemonic advance.
Perhaps the starkest indicator of the depth and breadth of the economic decline is China’s shrinking stature compared to its global peers. Recent reports highlight that the official GDP deflator for China has been negative for 11 consecutive quarters, reflecting persistent deflationary pressures. Indeed, the renminbi has been on a depreciating trend against the dollar over the last several years, further complicating internationalization. Consequently, China’s economic position has eroded even more in terms of calculation at market exchange rates.
In short though, even with these headwinds, actual growth in China is stronger than the world average. Many analysts expect the economy to become more long-term oriented. It will better reflect the growth rates that are more common among developed economies. China’s slowdown — which many expect will be permanent — will make it harder for Beijing to wield economic clout going forward. Booming increase in output share as well as the beginning of a new era.
Factors Driving China’s Economic Decline
Several key reasons underlie the long-term economic deceleration in China. The role of a weak currency paired with continued deflation is key here. Mark Williams, chief Asia economist at Capital Economics, emphasized that “a weak currency and sustained deflation mean that China’s economy is on course to shrink as a share of the global economy for a fourth consecutive year, when measured at market exchange rates.”
Therefore the renminbi’s depreciation has made Chinese exports more expensive to the US and Chinese imports cheaper, which has the side effect of discouraging domestic consumption. As millions of Chinese residents are discovering, it’s a challenge to overcome. Yet even though their quality of life has greatly increased relative to their U.S. counterparts. Beyond that, the difference in growth rates between China and every other developed country marks a dramatic turn in economic tides.
In fact, many experts believe that the age in which China’s share of global output is exploding upward is over. China’s economic headwinds are severe. Consequently, its power over global markets might diminish, opening the door to discussions about what it’s growing to be—with respect to America’s long-held command over international trade and investment.
Implications for Global Economic Power
There are far-reaching implications of China’s economic slowdown. A slowing Chinese economy will mean lower demand for both raw materials and manufactured goods. This plan would be profound for those countries that already heavily rely on trade with China. As the world’s second largest economy and one of its largest importers, this change risks sending shockwaves throughout global sectors.
China will still be faced with economic headwinds. Other economies can take advantage of the opportunity to grow their digest market share. The United States stands to reap enormous benefits from reshoring initiatives. As a result, companies like Intel, Volkswagen, and Tyson are all scrambling to diversify their supply chains out of China. This strategic move would be a major boon to U.S. manufacturing and help U.S. economic competitiveness in an increasingly competitive world.
Uncertainty about future investments in technology and infrastructure looms, due to the projected decline in China’s economic growth. A less robust Chinese economy may result in decreased funding for international projects and partnerships aimed at expanding its influence abroad.
