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China’s struggling economy is infecting the rest of the world

by

Daily Caller News Foundation

China is offloading its production abroad, flooding the world market with cheaper goods, as its domestic economy struggles with its own citizens having less discretionary income for purchases, according to The Wall Street Journal.

The price of exports from China has dropped around 20% this year, partially reflecting the need of Chinese sellers to discount their products to offload excess inventory, expanding their market share abroad and hurting countries’ domestic industries that have to compete with the discounted goods, according to the WSJ. The Chinese economy has recently faced a number of concerning indicators, including disappointing economic growth, falling consumer spending, possible deflation and decreasing producer prices, according to the Financial Times.

“With a weakening economy, China naturally looks for exports,” Brad Setser, a Council on Foreign Relations scholar, told the WSJ. “But any meaningful expansion of Chinese exports beyond current levels will crush production elsewhere.”

Chinese producers are also being incentivized to export due to the declining value of China’s currency, the yuan, compared to the U.S. dollar, which makes selling goods abroad more profitable, according to the WSJ.

When China sought to export excess inventory in the past, it triggered a wave of closures in other countries, according to the WSJ. Cheap exports in the solar panel industry and excessive steel output have previously triggered a wave of closures in western countries like the U.S.

China’s excessive exports are particularly dangerous this time around in the electric vehicle industry, where the country has been rapidly gaining market share in global exports, rising from just 4% in 2020 to 21% in 2022, according to the WSJ, citing a report from research company Rhodium Group. Chinese steel also threatens production abroad, with the country’s steel export prices having dropped around 60% from last year, but export volume increasing 53% in October year-over-year, underselling foreign competitors and increasing supply.

China’s real estate industry, which accounts for a large amount of its growth, is also in crisis, with the country’s top developers facing the possibility of defaulting on huge debts to both foreign and domestic bondholders. Since the beginning of the debt crisis in the real estate market in 2021, companies that are responsible for 40% of Chinese home sales have defaulted.

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Republished with permission from Daily Caller News Foundation

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