Presidents Xi Jinping and Joe Biden are both putting national security above the economy, but China will bear higher costs in their game of economic attrition, Claremont McKenna College professor Minxin Pei wrote.
In a Bloomberg Opinion column on Wednesday, the scholar pointed to China’s recent ban on the US semiconductor producer Micron and the US Inflation Reduction Act’s effort to exclude some Chinese green energy products.
Xi must know that losing access to US technology and markets will weigh on China’s growth, but appears to be betting that US growth will suffer too, Pei said.
And with China’s rate of growth still expected to outpace the US, then the hope is that the world’s second-largest economy will eventually catch up to the world’s biggest economy, he added.
“However, the costs of a security-centered development strategy are likely to be much higher for China than for the US,” Pei predicted.
Already, previous expectations of a strong Chinese post-Covid rebound seem to have been misguided, as demand and manufacturing output fizzles out.
And with investors aware that Beijing is putting security above the economy, private investment has only risen 0.4% so far in 2023, Pei said.
Meanwhile, he added that Xi’s “obsession with security” will make it harder for foreign companies to do business in China. That’s as firms are being investigated for potentially breaking security regulations, while an updated espionage law makes operating in China much more intimidating.
“Chinese actions to strengthen its economic defenses will likely be far more costly than their US equivalents, hurting China substantially more than the US. This will inevitably depress China’s growth potential and thwart its ambition to catch up to its rival,” Pei wrote.
“At the moment, both Beijing and Washington seem confident that they can win with a strategy of economic attrition. One of them has to be wrong — and it is probably China.”
Source : MARKETINSIDER
