Second “China Shock” Coming

To solve its domestic economic problems, China is increasing production of goods far beyond the purchasing power of its domestic market. Global markets risk being “overwhelmed” by products “made in China” that the world’s second-largest economy will sell at minimal prices to help manufacturers cope with declining domestic demand. This was stated by the Wall Street Journal, an American newspaper that recalls how in the late 1990s and early 2000s, a boom in imports from China caused the bankruptcy of thousands of manufacturers in the West.

“Beijing doubles down on exports to revive the country’s growth. Its factories are churning out more cars, machinery and consumer electronics than its domestic economy can absorb. Propped up by cheap, state-directed loans, Chinese companies are glutting foreign markets with products they can’t sell at home. Some economists see this China shock pushing inflation down even more than the first. Analysts now expect the deflationary effect of the ‘second wave’ of Chinese exports to be even stronger,” the US newspaper writes.

The US, EU, and Japan absolutely do not want a repeat of the early 2000 situation. Western fears now reflect “new” competition from China, which is increasing production of high-tech and advanced goods, from electric cars to microprocessors and industrial robots. “To slow China’s advance,” the WSJ notes, “Western governments must commit billions of dollars and euros to fund their strategic sectors and are preparing to impose new protectionist measures against Chinese goods.”

China’s GDP grew by 5.2% in 2023, which the US newspaper said was “very low.” But analysts at research center Capital Economics fear a slowdown in China’s economic growth, which is not expected to exceed 2% per year by 2030.