China has apparently told its economists to stop talking — a P.R. tourniquet to keep the bad news from bleeding out. The country is facing deflation and possible recession, burdened by enormous debt, stalling productivity and youth unemployment above 20 percent. Outside of a small number of its wealthy cities, things look even worse. Foreign investment is collapsing, growth projections are being revised downward, and a much anticipated postpandemic recovery has failed to materialize.
The long-term forecasts are, if anything, even more grim. A few years ago, most economic commentators believed they were watching the rise of an imperial behemoth, perhaps even the arrival of a Chinese century. These days, it’s more common to hear about population decline, about how China’s per capita G.D.P. will never surpass that of the United States and indeed about the possibility that, for all China’s size and power, its economy may ultimately go the way of Japan, whose rapid growth terrified Americans before flatlining into several “lost” decades.
In the United States, where policymakers and a growing share of the public seem preoccupied with a “new Cold War,” China’s slump has been seen largely in terms of geopolitical rivalry. For some, the news has come as a relief, with lingering questions about what it means for American pocketbooks. Others are more on edge, wondering about the Chinese response and worrying about the security consequences — what it means for a restless power to wrestle with domestic discontent. “China was growing at 8 percent a year to maintain growth, now close to 2 percent a year,” President Biden said in early August, connecting the dots in his inimitable way. “That’s not good, because when bad folks have problems, they do bad things.”
But even without any intensifying conflict, the prospect of a zombie Chinese economy raises another question as well: What happens to the rest of the world if China sputters and more permanently stagnates?
This is not a trivial matter. To an extent that few Americans genuinely appreciate, global growth has been powered by the so-called Chinese miracle for almost half a century now. According to World Bank data, between 2008 and 2021 — as the world’s per capita G.D.P. grew by 30 percent and China’s by 263 percent — China accounted for more than 40 percent of all global growth. If you excluded China from the data, global G.D.P. over that period would have grown not by 51 percent but by 33 percent, and per capita growth would shrink to 12 percent from 30 percent. In other words, recovery from the Great Recession was so robust in China that alone it nearly tripled per capita growth worldwide in those years. And that wasn’t even the most impressive period. In 1992, China’s G.D.P. grew by 14.2 percent; in 2007, it reached the same peak; in the 15 years since, it has averaged barely half that.
Chinese statistics are notoriously unreliable, and averages can obscure and flatten quite a bit, but the effect of China’s rise is even more remarkable at the lower end of the income spectrum, where 800 million Chinese were lifted out of global poverty in recent decades. In fact, as David Oks and Henry Williams noted in a perceptive 2022 essay tracing a distressing slowdown in global development, the gains of the last four decades weren’t really global at all, but Chinese. By their calculations, China was responsible for roughly 45 percent of the total reduction in the global measure of “extreme poverty” since 1981, with an even greater impact in the less extreme cohorts: Nearly 60 percent of people worldwide who rose above the $5 a day mark and 70 percent who rose above the $10 a day mark were Chinese.
Of course, you can’t just cut China out of economic history and treat what remains as a natural counterfactual; this is what globalization means, that the economic arc of one country is inextricably tied up with the economic fate of many others. But globalization also means you can’t reduce China’s contribution to the global economy over those years to the matter of its own G.D.P. — because through its boom China reshaped the world’s markets, becoming a natural commercial and financial hub, infrastructure leader, universal trade partner and demand sponge, soaking up much of what Asia and the world as a whole had to offer up or make. And while some thriving countries have succeeded by replicating China’s pattern of development powered by manufacturing and urbanization, others have been growing as natural resource exporters serving the Chinese boom and surfing what is called the global commodity supercycle that it produced. In feeding that sponge, some nations have deindustrialized prematurely along the way, leaving them less well equipped to navigate the new landscape on their own. According to Ricardo Hausmann of the Harvard Kennedy School, since 1970, only 20 percent of countries have narrowed their income gap with the United States; the other 80 percent have not.
And while some forecasters have been eager to anoint India as the world’s next China, there are many problems with that simple analogy. As Tim Sahay recently detailed in Foreign Policy, India’s manufacturing sector has in fact shrunk in recent years, with agricultural labor actually growing, and private investment is a smaller share of G.D.P. than it was a decade ago; under Prime Minister Narendra Modi, the country is utterly failing to deliver basic “health before wealth” building blocks necessary for the country to move up the world’s economic ladder more rapidly.
So where does that leave the future? Quite likely not somewhere great, even if the world’s great powers manage to avoid direct conflict.
Ten years ago, when the economist Robert J. Gordon wondered about the end of growth and the former Treasury secretary Lawrence Summers invoked “secular stagnation,” they were mainly focused on the American trajectory — making sense of U.S. post-crash malaise. The country’s very strong Covid recovery has somewhat inverted those narratives, making the sluggish growth of the previous decade look less like a stubborn condition and more like a policy choice.
But at a global level, growth has been slowing now for decades. In the years from 1962 to 1973, according to the World Bank, global G.D.P. growth averaged 5.4 percent. From 1977 to 1988, it averaged 3.3 percent. From 1991 to 2000 — a decade Americans remember as boom years, though they were much boomier for the Chinese — it averaged 3 percent. In the aftermath of the Great Recession, it has grown even more slowly.
Which all suggests one possible near-term future: more of the same, since Chinese growth has been cooling for some time now. Another possibility is a sort of inverted “China shock,” in which, rather than a Chinese manufacturing boom devastating legacy industrial sectors in places like the American Midwest, a slowdown in one country simply dampens prospects everywhere — with the biggest impacts to economies in East Asia and Southeast Asia that are closely tied to China.
That future is not inevitable, in part because China is already scrambling to troubleshoot its woes; in part because China remains more of a manufacturing producer than a consumer, leaving the world as a whole a bit less vulnerable to fluctuations in Chinese demand; and in part because the United States and to a lesser degree Europe have moved past reflexive austerity policies toward something that might give them a bit more flexibility in navigating choppy waters.
But it’s also because much of the economic fate of the next few decades hangs on the speed and scale of the world’s green transition, whose shape is not yet known. That is how large the project is — potentially a new industrial revolution, rapid and global, remaking and reimagining not just energy but infrastructure and transportation and industry and agriculture.
The Chinese advantage in green technology is large, too. The country has installed nearly half of the world’s wind power capacity in recent years, and last year it installed nearly half of new solar capacity; it also is now the world’s largest exporter of electric vehicles. Even in the midst of a Chinese slowdown, the country’s green sectors could still find themselves thriving in a green new world — perhaps to the detriment of the German auto industry and America’s dreams of becoming a domestic renewable powerhouse. (This would be something more like the first China shock.)
But the big question remains an open one: If the energy transition now represents the world’s most obvious investment opportunity, can a shift away from austerity in the developed world actually take the place, and do the job, of a 40-year Chinese boom? Can those on the periphery keep up with that spending spree? Will a green transition — even a miraculous one — be enough?
Further reading
Matthew C. Klein: “China is now growing slower than the U.S.”
In Foreign Affairs, Adam Posen on “the end of the Chinese economic miracle.” (And a response from Michael Pettis on X.)
Ho-Fung Hung on China’s “Zombie Economy” for New Left Review.
The Wall Street Journal’s Lingling Wei and Stella Yifan Xie on the end of the boom.
After a 40 percent drop in five years, China’s fertility rate has fallen 20 percent in two years.
The Economist on “China’s defeated youth.”
Noah Smith’s upbeat take on the Chinese slowdown.
David Oks and Henry Williams’ downbeat one on the global development stall-out.
In The Brooklyn Rail, Jamie Merchant on the global economic slowdown and the challenges facing neo-Keynesianism and “new” industrial policy.
