As prices rise in the United States, they are falling in China. “But this deflation has been accompanied by other signs of economic weakness,” JohnCassidy writes.
who wrote extensively about financial instability and debt crises. Using a combination of policy tools, including fiscal stimulus packages, low interest rates, and currency devaluation, the Chinese authorities managed to avoid a catastrophe after 2014. But, during the past few years, real-estate and household debt, in particular, have continued to climb sharply, prompting renewed fears of a financial crash.
Prasad, who was once the head of the China division at the International Monetary Fund, said that there would almost certainly be more cases of individual property developers going bust and banks getting into trouble. But he didn’t think that a systemic financial collapse was likely. “It’s a risk,” he said. “But, after having studied China for twenty-plus years, I’ve been constantly surprised by how they’ve managed to squirm out of very difficult situations.
Although the Chinese economy still has many strengths, including a strong scientific base, plentiful savings, and a large internal market, it is now too large—according to the I.M.F., China’s G.D.P. is approaching nineteen trillion dollars—to simply expand by relying on cheap labor and.
For the past three decades, the world has been coming to terms with China’s rapid economic rise, which has enabled hundreds of millions of people to escape extreme poverty, transformed global supply chains, and upended the global strategic balance. Going forward, the world may well have to adapt to something very different: a China slowly digging itself out of an economic hole.
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