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China Is Weaker Than You Think

Over the past few months, the conventional picture of China’s meteoric rise to economic dominance has been cast into serious doubt. Numerous economic indicators are pointing toward a significant slowdown. In the past month alone, manufacturing has hit a nine-month low, steel prices have fallen dramatically, and investors have begun pulling their money out of the country.

Yet while many analysts continue to see this as a minor blip on an otherwise upward trajectory, Minxin Pei, one of the most insightful China watchers, isn’t so sure. In a new piece at Foreign Policy, Pei argues that the recent troubles are signs of much more serious underlying problems that threaten the nation to its very core. Like the Soviet Union and Japan before it, China may be in for a long and painful fall:

The current economic slowdown in Beijing is neither cyclical nor the result of weak external demand for Chinese goods. China’s economic ills are far more deeply rooted: an overbearing state squandering capital and squeezing out the private sector, systemic inefficiency and lack of innovation, a rapacious ruling elite interested solely in self-enrichment and the perpetuation of its privileges, a woefully underdeveloped financial sector, and mounting ecological and demographic pressures. Yet even for those who follow China, the prevailing wisdom is that though China has entered a rough patch, its fundamentals remain strong.

Read the whole thing.

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  • Anthony

    “The disconnect between the brewing troubles in China and the seemingly unshakable perception of Chinese strength persists even though the U.S. media accurately cover China, in particular the country’s inner fragilities.” WRM, what domestic media is Minxin Pei celebrating? Also, Pei may be engaging in more hopeful thinking than objective analysis but imponderables defy prediction.

  • Jacksonian Libertarian

    I have been saying for some time that China is headed for a crash. The US strategy all along has been to create a middle class in China (200-300 million people) that only Democracy, Free Markets, and the Rule of Law can keep from revolting. At the same time I think we should use the opportunity the Chinese Communists territorial belligerence has presented, to bring China’s neighbors into close trade and military alliance with America.

  • Jim.

    So, we’ve poured hundreds of billions into China, and instead of China turning around and buying our products in retun, or even using it to bankroll enterprises that would benefit the Chinese generally, they build brand-new ghost towns and shoddy infrastructure.

    The world is going to regret this misallocation of capital… yet another, in a world economy that’s already trying to work its way through other misallocations. (It doesn’t help that deliberate misallocations, in the form of Keynesianism and expanded entitlement spending, are considered “solutions” by those currently in power.)

  • Eurydice

    Isn’t it possible that China was never as strong as we thought?

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