China’s economy has shifted down in recent years.

This year has been a difficult year for the Chinese economy. The country’s stock market recently hit a five-year low, due in part to the struggling real estate sector. China’s economic indicators are not always reliable, but consumer prices also have a long-term deflationary trend. So what does one of the largest economies downshifting mean for the rest of the world?

Adam Posen, director of the Peterson Institute for International Economics, said this could mean aggressive actions by China that could antagonize trading partners, such as bringing electric cars to the global market. It is said that there is.

“This creates tensions between the United States and China and other countries and China,” Posen said. “That’s because it’s seen as another way for China to export its problems rather than address a lack of domestic demand.”

“Marketplace” host Kai Ryssdal spoke with Posen about the current state of the Chinese economy. Below is an edited transcript of their conversation.

Adam Posen: China’s economy has fundamentally downshifted in recent years. Additionally, they have real estate worries that make them even more depressed. This is not a disaster, but it is hampering growth in a number of ways, in addition to long-term demographic trends.

Kai Ryssdal: OK, we’ll talk about each of them, or most of them anyway, in a moment. But I’d like to pick up where you and I left off last time. Last time he talked about August. Well, you had the piece —

Posen: Foreign affairs.

Ryssdal: Thank you, Foreign Affairs, “The End of China’s Economic Miracle.” And I asked what fundamentally different it would make for other people. And I want to remind people why we think this is a critical moment, not just for China’s economy, but for the global economy.

Posen: Of course, China is one of the world’s largest economies, either number one or number two. They are an important part of industrial processes, consumer brands, and just business networks around the world. Therefore, slow-growing China reduces opportunities for broader global investments, including 401(k)s. And most importantly, if the Chinese Communist Party, its economic leader, has problems at home, it is likely to act increasingly economically aggressively.

Ryssdal: What happened to China’s economy? Because, as you well know, it’s been ringing for decades.

Posen: As you said, it has been ringing for decades in a way that is unprecedented in history. I think three things happened. China’s birth rate is rapidly increasing for a variety of reasons, including the country’s one-child policy and gender discrimination against women. The other two are, first, the real estate bubble burst. And it wasn’t so much a bubble as it was raking in huge sums of money for real estate developers through local governments with strange ties to local banks. And it couldn’t last forever. Because they were building more apartments than people. Third, this is something you and I talked about last August, and I think I ended up calling the top about China’s growth, but the COVID-19 ), and after President Xi Jinping consolidated power in the pre-COVID-19 years, China’s Communist Party has become more and more concerned about arbitrary decisions than the average Chinese household, and even the average Chinese We have a much tougher attitude towards small businesses. As a result, people started consuming less, investing less in small businesses, and storing their money in assets like cash. And that is further reinforced by real estate issues.

Ryssdal: Now, let’s talk about the current and future geostrategic relationship between the United States and China. I am nervous. You said earlier that you expect China to start acting more economically unstable, but no one needs that between the world’s No. 1 and No. 2 economies. What would it look like? And what should President Joe Biden do about it?

Posen: The biggest thing we’re going to see, and we’re already seeing, is a mass dumping of electric cars and other cars produced in China or by Chinese subsidiaries in the global market. I think. I believe that attention is also being focused on the declining value of the Chinese yuan. And while I think the Chinese government is wisely putting the brakes on the economy to keep it from falling too quickly, it will also create tensions between the US and China, and between other countries and China. . This is because it is seen as another means of China’s exports. It’s a way of solving the problem rather than addressing a lack of domestic demand.

Ryssdal: I agree with calling China the top of the economy, but that is difficult. But here’s the question: So what happens? Is there a way for Mr. Xi to turn this situation around? What does the bottom look like? discuss.

Posen: Well, I don’t think the bottom is bad. As you know, China, which has a lower growth rate, is growing at +3% instead of +5%. Mr. Xi will eventually do a lot of stimulus, although he is very reluctant at the moment. And I think they’ll be largely ineffective in the sense that they’ll give you far less in return than they used to. Finally, I think the key change is how much people are leaving China. In other words, how much capital is left? Will people leave? All of a sudden, we see news about Chinese people coming to the United States as refugees and immigrants. Frankly, I think the U.S. and other Western governments would be wise to welcome these leaks, rather than trying to contain them within China.