MILAN/BEIJING – At a time when the United States is poised to turn inward, China’s economic performance is more important globally than ever. Whether China can achieve sustainable growth patterns in the coming years will depend upon a number of key factors.
One of the leading external factors shaping China’s prospects will be its relationship with the US under President Donald Trump. Ideally, the two governments would work together to negotiate mutually beneficial trade and investment agreements, with sensitivity to the challenges faced by both sides. But the opposite outcome – the escalation of mutually damaging trade and investment disputes – is also a distinct possibility.
Political uncertainty is also on the rise in Europe. While its impact on China would not be as direct as Trump’s actions, it is a source of significant medium-term risks for the entire global economy.
Within Asia, a key factor shaping China’s economic prospects is progress on Chinese-led regional trade and investment agreements. In particular, investments in regional development via the “one belt, one road” initiative and the Asian Infrastructure Investment Bank may produce expanded trade and growth in Asia (and beyond), though the effects will not be immediate.
The fourth major external factor relates to exchange rates. As it stands, the renminbi is facing significant depreciation pressure, caused largely by a surge in capital outflows. Meanwhile, the US dollar is strengthening in anticipation of Trump’s fiscal expansion. China’s performance will depend partly on how these dynamics play out.
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© Project Syndicate