Derek Scissors highlights an important element of the American relationship with communist China.
The US-China competition is often described as a race. A crucial element of the economic competition is a race to the bottom. Both countries have pursued harmful policies sacrificing long-term growth for mediocre or sometimes nonexistent short-term gains. These policies run up debt for an excessive period or for questionable reasons, saddling the national economies with obligations while reducing capital available for more productive uses.
When an economy weakens, calls for (additional) stimulus seem to arise immediately. This is frequently true in the US; it has been continuously true for the People’s Republic of China (PRC) since early 2020, if not before. The PRC has the “fiscal space,” it’s said, to safely borrow more. Safely, yes; usefully, no. In fact, China has been borrowing fiendishly since 2008, while its economic growth has slowed. Due to state control of the financial system, there’s no acute crisis looming. But there’s also no effective stimulus to be had—not in 2018, not in 2021, and not now. The PRC has dug itself a debt hole faster than the US, and possibly anyone else, ever has. Without considering demography or other factors, debt alone has made it almost impossible for China to win the economic competition. …
… At the end of 2023, outstanding credit passed 283 percent of GDP.
The 148-point increase over 15 years is the worst stretch recorded for a major economy. (Japan did not start reporting until 1997.) In contrast, American outstanding credit is said to have risen less than 15 points from 2008 to 2023, passing 256 percent of GDP in 2023. …The 2020 COVID debt surge in the US was worse than in China, but 2021–22 saw American credit decline as a share of GDP. It appears, at least, that China cannot address international economic crises and their aftermaths as well as the US can.
