Letting unemployment rise is the least desired outcome but is what will happen by default in response to a declining trade surplus. Wide spread unemployment doe

Letting unemployment rise is the least desired outcome but is what will happen by default in response to a declining trade surplus. Wide spread unemployment doesn’t contribute to economic or societal stability and so China will attempt to avoid that. The second option is wealth transfer through debt default; or government forced wealth transfer (taxes or inflation). China’s debt could be brought down from 300% of GDP to 100% of GDP overnight if creditors simply forgave 2/3rds of debt. That could happen though debt default (debtor bankruptcy) or taxing creditors and giving it to debtors. Having the bulk of your life savings disappear tends to make people angry and so China will attempt to avoid that. The last option is to kick the can down the road and increase domestic debt which is what they have been doing for the last 10 years.