What’s the biggest deal in global economics at the moment? Could it be the sluggish growth pertaining all across Europe at the moment?
Or perhaps the fear that the US economy is now at a cyclical peak? Maybe it’s the structural issues relating to automation, or long-term doomsday scenarios involving global warming and mass extinction? Or possibly it’s the straightforward proposition that credit is once again out of control and global debt is dangerously high.
All these factors have economists scratching their brows on daily basis.
But there’s one factor which is likely to have a more immediate and deeper impact than any of the above, and that’s the continued slowing of the growth rate in China.
President Trump’s tariffs policies are partly to blame, but there’s more to it than that as the Chinese authorities know only too well.
In recent months the economic powers-that-be there have embarked on a round of monetary and credit easing, but the effects have not been quite as salutary as hoped.
To be sure, at 6.5% Chinese growth is still robust compared to global standards, but the writing is on the wall now – it’s only a matter of time before Chinese growth fully comes into line with those standards, and at that point the demand stimulus that the world has been enjoying for fully the better part of two decades will come to an end.
What will this new economic dynamic look like, in which Chinese growth rates rank unremarkably amongst those of the rest of the developed world and possibly down the lower end of the BRICs?
Perhaps the most important aspect of that question is internal to China. Since the time of Deng Xiao-Ping there has been an unspoken pact between the Chinese people – particularly the middle class – and their leaders, that as long as the communists can deliver growth and prosperity they will enjoy a mandate to rule.
In the old Imperial times such a social quid-pro-quo was termed the “mandate of heaven,” but in these more modern times, when the economic stewardship is in the hands of the atheistic communist party, it’s more straightforwardly a question of legitimacy.
At the moment even the hundreds of millions of Chinese who still remain in poverty can legitimately aspire to greater wealth, while those who have already started climbing the ladder continue to nurture aspirations that they will go higher.
The potential to realise such aspirations are the very fabric of legitimising governments and governing systems, and when they are undermined or threatened the consequences can be unpredictable to say the least.
In the US, where this issue has been live for several decades the consequences are now visible for all the world to see – a populist president bent on turning his country back to its isolationist days and social division that cuts right down the middle of the country.
How such a dynamic would or will play out in China is extremely hard to predict. But one thing’s for sure, the ruling communist party is aware of the danger.
That’s why Mr Trump, crass but no fool, can be confident in his poker game with the Chinese over tariffs. In the end the US electorate has the opportunity to change leaders every four years, and make changes to its legislative body every two. That takes the sting right out of the widespread charges in the US the whole system is corrupt.
It may be, but the US populace only has to vote in uncorrupt officials to set the ship back on an even course. It’s one of many safety valves built into the US constitution, and the fact that it hasn’t really been used to a great deal of effect yet probably just indicates that the problem isn’t in fact that systemic.
In China though there are no such checks, balances and safety valves, and that’s what makes the coming slowdown in Chinese growth more dangerous.
There could be internal strife of a kind much more strident than the #Metoo movement, or there could equally be a turn outwards towards a more aggressive global posturing by a government keen to distract the populace from troubles at home.
Either way it bodes ill for global stability, since China accounts for 12% of global trade and exports still account for 18% of its GDP.
But this is a country that in living memory has gone through an invasion by Japan, a civil war, the cultural revolution and the Gang of Four. In that historical context the current transition is the least of the country’s worries. And therein lies much grounds for optimism.