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Q: What’s going on with China’s economy?
A: Despite tremendous growth over decades, China is seeing the limitations of an authoritarian economy. A market-based economy, like the United States, is more likely to adapt to changing conditions, notwithstanding occasional booms and busts.
China’s model is less consumption-oriented, which has been a key driver of success globally. Without more consumption, Chinese investment rates are very high. With only so many places for all that money to go, rates of return diminish.
They also have demographic challenges, including a shrinking workforce and therefore less productivity.
The government’s ability to compensate for these challenges is lessening, if not gone already. As a result, we can expect weakness in China to continue.
From a political standpoint, this is concerning because a weaker economy may make Chinese leaders feel more vulnerable and potentially harder to work with. They may be more likely to continue their increasingly cozy relation with Putin and Russia, not great for the U.S. of A.
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