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Opinion | China’s economic slowdown could work in its favour
- The impact of ‘decoupling’ is probably overstated, and supply-side structural reforms have improved domestic resilience
- The economy’s current status has made rebalancing possible and also created a sense of urgency that could benefit the country
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Why you can trust SCMP
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The narrative that China’s economy is nearing its peak – or has already reached it – has taken hold in Western media. But if you read the doomsayers’ analyses carefully, you will find that many of the reasons they give for their bleak assessments are not new.
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On the contrary, they tend to highlight precisely the same challenges that economists and commentators have been harping on for at least a decade or longer. If China was not sputtering then, why should we believe it is now?
To be sure, the global context has changed. Perhaps most important, the prevailing narrative about China has turned largely negative, and the West is now far more hostile towards it than it was 10 or even five years ago. With the United States working harder than ever to contain China, direct Chinese exports to the US have fallen.
Even so, the “decoupling” of the world’s two largest economies is probably overstated. A recent study by University of California San Diego economist Caroline Freund and her colleagues shows that the US and China are indeed reducing their engagement in some areas. For example, US import growth from China lagged well behind US import growth from other countries for products subject to US tariffs.
But the same study also found that US and Chinese supply chains remain deeply intertwined, especially for “strategic products”. Moreover, the countries from which US imports are growing are often deeply – and increasingly – embedded in Chinese supply chains. In fact, countries seeking to displace China in US supply chains have been increasing their own imports from China, especially in strategic industries.
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At the same time, global firms appear to be pursuing a “China+1” strategy, investing in other countries in addition to – but not instead of – China. Chinese companies, for their part, have increased their foreign direct investment in recent years and deployed their own production chains far beyond China’s borders, especially to countries that can avoid punitive US tariffs. This trend is likely to persist.
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