Worried about China’s growing military muscle? The bigger worry might be China’s weakening economy.

(Originally published June 30 in “What in the World“) As Washington continues to fret over Russia’s ambitions in Ukraine, the world faces a more pernicious threat: China.

It’s not China’s military ambitions and what threat those might pose to Asian security or America’s power. The larger threat stems from China’s economy and the danger its weakness poses to the global economy.

The International Monetary Fund projected in May that China would account for 35% of growth in global GDP this year. No other economy comes close: booming India will only contribute 15% and the world’s largest economy, the United States, will kick in 11%. Like it or not, China remains the world’s economic engine.

And that engine is making some worrisome noises. A shrinking population and falling productivity are sapping economic growth, confounding hopes for a sharp rebound after the country ended its zero-Covid lockdowns and making existing structural weaknesses in its economy much more dangerous. In the first five months of this year, profits at China’s industrial companies fell almost 19% compared to the same period of 2022.

A nearly 6% recovery in consumer spending helped propel China’s economy to 4.5% growth in the first quarter of this year. But exports were flat. Property investment slumped nearly 6%, raising pressures on heavily indebted developers and provincial governments. Youth unemployment has meanwhile soared above 20%, a perennial recipe for political disaster.

In years past, China could compensate by simply allowing its currency to weaken and let exports help pick up the slack. Indeed, the People’s Bank of China has allowed the renminbi to fall more than 7% against the U.S. dollar in the past year.

But exporting its way to growth may no longer be so easy: China’s trade surplus was diplomatic dynamite at the best of times. Relations with the West are already weak, with the U.S. and the Netherlands working to cut China off from the most sophisticated semiconductor equipment and technologies. Western companies are responding by shifting their supply chains out of China as part of “de-risking.” Worse, China’s biggest export markets are already struggling with higher interest rates, crimping demand.

In the past, China’s cheap exports also exported deflation to the West, allowing central banks to keep rates lower for longer. But now that China has expanded its share of global manufacturing to roughly one-third, it’s unclear whether it can do that any longer. And if it tries, it will only put further pressure on central banks to raise rates further, raising the risk their battle on inflation tips economies into recession.

Even as the Federal Reserve, the European Central Bank and the Bank of England have been raising rates, however, the People’s Bank of China has been cutting them in attempt to revive economic growth. But as AXA economist Aidan Yao reminds us, the problem is that China’s debt bubble has become so large—primarily in the property sector—that most of the savings the PBoC creates by lowering rates goes to paying down, or just refinancing, existing debts, rather than spending or investing. Monetary policy’s ability to stimulate the economy, in other words, is pooped. Economists call rate cuts in such an environment “pushing on a string.”

One tried-and-tested remedy policymakers have used when faced with a weak economy and rising youth unemployment: give them a military adventure overseas.