Global stagflation risks offer China chance to ‘seize opportunity’ for economic, trade windfall
- Decades-low ebb in global economic cycle could hit US economy while destabilising US dollar’s position and sending EU back into debt crisis, prominent Chinese economist warns
- If 1970s-style stagflation hammers West, China could move up global value chain, but downsides remain amid competition from developing economies
A heightened risk of stagflation is likely to make the United States more dependent on Chinese supplies while simultaneously presenting Beijing with a strategic opportunity to move up the global value chain, according to a prominent Chinese economist.
As consumer prices in the US, European Union and United Kingdom have soared at the fastest rate in decades, coupled with international organisations slashing their economic growth forecasts for this year, warnings have been growing louder that the global economy could slip into 1970s-style stagflation.
But such a situation, despite being a double-edged sword for China, would present the world’s second-largest economy with more opportunities than challenges, says Liu Yuanchun, president of the Shanghai University of Finance and Economics.
Due to the rising costs of living and production in the US, [America’s] dependence on Chinese supplies … will be stronger
On a global scale, stagflation – a portmanteau of “stagnation” and “inflation” that describes an economy with little to no economic growth amid soaring prices – would also make it more difficult for the US and EU to decouple from China’s industrial and supply chains, according to Liu, who is also a government adviser.
“Due to the rising costs of living and production in the US, [America’s] dependence on Chinese supplies – Chinese products – will be stronger,” he said at a webinar held by the China Macroeconomy Forum think tank on Saturday.
He argued that the surging costs of labour and raw materials will make it more difficult for countries with slow technological advances to displace China’s manufacturing, while the US will be at risk of intensifying its domestic price pressure if reshoring occurs in some industries.
Given that, Liu said, Washington’s efforts on the supply-chain front to rein in China’s expansion look to be hampered.