MAGGIE PAGANO: Is the Made in China era over?

China has dominated world trade for decades, selling its shoddy trinkets and fake Chanel bags to Western customers hungry for cheap and cheerful.

Fueled by cheap labor and an abundance of energy, it became the world’s most industrious workhouse, spreading its economic tentacles to all corners of the globe.

President Xi Jinping had the grandest of visions. The most prominent example is the Belt and Road initiative, which aims to restore Marco Polo’s silk roads linking Central Asia to the Middle East, to northern Europe and to Africa.

Behind that is Xi’s ambition to grow trade with countries along the routes, helping them finance roads and bridges in return.

It’s been a mixed success: Across Africa, Chinese workers are mining tons of the earth’s rarest minerals to use in the race to build electric cars.

At the same time, China has gobbled up vast tracts of Africa’s most fertile land (twice the land mass of Germany) so that the grains can be exported home to supplement its own crops. Xi calls it trade. Others claim their economic colonialism.

Now the wheels are slipping on your big machine. Economic data suggests that the Made in China era is winding down or may be over.

Instead, the world’s second-largest economy may be heading for a period of ‘lost decades’ similar to neighboring Japan.

Consumption has fallen so sharply that China is in deflation territory, the first of the G20 countries to report deflation since Japan two years ago.

The consumer price index fell 0.3 percent on-year, after there was no growth in June.

The long-awaited revival of the economy after the authoritarian and heavy-handed restrictions of Covid zero, which caused cities and factories to close for months and people without food, has not happened.

Factory gate prices have plummeted. Manufacturers are cutting prices, particularly for cars. Tax breaks worth billions to try to persuade consumers to buy electric cars don’t seem to have had much of an impact.

No wonder there is no appetite to buy. The real estate market is in a mess, with many of the larger developments being restructured after racking up a huge amount of debt. Wages have stagnated, the population is declining, and unemployment is rising.

More than a fifth of young people are unemployed, a record.

Earlier this week, China reported weaker-than-expected trade numbers. Exports, measured in US dollars, fell for the third month in July, down 14.5 percent from a year ago. Iron ore prices fell sharply.

Imports plummeted 12.4% in July. On the export front, the sharp drop is because the rest of the world is struggling as well.

With the West facing its own cost-of-living crisis, consumers are buying fewer trinkets or handbags. Or cars.

Heavy product manufacturers and the construction industry are purchasing fewer components. The lower value of imports can be explained by declines in commodity prices, which are falling after huge increases seen since Russia’s war against Ukraine.

There are other factors at play. The once-eager foreign companies, which account for nearly a third of all exports, are pulling out.

Apple, Samsung and Siemens are moving their operations elsewhere, in part because strict lockdowns have shown supply chains need to be more diverse.

Foreign direct investment figures collapsed by 87 per cent to £4bn between April and June, the lowest level in 15 years.

Inevitably, China’s deflation will push the global economy in conflicting and competitive directions. On the one hand, it will help to depress inflation because the lower prices of imports will reduce our costs.

On the other hand, luxury brands like Burberry will find it harder to sell to China’s richest if they even tighten their belts.

There will be a ripple effect everywhere, particularly in East Asia, Australia and New Zealand.

What about Xi’s hope of replacing the US as the world’s leading economy now?

Although China will still grow around 5 percent this year, more rate cuts and measures are expected to stimulate growth and avoid the deflationary cycle experienced by Japan. But it will be difficult to achieve.

These latest issues, however, perhaps explain why the new Premier Li Qiang has taken a more conciliatory approach toward the US, and why Xi has been at the forefront of helping find a peace solution to the inter-American war. Ukraine and Russia.

That wouldn’t be bad.