Getting homebuyers and taxpayers to underwrite losses of foreign creditors should be a stretch for Beijing, which has choreographed China’s rapid economic growth by funnelling household savings into infrastructure. Investment-led export growth has depressed domestic consumption and is now faltering as China’s trade surplus with the rest of the world slows. Reviving consumption becomes even more difficult with real estate denting household wealth. And, unless China rebalances demand between investment and consumption, it will struggle to grow even at its current diminutive rate compared to its high investment phase.
A cooling Chinese economy is not good news for the world – except in economies positioning themselves for export-led growth, such as India. These stand to benefit from rising foreign investment and an elongated commodity downcycle. Fragility of China’s recovery is, in some manner, inversely related to India’s economic momentum. But, for all the obvious gains, there are lessons to be drawn from the Chinese model that has tested the limits of export-led growth. Even before that, Japan’s housing market collapse triggered decades of recession. China still has the option to avert the eventuality. It would do itself and the world a favour by acting with dispatch.