China risks sending the global economy into a tailspin

Rising debt and President Xi’s ‘zero-Covid’ policy highlight the threats facing the world’s second-largest economy

A slow-motion financial meltdown in China risks sending the global economy into a tailspin. 

Warning lights have been flashing since the start of the year amid spiraling local government debt and a corporate sector still reeling from the Covid-19 pandemic.

But during the last eight months, the situation has rapidly deteriorated. Employment among the young has ballooned, consumer spending has dried up and the property sector has imploded.

Dramatic policy shifts by the “chairman of everything,” Xi Jinping, have inflicted further damage on the world’s second-largest economy, which is still locked in a high-stakes technology war with the United States.   

“One way or another, Chinese growth will slow sharply, and the way in which it does will have profound consequences for the country, the CCP [Chinese Communist Party], and the global economy,” Michael Pettis, of the Carnegie Endowment for International Peace, wrote in a commentary for Foreign Affairs.

Damage report: 

  • China’s economic miracle was decades in the making.
  • So is the debt mountain that now overshadows the country.
  • Unforeseen disasters such as the Covid-19 pandemic and Russia’s invasion of Ukraine have only exacerbated the problem.
  • Still, many are the results of bad policy decisions and a creaking healthcare system.
  • President Xi’s “zero-Covid” move is, in part, based on that.
  • A never-ending series of lockdowns across major cities have only widened the economic cracks.

China, as we knew it, is no more. And the new one is more dangerous than we’ve ever seen.

Insider Newsletter

Delve deeper: Splattered all over this mess are X’s fingerprints as the economy takes a back seat to ideology.

What was said: “China, as we knew it, is no more. And the new one is more dangerous than we’ve ever seen,” the Insider newsletter pointed out.

Gone baby gone: “The country with a fast-growing economy is gone, leaving behind a nation with withering wealth and an increasingly authoritarian government controlled by President Xi,” Insider said.

Between the lines: “China is witnessing a teetering property sector and an aging population, but these aren’t just local threats – they could have significant ramifications for the rest of the world,” it concluded.

China Factor comment: Released on Monday, China’s trade data resembled a car wreck as exports tanked and imports slowed. “Insufficient domestic demand is the main constraint on China’s long-term growth trajectory,” Bruce Pang, the chief economist at Jones Lang Lasalle, said as reported by the Reuters news agency.