Why Britain won’t escape the fallout if China’s economy stagnates

China has slipped into deflation and could be headed for ‘lost decades’ of stagnation but its weakness also threatens the UK’s economic prospects, says Sean O’Grady

Heading for the scrapheap? A recycler drives a cart loaded with cardboard along a street in Beijing (AP)

News that China has slipped into deflation – falling prices –  has led to fears about the prospects for global growth. Although China’s economy is still expected to expand by around 5 per cent this year, that impressive-looking figure is one of the weakest in recent decades and insufficient to create enough jobs for a still-booming population; China needs to create about 16 million new jobs every year for its school and college leavers in urban areas.

Gloomier practitioners of economics even suggest China could be headed for the kind of stagnation and ‘lost decades’ that gripped Japan for many years, with prices, output and wages static. China’s Communist party politburo has admitted the country’s post-pandemic recovery is making “tortuous progress” and has pledged to “actively expand domestic demand”. Exports and imports have been weakening, and President Xi Jinping will have to approve measures quickly to reverse what could be a catastrophic slide.

Why should we worry about China?