Analysts say that the US and China are currently going through economic challenges. At present, it is hard to predict which of the countries will have to deal with the most painful consequences in case of a full-blown crisis.
The outlook for China is not so clear-cut. Five years ago, morale among the political elite was elevated ahead of the Communist party’s congress. The ministers reported upbeat economic data to prove enormous success which paved the way for robust economic growth. At the same time, Donald Trump’s administration set the tone for the political agenda which did not include any cooperation with China. Nowadays, Washington has revised its rhetoric and the leaders of the two largest global economies are ready for negotiations.
In the course of time, China’s authorities have admitted their blunders and signaled the intent to solve them. The government has acknowledged the main thorny issue: a debt bubble in the real estate market that fuels headwinds in the banking sector. As of now, the amount of debt investments in China equals 250% of its GDP. Analysts warn that such humongous debts could crash the domestic banking sector.
US economists reckon that being extremely leveraged, China has been caught in an economic trap. To exit the deadlock, the authorities need to take emergency measures that could deal a serious blow to some industries. Experts cannot provide an efficient solution.
Defying American economists, Chinese peers point out that no country can develop normally with such a mammoth public debt as the American one. Besides, Chinese analysts say that the US is to blame for spreading inflation all over the world. However, the Federal Reserve does not see any obstacles to its aggressive tightening. Recently, the regulator decided to expand borrowing and raised its credit rate by 75 basis points. This measure enables a cash outflow from all countries in the world. According to flash estimates, Joe Biden’s administration borrowed $1.9 trillion and approved a new budget deficit of $4.9 trillion.
A lot of countries lend their funds to the US, anticipating high interest. In this context, national currencies lose ground in parallel. Economic growth in emerging markets slows down due to tight financial conditions. High inflation has been affecting all countries worldwide. For the time being, the US administration has to tackle a major headache. The government has to borrow more and more to service the previous amount of the federal debt.
Experts estimate that the US economy could show a minor GDP growth in 2022 which will be followed by a contraction in 2023. As for China, analysts also predict a slowdown in the national economic output but foresee promising medium- and long-term prospects.
Experts agree that the two largest global economies have been stuck in a similar minefield. The US could land a punch to China’s economy by imposing a variety of trade restrictions. Despite political and trade clashes, the two rivals might be interested to come to a common denominator.
On the back of the festering global crisis, experts underscore Washington’s predatory attitude to European countries. Analysts share the viewpoint that the US deprives the EU of Russian oil and gas, thus pushing the EU into buying American petroleum products at sky-high prices. The economic havoc causes harm to China’s economy because earlier Beijing welcomed the cooperation with EU countries. However, simmering jitters will hardly be quelled in the short term. China has found a solution. Beijing is reselling to Europe not only Russian energy but also supplying solar panels.
Over the last eight months of 2022, solar panel exports from China to Europe have ballooned by a whopping 138%. Analysts say it is not the limit. Against this background, both the US and the EU voice concern over China’s growing influence on the global economy. As a precautionary measure, the US and its European allies introduce protective tariffs on Chinese merchandise as well as some restrictions on various high-tech products.
