As Trade War Intensifies, Chinese Regime Relies on Borrowing

Kitty Wang
By Kitty Wang
June 3, 2019US News
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The U.S.-China trade war is heating up. One American scholar and China expert says China’s so-called “economic growth” has been maintained by borrowing in the first half of the year and that the situation will get worse in the second half.

Derek Scissors, Resident Scholar at The American Enterprise Institute for Public Policy Research said, “If they’re in a trade conflict with the U.S., the Chinese are going to be reporting much more exaggerated numbers than they would be otherwise.”

Scissors said China’s economic situation had declined in the last 8 to 10 years, with low growth rates and high debt. He said the fundamental reason for this is the stagnation of reform.

“Innovation, capitol, labor, land: those are the sources of growth. They are all in bad shape … You are expecting China to act like it did 20 years ago, but 10 years ago it didn’t act like this, and five years ago, it didn’t act like this. And I don’t think it’s reasonable for the United States to think we can make China undertake major economic reforms,” he said.

As the U.S.-China trade war intensifies, China’s economic situation is getting worse. The Chinese regime’s economic report, released in April, shows that the leverage ratio of China’s real economy reached a record high in the first quarter, indicating that the economic growth was dependent on debt.

“You had a manufacturing rebound in the first and second quarter that has nothing to do with demand. That stimulus will fade out and the actual state of the Chinese economy in the fourth quarter, if you care about GDP, … is going to be along the line of, I don’t know, 2.5-3% GDP growth,” Scissors said. “Then the Chinese yet have another choice of, ‘Do we reform on per-productivity basis—probably not—or do we add more credit?'”

The Trump administration has tried to press China to make real structural reforms, but experts predict that it will be very difficult for the Chinese Communist Party to give up its control of the economy. “The Party’s goal is sustaining power,” he said. “It’s not anything else. Everything else is a tool to that goal. So there is a trade-off between do you want to become richer or do you want to control your economy. That’s the decision they made that control is more important to the Party than prosperity. As a result, you’ve seen very sharp weakening in Chinese economic performance.”

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