China is facing one of its most difficult domestic and international situations in decades. This has compelled its leaders to adjust policies but, because they face domestic challenges that require sometimes-conflicting policy measures, policy actions have been cautious and contradictory. This raises questions as to whether their measures can successfully avert a damaging slowdown.
As a result, the rest of the world should prepare for more fallout from China’s economic travails: global economic growth could slow; emerging market currencies could come under pressure if the Chinese yuan were to depreciate further; and depressed investor and business confidence could undermine investment, which is already faltering because of tightening monetary policies and the geopolitical uncertainties caused by the Ukraine crisis.
Government policies had weakened the domestic economy even before the current Covid-19 wave