How Worried Should We Be If China's Growth Rate Slows To 6.4 Percent?

There have been numerous articles in the news recently telling us about China's slowing economy (e.g. here and here). From the accounts I've seen, it does sound like China has problems, although we have heard this story before. (There have been China experts predicting a financial collapse since the late 1990s.)

But the striking part is that a slowing economy is treated as something unexpected. China had been maintaining extraordinary double digit through the 1980s, 1990s, and 2000s. The idea that China could continue to grow at this rate seemed pretty far-fetched. In fact, if we go back to 2016 and look at the I.M.F.'s forecast for growth in China in 2018 and 2019, it was 6.0 percent for both years. The I.M.F.'s forecasts are generally in the middle of professional forecasts. For this reason, it is a bit strange to read an article in the NYT telling us that China's slowdown to 6.4 percent growth last year is really bad news for the world economy.

It is also worth noting the ostensible problem here. The idea is that if China's economy were growing more rapidly, it would be creating more demand for goods and services produced by other countries. This is true, but there is another way that the countries facing insufficient demand can generate it, if China's economy is not cooperating. Their governments could spend money.

The problem of insufficient demand is best countered by more demand. Insofar as the U.S. faces this problem right now (it may not), it can be remedied by doing things like extending access to health care and child care or starting a Green New Deal. It really is not that hard to find ways to spend money.

Disclosure: None.

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