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How Cities Are Saving China

The threat of a trade war may not be good news for China, but it will not bring down the economy. The real challenge China faces is how to take advantage of dynamic urban clusters to generate growth and address structural challenges in financially and environmentally sustainable ways.

HONG KONG – The world has a demand problem, and it is dealing with it all wrong. Rather than allowing itself to be harmed by other countries’ problematic policies, China must work to create its own demand by making full use of its capacity for policy experimentation, long-term planning, and pragmatic decision-making.

In the decade since the 2008 global economic crisis, advanced economies have leaned heavily on easy monetary policy, hoping that large amounts of liquidity and ultra-low interest rates would generate enough demand to eliminate excess capacity. But this has undermined productivity, encouraged speculative activity, fueled asset bubbles, and exacerbated income and wealth inequality.

As developed-country citizens have become increasingly frustrated with this state of affairs, politicians – in particular, US President Donald Trump – have attempted to appease them with immigration restrictions and protectionist trade measures. But while this might temporarily satisfy some segments of these countries’ populations, it will ultimately make matters worse, by curbing global demand, exacerbating structural imbalances (including trade imbalances), and eventually leading to recession for all.

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