Falling prices in China may be a bigger problem than inflation in the United States

Falling prices in China may be a bigger problem than inflation in the United States

– We are witnessing the end of China’s economic miracle, says one expert. Rising tensions between the United States and China could make the problems even bigger.

Beijing business district on a rainy day.

US President Joe Biden on Wednesday restricted US companies’ ability to invest in China’s development of microchips and artificial intelligence.

The motive is security, not economics, according to the Biden administration.

The goal is said to be to prevent US investment from helping to strengthen the Chinese military.

China’s embassy in Washington was quick to criticize Biden’s decision.

The restrictions could seriously undermine the interests of Chinese and American companies and their investors. Embassy spokesperson Liu Bingyu said that China will closely follow the situation and firmly protect our rights and interests.

At the same time, the Chinese Foreign Ministry claims that the United States is engaged in “anti-globalization”.

Two completely different problems

The United States and China are likely to drift further after this ban, He writes for The Wall Street Journal.

The United States and China are the two largest economies in the world. They both really struggle, but in two completely different ways.

The United States has seen prices skyrocket in the past 18 months. Inflation is well above the 2 percent target.

China faces another problem: deflation. According to official statistics, prices fell by 0.3 percent last year.

The United States has a tight job market. There are more jobs available than unemployed.

China suffers from high rates of unemployment, especially among the youth. The unemployment rate for people ages 16 to 24 was 21 percent in June.

A recruiting agent discusses with job seekers at the day labor market in Majuqiao, a district in Beijing.

Growth in the two countries is almost the same. China has an official target of 5 percent growth this year. But this is compared to 2022, which weakened the Corona virus. actual growth closer to 3 percent, According to Bloomberg. Just slightly above the 2.5 percent growth expected for the United States this year.

For China, which was on average at 9% growth Every year since 1978, the numbers are miserable.

– China’s low prices are a bigger problem than US inflation, Concludes Washington Post columnist Adam Taylor.

The end of China’s economic miracle

Failure is associated with dealing with COVID-19. China imposed very strict restrictions and waited too long to back down. Just this week, China lifted the COVID-19 ban on foreign travel to more than 70 countries.

When China eased most restrictions for the first time at the end of last year, it was in an abrupt and chaotic way.

We are now witnessing the end of China’s economic miracle, He writes American economist Adam Posen in Foreign Affairs. He associates strict covid-19 rules with growing financial anxiety. It makes people keep their money, despite the low interest rates, which leads to deflation.

It could be worse than deflation in Japan

China’s economic problems have been compared to what happened in Japan. Throughout the 1970s and 1980s, many believed that Japan was about to take over American hegemony. But in the 1990s, the Japanese economy hit a wall. What followed were decades of stagnation and deflation.

One should, of course, be careful when comparing China and Japan, notes the Washington Post.

  • China’s population is ten times that of the population.
  • After adjusting for purchasing power, the Chinese economy is already larger than that of the United States.
  • The Japanese economy was never larger than half of the US economy. Today, the state has a national product slightly larger than that of California alone.
  • Unlike China, Japan is a democracy.

But this could make the downturn even bigger for China.

Paul Krugman, an economist and commentator for The New York Times, recently argued that Japan has done well in the transition from a young to an aging society. China faces the same challenge, and it is not certain that it will manage it either, says Krugman.

China is unlikely to become the next Japan in economic terms. He writes that it will probably get worse.

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Jabori Obasanjo

Jabori Obasanjo

"Coffee trailblazer. Certified pop culture lover. Infuriatingly humble gamer."

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