The Coming Chinese Slowdown: Resolving the Paradox of Freedom and Growth

Wall Street’s sell-off on February 27 was triggered by a severe drop in China’s equity markets. On that day, all of the major U.S. indices experienced declines of between 3 and 4 percent, including the Dow Jones Industrial Average, the S&P 500, and Nasdaq. Though the U.S. bond market rose, Treasury bonds have long been buoyed by massive investments from China’s government. The 9 percentage point plummet of Chinese equities in one day, the worst performance in a decade, sends a sharp reminder and a warning. The reminder is that the economies of China and America are deeply integrated— the Sino-American engine is at the heart of globalization, after all. The warning is that the Sino side of the engine is strong but not stable.

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