This isn’t the same China that greeted Donald Trump after his first win in 2016. The economy, once widely believed on a course to knock the US off its perch as the preeminent commercial power, has since revealed some acute vulnerabilities that don’t seem to be going away. And the president-elect seems to be gearing up for a trade war he no longer needs to fight.
Eight years on from the first Trump shock, the global picture is quite different. There’s no longer envy of China, nor the belief in some secret sauce that made its performance superior. America is the contemporary star. Forecasts from the International Monetary Fund, released weeks before the election, showed a stronger outlook for the US. The projection for China was trimmed. Despite the dim view of growth and inflation that Trump propagated during the campaign, American leadership of the global economy is alive and well.
Beijing released some jarring statistics late last week: Foreign companies pulled out more money, the trade surplus has soared, and inflation is stuck worryingly close to zero. All point to anemic domestic demand. This isn’t just a round of numbers that show stimulus is warranted; that kind of data has been around for a while, and officials have announced some efforts to juice growth. If the decline in investment continues, though,it will show the first annual FDI outflow since at least 1990. That was the year after the army crushed protests in Tiananmen Square, turning the nation into a pariah — for a while. It would be another decade before Washington greased China’s entry into the World Trade Organization, a development that turbocharged the expansion.
As that rapid growth has dissipated, China is now selling vastly more to the rest of the world than it buys. The surfeit is on track to reach almost $1 trillion this year, according to Bloomberg calculations. In the first 10 months of 2024, exports outpaced imports by the most on record. For about two decades, Western finance ministers have urged China to rebalance its economy by relying less on shipping goods abroad and focusing more on home-grown demand. Beijing was sympathetic, too. But a crisis in the real estate industry — several key developers have failed — has eroded appetite among consumers even after some of the world’s harshest Covid restraints were lifted. This malaise was aggravated by President Xi Jinping’s efforts to rein in local businesses ranging from ride-hailing services to gamers and education companies.
China is far from washed up; all big economies go through periodic downturns. The sense of exceptionalism, though, has been dealt a blow. In 2016, gross domestic product increased by almost 7%. Yes, it was slowing, but from a stratospheric level. Growth this year will struggle to meet the official target of 5%. Pessimism surrounds its economy, despite the recent rollout of stimulus and a vow of more to come. Trump loves tariffs and has pledged more of them. That’s an additional headache China doesn’t need.
