It could be even higher. His latest industrial policies may aspire to fancier products—robots, microchips, electric cars—but they could create the same old mess: too many factories, too much debt, too much waste. What would likely have laid other emerging markets low was just another day’s work for China’s powerful mandarins. Each time the government uses debt to prop up growth, it’s a setback for reform of the economic system. But it won’t bring an end to China’s woes. A sharp drop in inflation is raising concerns that China might enter a deflationary period that would make its debt an even heavier burden to bear. European leaders can no longer afford to ignore Beijing’s aggressive authoritarianism. While anxiety over the state of the economy has mounted—thus the pullback by Chinese shoppers—the mood in China hasn’t degenerated into the gloom that usually accompanies financial upheavals. Despite months of prodding lenders, credit growth has not picked up steam as policymakers have wished. The Chinese government, the new argument goes, has so many levers of control—over banks, big corporations, and capital flows—that it can suppress the sort of crisis a more liberal economy can’t prevent. That approach is representative of Beijing’s overall strategy toward its debt problem. As is often the case in crises, the true extent of the debt and the damage is probably higher than anyone can guess. The coronavirus pandemic seems to cement the notion that China is … Most normal financial upheavals last months; China’s may drag on for years. Schuman also says it’s important to remember that China’s desire for global power is not a modern day development. Applying a European CO2 border tax: from words to action Register Now Learn more . Before it's here, it's on the Bloomberg Terminal. Diane spoke to him Monday morning. What goes widely unnoticed is that China is already in crisis. China Is Already in Crisis. Eventually the state will have to step in and fix the mess, just as the U.S. government did in 2008. Canadians purchased only a third as much; Brits and Indians, a quarter each. They remain fixated on achieving growth targets impossible to reach without infusions of more credit. Forget the Trade War. Perhaps there will come a point where even Chinese policymakers recognize that the debt is so dangerous that controlling it must take precedence over growth. “More debt is generated, and that debt is used to create all the things that have caused the problem over the past decade,” says Dinny McMahon, author of the book China’s Great Wall of Debt. The government organized a stock bailout and clamped down on capital outflows. Crisis averted. And it also will determine if China will be a pillar of global growth—or a threat to the world’s financial stability. Michael Schuman has been a foreign correspondent in Asia for 23 years, first with The Wall Street Journa l, and then as Time magazine's international business correspondent based in Hong Kong and Beijing. In theory, the Chinese-style financial crisis has advantages over the run-of-the-mill sort. In an October study, S&P Global Ratings noted that the amount of local government debt in China remains a mystery, since so much of it is held off balance sheets. No emerging economy since the 1990s has had such an outsize debt expansion and escaped some sort of financial calamity. Money flooded out of the country as the currency staggered. Michael Schuman’s new book is “Superpower Interrupted: The Chinese History of the World.”. Michael Schuman @michaelschuman More stories by Michael Schuman. Michael Schuman. Friday, Oct 02 2020Diane speaks with the husband and wife team, Susan Glasser of the New Yorker and Peter Baker of the New York Times, about their new book, "The Man Who Ran Washington: The Life and Times of James A. Baker III.". All this leads to a downward spiral. That’s led Beijing to turn the volume down on its bravado and negotiate with Washington to defuse the conflict. 9/15/20, 4:40 AM CET. • For years, Americans have been asking when and if China will surpass the U.S. in influence around the world. As in any debt crisis, the health of China’s banks is being dangerously eroded. What’s probably required is a massive overhaul of bloated state-owned enterprises. drpodcast@wamu.org, 4401 Connecticut Avenue NW|Washington, D.C. 20008|(202) 885-1200, Superpower Interrupted: The Chinese History of the World, A Covid-19 Update: Trump’s Treatment, Vaccines, And The Challenge of Colder Weather, The Power And Influence Of James A. Baker III, The Nomination Of Amy Coney Barrett And The Fate Of The Supreme Court. Economic growth in the third quarter sank to 6.5 percent, the slowest pace since the depths of the global financial crisis in 2009.