How Vulnerable Is China?

HAROLD JAMES

Source Link

The meeting between US President Donald Trump and Chinese President Xi Jinping may have delivered a kind of détente, after months of escalating tariff threats by the United States and retaliatory restrictions on rare-earth exports by China. While China had good reason to de-escalate the conflict with the US, however, it remains beset by political and economic weaknesses.

Wall Street Risks Shorting Freedom in Hong KongMARK L. CLIFFORD

US President Donald Trump and Chinese President Xi Jinping appear to have stepped back, once again, from the brink of a renewed trade war. At their face-to-face meeting at the Asia-Pacific Economic Cooperation Summit in South Korea, Trump and Xi reached a one-year agreement, which includes lower US tariffs on Chinese imports and postponement of Chinese restrictions on rare-earth exports.

As Princeton’s Harold James pointed out before the meeting, both Xi and Trump were “pushed toward some sort of truce,” given their countries’ economic interdependence.” But a trade agreement will not resolve their “intractable” long-term concerns – namely, public debt levels in the US and rapid population aging in China – so both are betting on AI to rescue them, in what is “more a sign of desperation than of confidence.”

Yale’s Stephen S. Roach thinks that the “most daunting” economic challenge China faces is a “long-awaited consumer-led rebalancing.” But he is “confident” that, if China’s leaders “set a clear target of raising household consumption to 50% of GDP by 2035,” they would then “settle on the right mix of pro-consumption measures.”

But even if China succeeds at boosting domestic consumption, warns Keun Lee of Seoul National University, this would not be enough to enable China to achieve Xi’s goal of becoming the world’s largest economy. To be sure, with gross national income (GNI) per capita having reached $13,660 in 2024, China appears to have “evaded the middle-income trap.” But China’s GDP is declining relative to that of the US – a trend that will be difficult to reverse, owing to “unfavorable demographics.”