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Zachary Halaschak, Economics Reporter


NextImg:China slashes rates and suspends data on youth unemployment as troubles mount

Chinese officials have cut key interest rates and begun obscuring data as the world’s second-largest economy struggles and threatens to cause global turbulence.

China is facing an array of economic problems and is working to obscure just how bad the situation might be, but the slashed rates are a clear signal that Beijing is worried about the country’s economic outlook. The People’s Bank of China lowered the rate on its one-year loans to 2.5% on Tuesday, the second cut since June.

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Cutting rates is a move that is designed to heat up demand. Rate cuts can cause inflation to rise, in some circumstances. Inflation has been plaguing Western countries over the past couple of years, including the United States.

Also on Tuesday, China announced that it would suspend publication of the youth unemployment rate. The official excuse was that it needed to be better calculated, although it is noteworthy that youth unemployment has risen to new highs in recent months, another sign that China’s economy is on a bad trajectory.

The unemployment rate for Chinese 16- to 24-year-olds in urban areas is now over 21%. That is more than double what it was just a few years ago.

Fu Linghui, a spokesman for the statistics bureau, said Tuesday that two-thirds of those who fall into the youth bucket are students, so the government is working to get a more accurate calculation of youth unemployment.

“The main task for students is studying. There are different views over whether to include students who are looking for a job before graduation in the labor-force survey and statistics,” he said, according to the Wall Street Journal.

China is also facing a property crisis. The government hurt itself by cracking down on the heavily indebted real estate market in 2020. It did so to reduce the risk to its financial system, but it also pushed housing prices down, and several companies defaulted.

The flagging Chinese economy has major implications for not only Beijing but also the United States and the world economy.

The U.S. and other countries are closely tied to China through trade.

China imports many energy products, so any major slowdown in the Chinese economy will result in decreased worldwide demand for energy. With a slowdown in Chinese energy imports, energy producers will get hit in the U.S., something that could cause jobs to be cut.

China is also the world’s biggest importer and consumer of U.S. agricultural products, and if demand for those declines with Beijing’s economy, so does the U.S. agricultural sector. That could also equate to a hit to the U.S. labor market.

“We are so intrinsically entwined with this economy that we will hurt ourselves. We will disrupt all our existing supply chains, which is pretty significant,” Scheherazade Rehman, a professor of international finance at George Washington University, told the Washington Examiner.

“We will exacerbate delays in production. … It will force companies and consumers to pay more, and not least because reallocation of production can’t happen overnight in the United States,” she added.

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Notably, President Joe Biden has continued the tariffs that former President Donald Trump levied against China during his time in office. Proponents of the tariffs see them as a way to reduce the trade deficit and boost U.S. domestic production, although those tariffs and other U.S.-imposed barriers could be making China’s economic situation worse.

For instance, last week, Biden signed an executive order to regulate and block high-tech U.S.-based investments flowing toward China.