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Thursday, July 19, 2018

Why China’s Unstable Economy May End Up Like Frankenstein’s Monster

June 15 (Bloomberg) — Anyone who thinks their job stinks should consider the one Xi Jinping is about to take on.

Xi is expected to replace Chinese President Hu Jintao in the fall. He must have some serious misgivings. If the last 20 years were a golden age for the world’s most populous nation, today is one filled with growing doubts. The Bo Xilai scandal has shattered the veneer of political stability, cyber- dissidents are emboldened in their challenges of the Communist Party and diplomatic headaches abound — many of them concerning the U.S., where China may figure in November’s presidential election.

No issue looms larger than China’s suddenly shaky economy. The world is now bracing for a slowdown that pundits said was unlikely to happen. So are officials in Beijing, who worry that social unrest could boil over quickly if growth evaporates.

A bit of perspective is in order. Any serious slump in China probably is a few years off, not something that will send markets into a tailspin in the next few months. Look to Europe for that.

That’s not to say that a slowdown to 7 percent growth or even 6 percent is good news for anyone. The repercussions would hurt big commodity exporters such as Australia, Brazil and Canada, and make it even harder for Europe’s leaders to resolve the debt crisis. Remember that just a few months ago, traders were speculating that China would deploy its $3.3 trillion of currency reserves to bail out Europe.

Stock and commodity markets would be sideswiped by a China slowdown. That gloom would feed back through lower consumer confidence and business sentiment. That’s in addition to any trauma should Greece abandon the euro or if Italy is next up seeking a bailout following last weekend’s rescue of Spain’s banks.