China’s economy is facing severe headwinds, including a more than year-long property crisis, the highest unemployment rate (20%) since 1990, and weak domestic consumption. On paper, however, the country remains on course to exceed its official growth target of approximately 5% this year. That would add almost 30% to global growth—an extraordinary accomplishment that, by itself, could recharge global growth. Increasing geopolitical competition specifically is widely sounding the alarm by business and policy elites alike. The growing threat from Iran to close the Strait of Hormuz heightens these fears.
Borge Brende, the president and CEO of the World Economic Forum (WEF), shared his concerns about the global economy. He cautioned that without a change in these economic conditions, we may be in for a lost decade of stagnated growth. He stresses how important this time is for China and for the future of the world economy as a whole.
“If we are not able to revive growth again, we can unfortunately see a decade of lower growth,” – Borge Brende
The WEF event in Tianjin has gathered business leaders who are increasingly troubled by the state of the global economy and the prospect for meaningful growth. China continues to work to establish its image as the champion of free trade and is even pushing back on market access concessions. It is intent on increasing its power and reach as a key regional and global actor. Mirek Dusek, managing director at WEF, noted that China recognizes the importance of engaging more actively in the international arena.
Chris Torrens, head of China at advisory and advocacy firm APCO, underlined the key point. Many of China’s bigger machinery sectors remain oil-dependent, making for a dangerous double whammy. Beijing imports approximately 90% of the oil sold by Iran, and any disruption in this supply chain could have dire consequences for China’s economy.
Iran’s aggressive posturing to shut down the Strait of Hormuz has raised international alarm. It doesn’t help that this strait is one of the world’s most vital oil transit chokepoints. China’s vulnerability is equally obvious as it endeavors to steer clear of the shoals amid this perfect storm.
Iran vs Israel – the war is intensifying by leaps and bounds. That unrest is for now bubbling up and shoving urgent matters such as trade, tariffs, and inflation off center stage. Jeffry Frieden, professor of international affairs and political science at Columbia University, noted the fractious nature of today’s geopolitical landscape in a recent keynote speech at the World Defence Show.
“It is the most complex geopolitical and geo-economic backdrop we’ve seen in decades,” – Jeffry Frieden
Frieden discussed the practical challenges that businesses encounter in such a spoiler-filled environment.
“We live in an environment of radical uncertainty,” – Jeffry Frieden
For one, he said, it’s getting harder for private industry to even plan long-term business strategies in that kind of dramatic up-and-down environment.
Despite these challenges, there remains an acknowledgment that trade has historically served as a crucial engine of growth in recent decades. Dusek did make note of the rise of some technologies. These innovations hold promise to spawn entirely new engines of economic growth and spark insatiable competitiveness.
“Trade has been an important engine of growth for the last decade or two, but it’s clear that certain technologies have a huge potential to help us with new sources of growth and competitiveness,” – Mirek Dusek
These will be the key issues the world watches in how China balances these pressing challenges. How successfully the country adjusts and adapts will determine not just our economic prosperity, but that of the world as well. The discussions at the WEF event highlight a collective concern about the direction of international economic relations and the need for sustainable growth strategies.