Chitchat Will China implode in 2017?

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An honorable member of the Coffee Shop Has Just Posted the Following:

China’s plans to lead the global economy are being foiled by… China

America’s traditional stewardship of the global economy is in limbo. As president-elect Donald Trump sees it, the United States’ role in the world isn’t necessarily to lead it. Sure, the US will still engage with other countries—but only in line with Trump’s guiding principle of “America First.”

History warns that when the leader of the global order withdraws as Trump is suggesting, disaster follows. As economic historian Charles Kindleberger argued long ago, the Great Depression was “so wide, so deep, and so long because the international economic system was rendered unstable by British inability and United States unwillingness to assume responsibility for stabilizing it.”

The US eventually stepped up, leading the global economy through decades of brisk growth. And now China is signaling that it’s keen to move into any vacuum that America might leave. China is already a regional superpower; since Trump’s victory China president Xi Jinping has positioned his country as a champion of global free trade.

But closer examination of China’s finances suggests that any ambitions to assume a US-like stabilizing role in the global economy will be harder to fulfill than its leaders—and indeed most people—realize.

The core problem for China lies with how it differs now from the economy of the US during the mid-20th century. It’s similar in running enormous trade surpluses, the flip-side of which means lending its extra earnings through foreign investment. But whereas American investment benefited the world economy, on balance, China’s pattern of investment has eroded global demand—hurting in particular those countries to which it lends. Its precarious growth strategy has also burdened China’s banking system with debt now worth an alarming 250% of its GDP.

Through global interconnections, China shares its dangerous imbalances with the world—a quandary that illustrates exactly why rules of trade and capital flows should be rewritten. But in an era in which Chinese mercantilism has whipped up Trump protectionism, that hope grows increasingly dim.


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