US isn’t solely to blame for China’s economic slowdown, argues scholar

Posted on : 2023-06-23 16:17 KST Modified on : 2023-06-23 16:17 KST
A slowdown in private domestic investment is also at fault for the slowing of China’s economic growth, argues Nicholas Lardy
Nicolas Lardy, senior fellow at the Peterson Institute for International Economics. (courtesy of the PIIE)
Nicolas Lardy, senior fellow at the Peterson Institute for International Economics. (courtesy of the PIIE)

While domestic private investment powered growth for the Chinese economy for the past dozens of years, private investment stopped growing last year and even decreased slightly this year, becoming a major factor in slowing down China’s economic growth recently, an expert diagnosed.

Speaking at a webinar titled “The Future of US-China Decoupling amid Weakening Chinese Economic Prospects,” hosted by the Institute for Global Economics on Thursday, Nicholas Lardy, a senior fellow at the Peterson Institute for International Economics, argued that stronger US economic sanctions weren’t the only factor in the Chinese economy’s slower-than-expected recovery despite reopening. Rather, China’s private sector, which led the rapid growth of the domestic economy during the past 30 years, has lost its power due to political regulations by Chinese authorities, he argued.

Adding that private sector investments have steadily decreased as a result of Chinese President Xi Jinping consistently strengthening regulations while espousing qualitative development rather than economic growth in recent years, Lardy went on that private sector investments “rapidly weakened starting with the beginning of last year,” which he said was “in contrast with how Chinese government-led investments increased by 10% last year.”

According to the Bank of Korea, private investments in China (fixed asset investments like investments in manufacturing, infrastructure, and real estate development) increased by 0.9% last year compared to the year before, the figure for January through May this year dropping by 0.1 percentage points compared to the figure for the same time period last year. The slump in private investments in China has been pointed out as the biggest reason Korean exporters weren’t able to reap the benefit of reopening the Chinese market in the first half of this year.

Lardy also projected that while China still has the potential to achieve 6% to 7% of growth per year for the next 10 years, its growth will languish at 3% to 4% per year for the next four to five years if negative conditions persist domestically and abroad.

Regarding US State Secretary Antony Blinken’s recent visit to China, as well as his successive meetings with Chinese leaders, Lardy said, “The tense relationship between the two countries essentially remains the same,” estimating that although there are signs that high-ranking US officials like Jake Sullivan are softening their statements regarding China, using terms like “de-risking” instead of “decoupling,” the US government’s policy of restricting domestic companies from exporting cutting-edge technologies like semiconductors, supercomputers, artificial intelligence, and biotech to China will fundamentally remain unchanged and will even be strengthened.

He added that the number of companies listed on the US government’s regulatory list for Chinese corporations has increased from roughly 400 to over 700 during the Biden administration.

In response to a comment on the rise of India as an alternative to the Chinese market, Lardy said that because the biggest reason major global corporations do business in China is the country’s vast domestic market and supply chain, while companies may be able to diversify their production base, they won’t be able to completely withdraw from China and look for other alternatives. In other words, the base for manufacturing in India is still small, and the country doesn’t have a supply chain that can substitute that of China.

By Cho Kye-wan, staff reporter

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