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The Houhai area in Nanshan District of Shenzhen, south China’s Guangdong Province, Sept. 17, 2020. Photo: Xinhua

The international economic situation is deteriorating sharply. The IMF announced a downward revision of growth forecasts for 143 countries. US inflation hit 8.5%, highest in 40 years – US inflation-adjusted wages fell 2.7% last year. High US inflation forces the Federal Reserve to raise interest rates, which slows down its economy. In other advanced economies inflation is higher – in Spain and the Netherlands it is 10%. With growth slowing and inflation rising, much of the global economy is headed for “stagflation”. Faced with negative international trends, the Chinese economy has rightly launched a moderate stimulus package – exemplified recently by the reduction in China’s reserve requirement ratio.

Compared to these international trends, even a cursory factual examination shows that the Chinese economy is by far the most powerful global center of stability and growth. China’s inflation is 1.5% – well under control and less than a fifth of that of the United States. In the two years since the start of COVID-19, China’s GDP grew by 10.5% and that of the United States by 2.1% – the Chinese economy is growing five times faster than the American economy.

Despite these obvious facts, US media say that due to the COVID-19 outbreak in Shanghai and the Russian-Ukrainian conflict, China is facing serious economic problems. This is so out of step with the major facts already given that it is tempting to dismiss it as pure propaganda and ignore it. Nevertheless, it is instructive to delve deeper into this falsification because it indicates the real situation of the world economy and the place of China and the United States within it.

Regarding COVID-19, US claims may be dismissed immediately. Shanghai’s COVID-19 outbreak is large, but China suffers no daily deaths while the United States suffered 956 in a country with less than a quarter of China’s population. If the United States had the same population as China, the United States would suffer more than 4,000 deaths per day compared to zero for China. Since the outbreak of the pandemic, the Chinese mainland has suffered 4,638 deaths compared to nearly one million in the United States.

When it comes to the economy, China far surpasses the United States. In effect, US policy is destabilizing both itself and the global economy.

US Treasury Secretary Janet Yellen has claimed that the surge in inflation in the US was due to the “enormous” economic effects of the war in Ukraine. It is entirely false. By far, most of the US inflation wave came before Ukraine. Inflation in the United States rose from 2.5% in January 2020 to 7.5% in January 2022. As the Wall Street Journal noted, “This is not Putin’s inflation.”

What created this inflationary wave was the type of US stimulus packages launched in response to COVID-19. As it clarifies economic trends, it is illustrative to compare this failure of US stimulus packages to those launched in China.

Since the start of COVID-19, the United States launched a fiscal stimulus of $900 billion in December 2020 and $1.9 trillion in March 2021, or $2.8 trillion in total. US government borrowing peaked at 27% of GDP and US money supply grew 27% year over year – both the highest in US peacetime history. Structurally, these packages were entirely consumer-driven – the demand side of the economy. From 2019 to 2021, 98% of the increase in US GDP was in consumption and only 2% in net investment. With a huge increase in demand and almost no increase in supply and investment, a huge wave of US inflation was inevitably triggered. As the Wall Street Journal put it, “This inflation was made in Washington, DC”

Compare China’s 7 trillion yuan stimulus package to counter the 2008 international financial crisis. This focused not only on consumption but also on investment – the supply side of the economy . Two years after the launch of this program, China’s GDP increase was 46.3% in consumption and 39.9% in net fixed investment. China’s stimulus package was a balanced mix between the supply and demand side of the economy. China’s economy has significantly outpaced that of the United States – since 2007, the US economy has grown by 24% while China’s has grown by 177%.

The same is happening now. Data for early 2022 confirms that China has launched a moderate stimulus package – again focused not only on consumption but also on investment. From January to February compared to December, the annual increase in retail sales increased from 1.7 to 6.7%, fixed investment increased from 4.8 to 12.2%, industrial production increased from 4.3 to 7.5%. Unlike the United States, China’s balanced development has not resulted in any significant inflation.

China therefore has room to ease its monetary policy, if necessary, in the face of negative international trends – unlike the United States which is trapped by high inflation in the context of monetary tightening. In summary, not only has China outperformed all other major economies over the past period, but it is clearly in the best position to continue this momentum.

The author is a senior researcher at the Chongyang Institute of Financial Studies, Renmin University of China. He was previously economic policy director for the Mayor of London. [email protected]