Partly, it’s just simple math. The larger the economy, the harder it is to maintain past growth levels.
Nevertheless, the collapse has proven to be a political punishment for a regime that has thrived for decades on an apparent development miracle of its own making. The promise of continued prosperity is the glue that keeps Xi Jinping in power. Alarmingly, as this happens to all totalitarian leaders, he must now find other, less benign pursuits to unite the country.
China’s economic woes are already manifesting in rising geopolitical tensions, retaliatory protectionism, and the emergence of a new Cold War.
Another possible outcome is that China will soon export its economic fallout directly here in the West.
There are parallels here with the novel coronavirus, which relied on international connections to transform from an apparent influenza outbreak in Wuhan to a highly destructive global pandemic.
Similarly, China’s economic collapse threatens to spread deflationary forces globally from one country to the next through global trade and financial transmission mechanisms.
For decades, China has been largely immune to the ups and downs of the business cycle, maintaining growth rates that outpace Western economies.
In the four decades leading up to the pandemic, China’s growth rate was nearly three times that of the United States, enabling a breathtaking process of economic catch-up.
When America and Europe were hit by pneumonia during the 2008-2010 banking crisis, China sailed on regardless, apparently oblivious to the collapse of the West.
“You were my teacher,” Wang Qishan told then-US Treasury Secretary Hank Paulson, who was dissenting in the United States. “But look at your system, Hank. We don’t know what to learn from you anymore.”
China’s advance was allowed because it was as beneficial to our country as it was to the West to allow China access to Western markets on equal terms, and would eventually lead to China’s eventual democratization. This was because it was thought that it would open the door.