China’s rally won’t last because its economic problems run too deep

Look to a few major mythological characters in the Greek pantheon that are marvelous representations for the world’s economic superpowers: Atlas, Sisyphus and Narcissus. This summer, the World Bank raised its forecast for global growth to 2.6% from 2.4% this year. The increased growth estimate was the result of expectations for the U.S. to grow 2.5%, compared to an estimated 1.6% rate at the beginning of 2024. That bump in expected U.S. growth accounted for 80% of the upgrade to global expansion prospects. In short, the world is standing on the shoulders of the United States as America acts as the world’s Atlas — a muscle-bound economy that is unlikely to shrug anytime soon. In the meantime, China appears as Sisyphus, rolling that growth boulder up the side of a mountain, only to have it slide back down before it reaches the summit. China’s stock market has recently rebounded on the promise of further economic and market stimulus. The measures include cuts to a variety of interest rates , as well as support for China’s flagging real estate sector . It’s Beijing’s largest such stimulus since the pandemic but whether it works remains to be seen. China’s stimulus efforts The Shanghai Composite has rallied sharply in the aftermath of those moves but remains about 50% below its all-time high of nearly 6,000, last seen in 2007. China has tried to boost growth in recent years with a series of half-measures that have failed to address structural weaknesses in its economy. These moves have failed to boost growth or lead to a durable and sustainable stock market rally. .SSEC YTD mountain The Shanghai Composite in 2024 Whether it’s the enormous drag from its wildly overbuilt residential and commercial real estate sector or flagging consumer spending, stimulus alone will be unlikely to reverse China’s poor fortunes. Hedge fund founder David Tepper, speaking on CNBC’s “Squawk Box” on Thursday said that the Chinese government’s commitment to boosting its economy is real. He said he expected the Federal Reserve’s rate cut in the U.S. last week would result in Beijing easing its own policy, and this spurred him to buy “everything” in terms of China equities. I would disagree. While lowering rates and injecting liquidity are potent tools, they are more powerful when a country is dealing with systemic financial crises, as opposed to systemic structural flaws. Growth in the U.S. vs. elsewhere By contrast, the U.S. continues to grow. The Atlanta Fed’s GDPNow model estimates third-quarter GDP is growing at an annual rate of 2.9%, just shy of the 3% rate notched in the second quarter . Recent stimulus aside, Beijing has yet to find a lasting cure for below-target growth and accelerating deflation in the post-pandemic era. China is overproducing electric vehicles and solar panels, which can’t all be sold at home. This has spurred worries that China may “dump” cars overseas, exporting deflation while also hurting domestic auto manufacturers both in the U.S. and Europe. That has led Canada and the U.S. to i mpose tariffs on Chinese EVs and could lead to more punitive measures against Beijing, weakening its economy even further. Given the structural weaknesses in China’s economy, its debt burden and its belligerent actions on the geopolitical stage, one can argue that while the Chinese market may make a great short-term trade after the stimulus, it’s a horrible long-term investment. Meanwhile, Europe may be the Narcissus of the group: staring at its own reflection for so long that it has ignored what is going on economically in the rest of the world. Consider that U.S.-based tech giants Apple, Alphabet, Meta Platforms, Microsoft, Nvidia and Amazon have all topped $1 trillion in market cap. The U.S. stock market accounted for roughly 60% of global stock market valuation in 2023. No other country, or group of nations like the European Union, come anywhere close. Similarly, U.S. oil production hit a record high in August — an average of 13.4 million barrels per day, according to the U.S. Energy information Administration. The U.S. as an economic superpower Further, the U.S. is rapidly building out its advanced manufacturing capacity and forming deeper alliances with Europe, Indo-Pacific nations and other groups in an effort to blunt the geo-political risks posed by the likes of Russia, China, Iran and North Korea. These efforts speak to the reemergence of American leadership on a variety of fronts and the Atlas-like strength of the U.S. as both an economic and military superpower. Bear in mind that carrying the weight of the world on its shoulders is a heavy burden for the U.S. At some juncture, whether it has trouble bearing its own weight, or weakens as it struggles to shoulder the collective burdens facing other nations, the strain may one day prove too much. For now, the U.S. is holding up well. This superpower has yet to yield its mythic status. That could be a sign that the apex of American economic power is near, but betting against the U.S. has been a fool’s errand of late. Let’s hope the U.S. can continue to live up to such lofty comparisons and remain atop the market’s Mount Olympus for a long time. — CNBC contributor Ron Insana is CEO of iFi.AI, an artificial intelligence fintech firm.