WASHINGTON – China’s slowing economy is prompting a rethink of the strategic challenge it poses to the United States. 

Experts testifying in a hearing, at the US-China Economic and Security Review Commission at Capitol Hill, on Monday offered bleak takes on the Chinese economy: China is no longer a source of growth for the US and its partners; it may never be able to stake a claim to global economic primacy, and the attractiveness of its economic model has worn off. 

The commission, known for its hawkish positions on China, was established by Congress more than two decades ago to monitor national security and economic risks of doing business with China and make policy recommendations.

Testifying before the commission, Mr Logan Wright, director of China markets research at the Rhodium group, a New York-based research and consultancy firm, said the US was in no danger of losing its status as the world’s largest economy. 

“The severity of China’s ongoing economic weakness is still widely underappreciated and the US no longer faces a growth challenge from China,” he said. 

Provided the US continues to grow at its current pace, he said: “Beijing is no longer an economic pacing threat or likely to overtake the US in any significant measure of economic power in the next two decades.”

“Given China’s long-term economic challenges, there is no realistic scenario in which China’s economy becomes 150 per cent or 200 per cent of US GDP (gross domestic product) in the future, surpassing the US,” Mr Wright added.

In the first two quarters of 2023, the US economy beat growth expectations – it grew at a 2.4 per cent pace in the second quarter – posting strong growth in consumer spending, jobs creation and wages. But inflation, at a two-decade high, remains a concern and a recession cannot be ruled out.

China, however, has disappointed economists expecting a strong post-Covid-19 bounce back. Chinese consumers, whose spending account for 40 per cent of the economy, are holding back.

A wobbly real estate sector, falling exports and investment, record youth unemployment and rising fears of deflation are also a drag on the economic outlook. Few expect that Beijing’s official target of “about 5 per cent” economic growth in 2023 will be met.

The implication would be a weakening of Beijing’s capacity to confront Washington, said Mr Wright. 

The conversation in Washington has turned to what the correct US response should be. Press advantage and further wall off China? 

“That approach in the short run will increase pressure on China, but over the long run, it will actually be damaging to US interests. An angry and isolated China is a greater danger to US interests than one that is interconnected,” said Mr Nicholas Borst, director of China research at Seafarer Capital Partners, a San Francisco-based investment advisory firm.

Instead, he told the commission that US policy should capitalise on China’s need for foreign investment and access to overseas markets to strike a better deal for American businesses.

“The current moment is a favourable one to seek greater market access and other reforms that will directly benefit American firms and boost exports,” Mr Borst said.

Ms Zongyuan Zoe Liu, a China expert at the Council on Foreign Relations, pointed out some silver linings for China. A deflationary economy, for example, meant lower prices, which would make Chinese exports competitive.

And China still had an edge in certain sectors. “China is still very much a leader in renewable technologies, very much dominating the supply chains of critical minerals,” she said at the hearing.

Some members of the commission suggested that the flow of billions of dollars’ worth of pension fund investments into China should be stopped on the perception that the Chinese economy is losing momentum and not sharing credible enough data for investors to count on.

But the experts testified that buying Chinese stocks in consumer-focused companies or investing in Chinese government bonds remained viable. “Most trade and investment activity between the US and China is mutually economically beneficial and poses no national security concerns,” said Mr Wright.

In an opinion piece for The Washington Post this week, former US treasury secretary Lawrence Summers advised a tempered approach. “Policies that limit commerce with China are surely necessary in some areas on national security grounds,” he said. “But contrary to what is often asserted by advocates, these policies exacerbate inflation, reduce the purchasing power of middle-class incomes and interfere with American competitiveness.”

Likewise, Mr Adam Posen, the president of the Washington-based Peterson Institute for International Economics, saw an opportunity in China’s troubles.

His widely quoted article in the current issue of Foreign Affairs magazine (September/October 2023), entitled The End Of China’s Economic Miracle, suggested that Chinese President Xi Jinping had undermined the economy by stressing political ideology. But, he said, there was space for Washington to cash in. 

“The Chinese economy’s affliction with economic long Covid-19 presents an opportunity for US policymakers to change strategy,” he said.

“Instead of trying to contain China’s growth at great cost to their own economy, American leaders can let Xi do their work for them and position their country as a better alternative – and as a welcoming destination for Chinese economic assets of all kinds.”