China won’t overtake US as world’s biggest economy anytime soon

Aug 21, 2023, 1:39pm EDT
Xi Jinping
REUTERS/Florence Lo/Pool/File Photo
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China’s slowing economy is spooking economists worldwide, with investors unsure exactly how much a downturn will ripple through the global economy. Experts are also revising predictions over when China is projected to overtake the U.S. as the world’s biggest economy.

The concerns are largely fueled by the liquidity crisis in China’s real estate sector, with some of the country’s largest developers facing bankruptcy and failing to make payments to investors. But it’s not just real estate that is sparking a slump.

Joe Biden and Xi Jinping are running their economies hot and cold respectively.1 Where Biden is spending trillions to stimulate the economy, Xi wants to break China's addiction to fueling growth through speculative real estate projects that have dominated his country's economy. Instead, Xi is focusing on the “new economy” — hi-tech and green growth projects like electric vehicles and solar and wind power — in his ambitions to transform China into a global hub for these sectors. The problem is, Bloomberg economists say, that these new growth sectors won't compensate for the drag of the real estate slump.

Xi worries that "empowering individuals to make more decisions over how they spend their money could undermine state authority,"2 the Wall Street Journal's Lingling Wei and Stella Yifan Xie write. That's why Beijing has refused to enact stimulus packages to boost consumer demand and spending. Top party leaders "remain suspicious of U.S.-style consumption" and believe that money is better invested in industrial capabilities and preparing for a potential military standoff with the West.

"A declining China might be more dangerous than a rising China,"3 writes military historian Max Boot. An economic slump could prompt Xi to pursue more nationalistic and militaristic ambitions in order to contain domestic discontent. Boot compares China to Germany before both world wars where the public was pessimistic about an impending economic decline, and to Russia that faced a similar demographic crisis before invading Ukraine "in the hope of reclaiming lost imperial glory."