An article by: Dušan Proroković

After attacks against Russia, China came to the agenda. In the previous two years, there were frequent forecasts that the Russian economy was collapsing. That Russia cannot cope with Western sanctions and numerous restrictions. And not only that, according to those same comments, Russia should have been defeated militarily at least twice by now. The first time was in the summer of 2022, when it was predicted that they would run out of ammunition, and the second time was a year later, when the undoubted success of the famous Ukrainian counter-offensive was announced.

The “genocide” against the Uyghurs at the center of propaganda campaign against China

A propaganda campaign was also conducted against China, which peaked at the time of the 2022 Winter Olympics. The frequency of mentions of the “genocide” against the Uyghurs in the Western media increased drastically at that time. From those political topics, we now move on to economic ones. That fierce turbulence awaits the Chinese economy, followed by social discontent and political instability. There are also predictions that China’s economy is headed for a crash similar to that experienced by Malaysia and Thailand.

Propaganda is one thing, reality is another. Also, economic trends are difficult to observe without broader contextualization. Foreign policy and geopolitics must also be monitored. Yes, China’s economy is facing many problems. But it is not an exception. The whole world is in crisis, economic hardships are of a global character. Despite numerous statements and optimistic announcements by politicians, there is no growth in the global economy. Even when statistics detect low rates of global growth, fundamentally in a political sense it means absolutely nothing. There are no long-term solutions, it boils down to that famous story about calculating the square of a circle. Raising interest rates on credit borrowings is a cure for galloping inflation, but at the same time it slows down economic dynamics. There is no economic growth without “credit injections”, and if interest rates are high, then the volume of borrowing decreases. With the reduction of credit rates, the volume of borrowing increases and induces economic growth, but it also causes inflation, which leads to a sharp drop in the living standards of citizens. It seems like we’re going around in circles.

The world’s two largest economies, China’s and America’s, have the most influence on this process. Those two economies are mostly wondering about possible solutions. However, in principle, the difference in the problems they face is great. Because economic problems can be cyclical or systemic. Cyclical, which Nikolai Kondratiev described a long time ago, are bad and dangerous. Systemic ones, which are original in origin and development in different historical stages, are even worse and completely destructive. When systemic problems arise, then an economy really falls apart, and depending on its size and importance for global processes, they can also cause fierce wars. Is the world facing it yet?

It is necessary to design a new model for the Chinese Economy

The problems of the Chinese economy are cyclical, they are part of a historical process that inevitably occurs, despite all attempts to prevent such a development. One economic model has been used up and it is necessary to design a new one. They last a decade and a half and are marked by a decline in productivity. China’s economy is growing in size, but not because of productivity growth but for other reasons. That trend is coupled with the very unpleasant fact of a reduced influx of labor (decades-long implementation of the one-child policy has left consequences). Some Chinese experts are already talking about the “Japanification” of the domestic economy. Pandemic and post-pandemic times have brought new challenges. Basically, China’s export-oriented economy took a big hit during the pandemic. The restoration of production and distribution chains in the post-pandemic period is taking place slowly and is limited by a whole series of restrictions that American institutions establish against certain Chinese producers. This slowdown is also affected by the disruption of global and/or regional security in different parts of the world. The last in the series are the events in the Red Sea. Attacks by members of the Ansar Allah movement on civilian ships and the subsequent US-British bombing of Yemen prevent trade through the route, which is tied to a seventh of the world’s maritime trade, almost a tenth of the world’s grain trade, a ninth of the oil trade carried by tankers and close to a third of container transport. The previous connection of Chinese manufacturers with customers in Europe and the wider Mediterranean area is questionable. The Chinese economy accounts for close to a fifth of the global GDP, but at the same time China accounts for as much as 31% of global production and 32% of global investments, so events concerning the escalation of regional crises and disruption of regional security are affecting very much its dynamics. China’s industrial potential is greater than the combined potential of the USA, Germany and Japan.

Statistically speaking, China’s economic dynamics is still respectable, GDP growth in 2023 was over 5%, but now it is questionable how to continue that trend in the current circumstances!? After all, the previous difficulties were reflected in the increase of internal indebtedness in China itself, the decrease in the volume of foreign investments (compared to the previous year in 2023, it amounted to about 10%), the decrease in the efficiency of local self-governments, which find it increasingly difficult to “fill” their budgets and implement ambitious projects so far and stagnation of consumption (despite the fact that the Chinese economy accounts for about a fifth of the global economy, China accounts for about 13% of global consumption) which was reflected in the real estate market. By the way, it should be said that certain anomalies were observed in the real estate market even before the pandemic, and that there were warnings that sooner or later a case like the fate of the Evergrande company must happen.

The make the Chinese economy run it is necessary to encourage the growth of domestic consumption

The Chinese leadership took steps to cushion the effect of adversity, and preserve the existing trend of economic dynamics, and in that context promoted the “dual circulation” policy. China will continue its involvement in global trade and finance (as a manufacturing superpower, China is content when global demand is growing, therefore we should expect new Chinese investments wherever it is politically possible), but also encourage the growth of domestic consumption, while insisting on technological self-sufficiency and innovations. Does China have the potential to make this happen? Certainly, it would be pretentious to make bold forecasts in conditions of global instability and frequent outbreaks of unexpected events. However, it can be assumed that the potential exists.

On the one hand, for further engagement in global trade and finance, China can rely on the BRICS platform. The share of the yuan in global trade is growing surprisingly fast, and with the expansion of BRICS and the establishment of an international reserve currency, this can be further intensified. The yuan became the most traded currency on the Moscow Stock Exchange, with Saudi Arabia the new agreement on the purchase of oil in local currency began to be implemented (the first line is worth 50 billion yuan or about 7 billion dollars), Brazil’s foreign exchange reserves in yuan reached a level of close to 6% although until half a decade ago it amounted to – zero! Building one’s own system that is an alternative to SWIFT and establishing a new international currency that will be an alternative to the US dollar is a slow process, but due to the size of the Chinese economy and the strategic importance of the agreement within BRICS, it is also a process with a certain chance of success. In addition, the BRICS, from a purely economic project, has become a platform for the (re)globalization of the world. The political importance of this project has increased and this can be used to further increase Chinese influence.

On the other hand, in the Chinese domestic market there are already close to half a billion consumers who can be classified in the middle class and who can induce consumption growth. The Chinese automobile industry (production of electric cars) has already shown that the domestic economy is moving towards technological self-sufficiency, and the IT sector that innovations are relatively quickly developed and put into practice. On this front, a lot depends on the commercialization of Chinese innovations in the IT sector. In 2023, the US Department of Commerce launched an investigation into the features of the new Huawei phone model (Mate Pro 60) because this device contains 7 nanometer chips with 5G technology!

The revelation that these chips were manufactured in Shanghai’s SMIC completely shocked the Americans. It was a bigger shock to them than learning that Russia had overcome sanctions and expanded production of ballistic missiles, since the original (intelligence) assessment was that the Chinese would not be able to produce such a component before 2030. At the same time, it turned out that Chinese manufacturers have jumped over another important obstacle, catching up with their German colleagues in engine production. Namely, in 2017, a contract was signed with Thailand on the sale of Chinese submarines. However, those submarines were supposed to be equipped with German diesel engines (MTU396), which the Munich firm refused to supply after the EU ban on selling anything related to the military industry to the Chinese. Soon after that, the bidding started, when and how will the contract be terminated!? In December 2022, according to media reports, the matter was hopeless, as the Chinese engines were “too noisy” and therefore the Thai Navy did not want them. In contrast, six months later, the first rumors appear that the problem with “noisy engines” is solvable, and that Thailand is still “striving” to complete the contracted work with China. In September 2023, it was all over, according to available information from Bangkok, “the performance of the Chinese engine is not inferior to the German one.” How quickly and how efficiently this substitution process will proceed in China itself depends on a large number of factors. China’s semiconductor imports are larger than crude oil imports by volume. And China is the largest importer of crude oil in history. In any case, the fourteenth five-year plan is dedicated to the realization of technological self-sufficiency and thus the implementation of a new development model. This implies the allocation of investments from economic branches in which productivity is low towards technological branches that will ensure further economic dynamism.

The growth of internal consumption and the targeted design of investments in technological branches that create the greatest surplus value, combined with a new foreign policy approach, can alleviate the problems of a cyclical nature. For the rest of the world, it is important that such an approach can ensure stable global growth.

The future of the US Economy

However, on the other hand, the open question is what will be the fate of the American economy!? The problems of the American economy are not cyclical, but systemic. In this respect, the fact that the US GDP grew in 2023 by more than 6% (so, a result better than China’s) may mean something, but it may not mean anything. Certainly, the American economy, which is nominally the largest in the world, should not be underestimated, on the contrary. But the question must be asked: what is the basis of American growth? The growth of internal consumption in the USA is also relativized by the growth of inflation, which the USA has not encountered since the Second World War. Nominal growth is not a relevant indicator if one dollar can buy less today than yesterday. The US dollar is devaluing and it has become a burden not only for Americans, but also for the whole world (considering the fact that 47% of foreign exchange transactions in the world are still done in dollars). The US is trying to slow down this devaluation by “shifting the costs” of the crisis to other actors. First of all, to European countries, but also to other American clients.

The EU buys American liquefied gas, NATO members buy American weapons, and Ukraine has become the biggest “money launderer” in the world, thanks to that armed conflict the American economy turns over hundreds of billions of dollars annually. And thanks to that conflict, the US Federal Reserve prints new hundreds of billions of dollars every year. Ukraine does not receive any (non-reimbursed) aid, Ukraine receives loans under who knows what conditions and pledges everything it has left at its disposal (cultivable land, energy resources, strategic communications). Vladimir Zelenski’s agreements with the Black Rock company should also be viewed from that angle. American investment in the Ukrainian military during the last 10 years, the colored (orange) revolution, the blowing up of the North Stream and numerous other actions that were of a geopolitical character, aimed at the expansion of American political power through which they would then impose themselves, should also be viewed from that angle. Agreements that will relativize the economic woes the US is facing. And which inevitably had to happen. Because the systemic problem of the American economy is the continuous printing of the dollar, which was intended to be the world currency. The dollar has not become that, and the amount in circulation today is such that it becomes a first-class danger for the US.

Only the decline of the share of the dollar to 47% in the specified parameter (at the height of the dollar’s power in 1999, it was over 65%) caused devaluation and consequently – inflation! If the expected decrease in foreign exchange reserves in US dollars of the central banks of other countries continues, the share of dollars in foreign exchange transactions will continue to decrease, which will directly result in the entry into a new inflationary spiral, followed by a jump in interest rates (the first measure in defense against inflation) and a loss of purchasing power. Such an outcome has already been seen in the history of imperial powers, from Byzantium, through Spain to the Dutch guilder and the English pound sterling. That is why BRICS is a first-class threat to the USA. That is why China’s engagement in the global economy and finance is a first-class challenge. What until yesterday was the USA’s greatest strength in international relations is now its greatest weakness. This is why this problem is systemic. It cannot be solved by economic means, or even by political decisions concerning domestic measures in the USA. This problem can be amortized by further “cost shifting” to America’s allies and clients and, most dangerously, new wars. The example of Ukraine best illustrates this. The first indications of such an epilogue of systemic misfortunes are already clearly visible. US Treasury Secretary Janet Yellen recently called the $34 trillion foreign debt “terrifying.” Even more frightening is the trend of its growth. At the end of January 2022, the debt of the US federal government amounted to 30 trillion, to reach 34 trillion two years later. In two years, it grew to a volume equivalent to the nominal GDP of Germany. Bearing in mind the mentioned global trends and the continuous de-dollarization of the international economy, it is assumed that the trend will continue.
Because of this, the isolated indication of an indicator of the growth of the US nominal GDP of more than 6% doesn’t have to mean absolutely nothing. Despite this growth, the state of the American system is worse than before. Because of all this, citing and comparing individual indicators of the Chinese and American economy is of little use for creating a comprehensive picture of current events. Further global economic flows will be equally determined by foreign policy measures and geopolitical events as well as internal incentives implemented by the leaders of the two largest economies in the world. The systemic problem of the USA can even be solved first by foreign policy measures and geopolitical crises. It is a way to carry out targeted destabilization of a whole range of regions, limit challengers in the non-Western part of the world (China is in the first place) and shift the costs of systemic problems to other actors.


The propaganda campaign being waged against China, whether writing about human rights or economic turbulence, has its purpose. The purpose is to prepare the ground for foreign policy measures and causing geopolitical crises, and thus to prevent or at least slow down Chinese involvement in global trade and finance. After all, in the actions undertaken by American foreign policy and American geopolitics against Russia since 2014, this has all already been seen. The difference is that the actions taken were directed against the Russian energy sector and that Washington found allies in the Kiev establishment who will unquestioningly participate in it. To act against China in such a way, a far more complex strategy and a variety of measures must be induced in different regions, from the Middle East, through Southeast Asia and the Indo-Pacific to Africa. After the sloppily done job in Ukraine, the question is: how capable is the US? However, regardless of the capabilities and resources available to the US, another question arises for them at the same time: do they have any other choice at all? The problem with the American economy is not cyclical, but systemic. And systemic problems are worse than cyclical ones, they are completely destructive and can cause total disintegration. The US is defending itself against total collapse. That is why there is a great danger that they could resort to all means at their disposal.

Professor, PhD

Dušan Proroković