Chinese economic collapse not happening

True, China's current annual rate of economic growth of about 5 percent is low compared with its growth from 1980 to 2010, when it averaged nearly 10 percent. Yet in relation to the rest of the world, especially compared with the major Western economies, China's 5 percent growth is more than impressive.

According to the International Monetary Fund's latest report, the economic growth rates of the United States, Germany and Japan are 2.7, 0.2 and 0.9, respectively. The average for the European Union is 0.7 percent and the G7 countries 1.5 percent. There are some very small economies which are growing faster than China (for example, Palau or Niger), but among large and medium-sized economies, only India (7 percent), the Philippines (6.2 percent) and Vietnam (5.8 percent) are growing at a faster rate than China.

Why the West wants to see China's collapse?

In spite of what a 5 percent economic growth means in the global context, it has become fashionable in the West to raise the alarm over China's economy. What are the reasons behind this?

In the first place, it might be sheer ignorance about the comparative and historical reality, as mentioned above, and the economic cycle that characterizes economies in which the market plays a major role, which is the case with China. There is plenty of evidence pertaining to economic upturns and downturns in the Western economies and those in the Global South, as evidenced from the data on GDP, employment and inflation.

Different from the Great Depression of the 1930s and the 2008 global financial crisis, there have been recurring milder financial upheavals, some lengthier and deeper than others. The best-informed minds have found explanations in overinvestment when demand is growing, for example, due to governments' expansionary policies, sharp increases in productivity and wages or technological revolutions, and the subsequent underutilization of capacity and shrinking of investment that takes place when demand returns to normal.

That does not signify a crisis, let alone a collapse. China may be going through one of those typical downturns of the economic cycle. China has plenty of accumulated knowledge about the fiscal and monetary demand management policies, which could be used to overcome the 5 percent growth rate sustainable in the new era. Beyond that, the Chinese authorities have always been very successful in clearing supply side bottlenecks.

Third plenum suggests how to meet challenges

The third plenary session of the 20th Central Committee of the Communist Party of China has suggested some measures to overcome those challenges.

However, Western enterprises' worries could be genuine because they fear their exports to China might shrink due to China's slowing economic growth rate. China is an important market for a range of products, from electronic slides to construction materials, building machinery, oil, coal, some metals, soybean, cereals and dairy products. As a result, the health of the Chinese economy could have a huge impact on the well-being of millions of people across the globe.

Overall, according to the IMF, if China's growth increases by an additional percentage point, it would add 0.3 percent to global economic growth. This means that if the Chinese economy were growing at its "usual rate" of 10 percent, the global economy's growth rate would be double that of the current rate of 3 percent. Indeed, the global economy would suffer immensely if either of these two mammoth economies (China and the US) were to fall into recession.

The other concern over China's economic slowdown might be deemed sincere if it stems from the fact that economic slowdown could lead to political instability. While China has been able to overcome political crises in the past, some in the West may argue that the social consequences of economic recession in other countries have endangered peace and development. When facing an internal upheaval, politicians are known to adopt nationalistic and aggressive foreign policies as a way to maintain social harmony.

Zero-sum games lead to wrong measures

Moreover, all those "worries" over and forecasts about China's economic crisis might just be wishful thinking. For those in the West who believe in zero-sum games, the worse the Chinese economy fares the better for them. That's why under the wrong assumption that if China becomes poorer their countries would become richer, protectionist-mercantilist strategies are at the core of the trade policy of the United States and the European Union toward China. Impoverishing China is their goal, and their thinking is based on that. No wonder they claim the Chinese economy is in a deep crisis.

Sure, China needs to make strong decisions to boost its economic growth and overcome some specific problems (that is, unsold housing). But it has three substantive advantages in doing so.

First, China has adopted a pragmatic, result-oriented, non-ideological approach to governance. The Chinese leadership has no qualms in allowing the market to play a leading role in the allocation of resources and private businesses to thrive while taking measures to fix things if and when necessary.

Thanks to its approach, China can implement any measure available in the policy toolkit, be it macroeconomic or microeconomic, to address demand side and/or supply side problems. As such, many of the controversies that arise because of ideological posturing, typical to Western countries and most of the Global South, do not obstruct policy decisions and execution in China.

Second, the rate of savings (43 percent of GDP) in China, much higher than in any other economy in the world, gives the country a substantive advantage in increasing consumption, without posing any danger to the macroeconomic equilibrium and financial stability. The Chinese government could increase consumption by offering fiscal incentives or interest rate subsidies. If China chooses this path, it could increase investment, employment and GDP growth while improving people's wellbeing.

And third, China's development momentum cannot be stopped by fiat. It is the result of decades of high-quality education with emphasis on STEM(science, technology, engineering and mathematics), huge investments in R&D and infrastructure, and adoption of highly productive technologies and clean energy. On the other hand, since protectionism is also opposed by many economists and business leaders in the West as well as multilateral companies, the current protectionist policies of some Western economies might not last long, which would further boost China's growth.

Therefore, China's slowing growth rate does not mean its economy has gone into recession. In fact, a mixture of ignorance, sincere concern and wishful thinking might be behind the alarm over the Chinese economy's slowing growth rate. In any event, with some measures, some of them strong, China can improve its growth rate and realize low-carbon development.

The author is a professor at Instituto Empresarial University in Spain, a senior fellow at the Beijing Club for International Dialogue and was special adviser to the president of Costa Rica from 2018 to 2022. The views don't necessarily represent those of China Daily.

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