China's Economic Contraction Threatens Global Influence
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China's economy is shrinking rapidly, ending decades of robust growth and threatening the country's global influence. This is evidenced by worsening deflation, anemic consumer demand, and debt problems.
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Deflation is highly alarming as it can zap economic growth for years. China risks falling into a deflationary trap like Japan's "lost decades". Debt deflation also makes repayment increasingly difficult.
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Beijing has so far refused to enact aggressive stimulus policies to boost demand and counter deflation, unlike Western economies during COVID-19. This may be due to fiscal limitations or ideological reasons under Xi Jinping.
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The economic downturn is shrinking the space for pluralistic voices and private enterprise in China under Xi's centralized leadership. Arts, intellectual life, individual expression, and business are all being curtailed.
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While China's global ambition may diminish, it will still selectively invest in the military and strategic industries. And Beijing will defend its economic advantages more fiercely as its stature shrinks.