The country’s faltering post-pandemic recovery and a reluctance by Xi Jinping’s government to unleash unrestrained stimulus is the biggest unknown facing the world economy.
| Despite lingering inflation and anaemic growth, the global economy has largely defied gloomy forecasts of recession. However, Australia, parts of Europe and the United States remain vulnerable to weakness in China as its delayed post-pandemic recovery runs out of steam.
Such are the leading indicators that some economists are warning that a recession, unthinkable in China for decades, is now a possibility. New-economy exports such as electric vehicles and lithium-ion batteries are proving the exception, according to Chinese customs data.And while falling export prices help the rest of the world combat inflation, intensifying competition can mean job losses and a further hit to consumer spending in the longer-term.
Beijing has also wound back policies introduced during the pandemic to crack down on property speculation. Fearing a collapse in the real estate sector as developers default on loan payments, some cities are reducing mortgage rates and deposit ratios. Still, there is little sign so far this is making inroads to massive oversupply in China.
“It is not true that all foreign companies are getting out of China. Some sectors are doubling down. China will still be responsible for a third of global growth this year, so the problems should not be overstated,” Lowy Institute senior fellow Richard McGregor says.
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