“What might benefit China more is a recessionary bust that clears the way for a new boom. Brad Jones, Asia investment strategist at Deutsche Bank, notes that between 1790 and World War I, U.S. GDP fell one of every three years, a “purge and renewal” cycle that ultimately laid the groundwork for U.S. economic hegemony.
China cleared out some economic deadwood beginning in the late 1990s with the reform of its state-owned enterprises and later entry into the World Trade Organization. But in more than three decades, the country’s upward trajectory has been consistent to a fault, heightening the risk that an eventual downturn will prove cataclysmic, not cathartic.
“You can either have small, frequent recessions, or you have a big bang,” says Mr. Jones. “You don’t get to choose ‘neither.’ Economies don’t work that way.”
The risk that leaders in Zhongnanhai are all too aware of is that a recession tests the limits of China’s political stability. But a bigger blowup down the line could easily surpass them.”
As Shen Minggao, chief China economist at Citi, has observed (with an analogy to chna’s recent train crash): “High-speed rail in some sense represents China’s fast growth. When you care so much about speed, you sometimes pay less attention to the quality of the growth.”
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