FX.co ★ World may face new invasion of Chinese goods

According to the Wall Street Journal (WSJ), citing research by economists, the world will face the so-called China shock. It will be a renewed inflow of Chinese imports, experts warn.

According to analysts, the world will face the inflow of Chinese imports for the second time, as the country is actively increasing the production of goods, considerably exceeding domestic demand.

Economists call the boom in imports of cheap Chinese-made goods the China shock. Notably, the world experienced such an influx in the late 1990s and early 2000s. This happened after liberal reforms in China and its accession to the World Trade Organization (WTO).

However, the massive influx of Chinese goods had a negative effect on the global economy. The rapid increase in the rate of Chinese imports ruined many local industries. The problem touched even large countries, such as the United States, where, from 1999 to 2011, the elimination of more than 2 million jobs was recorded. Currently, China is doubling its exports, so the China shock may happen again. The country needs this measure to revive its slackening economic growth.

However, there are some pitfalls. Previously, the invasion of Chinese goods helped curb inflation in the country, but now the situation is a bit different. According to David Autor, an economics professor at the Massachusetts Institute of Technology, such a scenario is unlikely this time as China competes in high-tech output. “Even so, the concerns are more fundamental now because China is competing with advanced economies in cars, computer chips, and complex machinery,” the economist said.

Earlier, many economists pointed out that after 40 years of uninterrupted economic growth, China may face long-lasting stagnation. For decades, the country was investing in the construction of factories, housing, and road infrastructure, which helped it cope with poverty. Thanks to such measures, the Chinese economy has become one of the largest in the world. However, the previous economic model has exhausted itself, analysts believe. To solve the problems this time, the country’s authorities have to take some new measures.