The Federal Reserve has raised its key rate ten times over 2022 and 2023 to control the fastest inflation in a generation and the US central bank expects to lift this rate twice more by year end. The score for the European Central Bank is eight rate increases; more to come. The Reserve Bank of Australia has conducted twelve rate rises since mid-2022, the Reserve Bank of New Zealand is at twelve hikes since 2021; more are likely from both. The tally is thirteen for the Bank of England and it’s not finished either. Central banks in emerging countries have similar counts as monetary policy is tightened the world over.

But not in China. The People’s Bank of China is the only major central bank loosening monetary policy and has done so again and again since late 2021. As well, authorities have implemented fiscal stimulus, eased regulations to fan economic activity and sanctioned a 7 per cent drop in the yuan this year to help exporters.

Chinese policymakers are prodding the economy because the post-pandemic reopening is spluttering. Consumer spending is placid. Manufacturing is shrinking. Services growth is fading. Employment is declining, boosting youth unemployment to a fresh record high of 21.3 per cent. Exports are falling. Inflation, often a sign of a robust economy, is zero per cent, and deflation is a danger. The country’s economic outlook is troubled in multiple ways.

China’s core frailty is the indebted and wobbly property sector, which typically drove 25 per cent of China’s output and forms about 70 per cent of urban household wealth. After policymakers overstimulated property to navigate the global financial crisis and created a supply glut, they needed to cool construction activity. Since 2020, officials have restricted credit. But rather than calm the sector they crashed it. Prices are sliding (down 30 per cent in some areas), building activity is languid and developers have collapsed. Almost scandalous, property companies turned to pre-payments to fund projects and many Chinese have paid for a home yet to be built and are boycotting mortgage payments. Reduced demand for land from property developers hurts the revenue of indebted local governments, which are burdened with debts, much hidden, that some estimate at US$10 trillion, twice the size of Japan’s economy.

This layer of government is just one part of the economy writhing under debt. China’s business, government and household debt is at 270 per cent of gross domestic product. These borrowings restrict the government’s ability to stimulate the economy, hobble business investment and inhibit consumer spending because debt can’t rise endlessly.

As more than 25 per cent of bank loans are linked to property, China’s property woes cast doubt on the stability of China’s banks. Most vulnerable are 4,000 smaller banks; some have already failed. The problem is that China’s largest banks have overlent to property companies and risky emerging countries (under the government’s Belt and Road Initiative). They are too feeble to absorb tottering smaller banks. Multiple bank failures could trigger a systemic crisis.

Another worry is that the deglobalisation fanned by China-US tensions deters the foreign investment that propelled China’s ascension. Western companies are establishing factories in cheaper and friendlier countries. Foreign investors are avoiding China’s stock markets. On top of that, Beijing-Washington strains are restricting China’s access to Western technology, especially related to artificial intelligence, the cloud, advanced microchips and supercomputers.

A further drag is China’s shrinking and ageing population. In 2022, the number of Chinese dropped by 850 million to 1.4 billion, while the birth rate sagged to a record low 6.7 per 1,000 people. Falling and ageing populations inhibit dynamism and reduce demand, among harms.

Yet another anxiety is President Xi Jinping’s nationalistic and statist ideological bent. Xi is steering resources to the state sector, preferred industrial programs and a military buildup. He has acted against the private sector, especially technology companies, to ensure no rival power centres emerge. His actions, however, deter foreign capital and undermine productivity.

The result is that China’s economy is likely to expand only about 3 per cent this year after adjusting for lockdown disruptions – no doubt, it will hit the official 5 per cent target before this tweaking. In coming years, the economy will likely only expand at about the same 3 per cent rate, which would be less than half the pre-pandemic average.

Such stagnation has local and global consequences. Within China, the biggest risk is the public loses faith in the communist party and its leader Xi, China’s most powerful ruler since Mao Zedong. Don’t rule out social unrest.

Any China slump would further hamper a slowing world economy. China comprises about 20 per cent of global GDP on a purchasing-power-parity basis. Commodities, currencies and stock markets that are priced on the assumption that China will grow at a decent pace forever are vulnerable. China-dependent countries such as Australia, Brazil and Germany are exposed – at the very least, Canberra’s budget surplus for last financial year will prove a one-off. Emerging countries caught in the Belt and Road Initiative ‘debt trap’ could suffer because China can’t afford to release them from punishing terms, a position that stops Western countries and international bodies such as the International Monetary Fund pardoning this debt. A totalitarian regime under pressure at home could double-down on the nationalism that makes an invasion of Taiwan more likely.

China’s remedy to escape the worst of the global financial crisis is backfiring now. China is unlikely to become the world’s biggest economy anytime soon, if ever. At best, an era of slow Chinese growth is underway. At worst, a Chinese recession could sink a fragile world.

To be sure, China’s economy is still expanding and Beijing can inject more stimulus. Such actions, however, would only induce a temporary burst of faster growth. Beijing is rightly shifting China’s economic model towards a consumption-driven one while prioritising high-tech and renewable sectors. But such remedies take time.

The problem is Chinese officials need to quickly resolve how four decades of export- and investment-led growth have stirred imbalances made worse by the pandemic response and Xi’s stances. The People’s Bank of China’s endless loosening of monetary policy won’t be enough to stop China damaging the world.