China is having quite a few problems on their hands though like the implosion of their real estate market that is tied to nearly everything else due its size. Their exports are down from companies decoupling somewhat with “China + 1”.
In the long term, they have a bit of a population problem as their demographic dividend ends and their birth rate remains low.
I don't think this article is right on the cause. China's biggest problem is, imo, the continued slow motion train wreck of evergrande and its real estate market collapsing. So much of China's growth was money sloshing around due to things getting built. But that seems to be harshly falling. There's hundreds of billions of debt hovering around default and the best these companies can do seems to be to double down on building and selling more buildings, which I sort of expect people don't particularly want to buy. General supply chain issues and covid affect this too. Food availability due to lower exports of wheat from russia and ukraine could cause an issue too.
A few of the privations of the Chinese were listed: Heating, housing, vegetable oil, and a clean environment. I'm not sure if these things are related to trade imbalances so much as overpopulation.
So China is holding a lot of bad paper. I don't know why in god's name you would buy debt from the US when it's basically low-yield junk, and has been for a while. The old saying is: When you owe your banker a 1000 dollars, you're in trouble. When you owe him a million dollars, he's in trouble. So China's in trouble.
Their odd dollar-centric twist on mercantilism isn't likely to help them in the long term: Once the export markets (and jobs) dry up, the people will have all the iPods they want, but the heating/oil/living space/environment problems aren't likely to be solved.
In Asia we mostly hear bad news as well. The economy of China really is slowing down and there is a massive housing bubble which is evidenced by huge numbers of unoccupied newbuilds which are already crumbling down. And it's a fact that growth is slowing down and there are lots of political issues which are further damaging the outlook.
China is facing a debt crisis that makes the US debt look like nothing along with a very rapidly aging population, one of the fastest aging in the world, despite not having reached the level of development of similarly aged populations. China's population likely has already started to decline.
We don't need to worry about China, they'll handle ending themselves themselves.
The distortion in the system are massive, the main things that work well (and extremely well) is the export sector. BUT China's export sector has always been more dependent on foreign investment, foreign management and external inputs. Even the height of it's manufacturing boom, China could run a trade deficit because its export sector was so oriented to labor-intensive final assembly activity.
The real estate sector is well know for its ungoldly distortedness, it's science establishment is riddled with fraud, it's economic statistics are generally falsified. The pollution produced by it's industry (and corrupt state) is now making a true deadly impact on its society but the pollution is also a product of its energy sector's costs being falsified and so-forth.
China is in deep trouble; it has a total debt to GDP ratio of 282%, the highest compared to the other big gdp countries. (http://bloom.bg/1evYSQ5). The housing bubble has already burst in the 3rd and 2nd tier cities in China, and the 1st tier cities are close to bursting. And the shanghai stock market is close to retracing back to 2000, since the current stock market has a p/e ratio that's 41% higher than that of US's 2000 dot com market. (http://bloom.bg/1HNgqA4)
When (not if) the china's stock market collapses, and the capital flight from China accelerates (estimated 600 Billion a year currently http://bit.ly/1NJQuIX), then China is going to be permanent decline for the next 10-20 years. It would be anyone's guess what China will do then, since it will inevitably suffer massive internal unrest, due to the fact that it's ruled by a bunch of dictators.
EDIT: China seems to be following the same path as Japan in 1990, except China has really screwed up their environment and rich people really want to leave the country.
China right now is largely headed for collapse with ever increasing prices of Chinese parts and ever growing debt burden growing at a faster rate than the economy and a rapidly aging population, probably the most in the world. They've got a decade at best left as a semi-modern country before they start to regress.
I'll believe it when I see it. The end-times of China's growth is like a broken record, except it goes dormant for a few years at a time.
Their debt crisis is pretty bad but not insurmountable in a country where the government controls more than 50% of the banking infrastructure.
The main problem they face right now is a crisis of confidence in their consumer market, this is decidedly easier to fix with mechanisms that won't re-inflate the property bubble.
Demographic shifts sure. Because similar to Japan they have net-zero or even net-negative immigration they will need to fix that internally but it's a 10-20 years out problem, not a now problem.
For now I'm in wait and see mode. China has more powerful tools than other economies to correct these sorts of problems so there is a good chance like 2015 that this blows over too.
I've run a business in China for over a decade and follow the macroeconomic situation here closely.
Here's the deal:
The Chinese economy became investment-driven instead of export-driven following the Great Financial Crisis. Exports are less important to GDP than real estate construction and infrastructure development (subways, high speed rail, bridges, etc).
In terms of exports, Europe is the biggest trading partner, not the US. The US is number 2.
The Chinese economy has a big problem: the government can drive GDP as much as it wants via state-driven investment and debt, but much of that is malinvestment and the debt cannot be self-funded. So there is and has been a large debt problem. This is why the Chinese economy has been slowing and the government has not found a politically acceptable way to tackle the problem.
The US trade war is basically kicking the Chinese economy while it's already down, but it's not the key source of the problems here.
The problem with China, in my mind, are several fold, like any other country to be fair.
1) Its primary industry is export. Is it really sustainable especially since other countries in the World may soon provide even cheaper labor and economic realities may force countries which consume China's products may reduce the demand.
2) It is artificially controlling its currency. I'm not an economist but how long can they keep doing this? Can a country really keep this going on for too long?
3) Its internal problems related to widening economic gap, human rights, and a communist government are going to get worse when people with new found (or lacking) economic freedom revolt. When will this happen, probably soon or maybe never.
Only time will help how it pans out in the future.
IMO China is on the way out. Their real estate market is crashing, and that is bring down the banking industry. The Zero Covid policy is crashing their economy, and the younger generations would rather "Let it Rot."
The CCP might not make it to the end of the 2020s. If they somehow get all the above sorted out, the demographic charts show that will be the time they run out of young people. But it is worse than that. The charts may have overcounted the younger generations by up to 100 million people.
The de-globalization that is going on, and the fact they can't feed their population, means they will have to make drastic changes. They may even have to de-urbanize large sections of their population to keep hundreds of millions from starving.
China is building... and building and building. Houses mostly. It's basing its growth on housing and industry like the US economy.
The problem with that is that a LOT of Chinese people cannot buy a house. They simply don't have the liquid money or the same access to credit that American's do (for better or for worse).
So what they have now is a glut of supply in their housing market (built upon credit), with a lack of demand. And really there is no way for the Chinese government to create that demand. They can't go the QE route because your currency is restricted. You don't have diversified industry to kickstart. Steel is down. And you're already saddled with both domestic and foreign debt.
I'm no economist, but the future isn't that bright for China. Imo a Chinese collapse could be worst than an American one.
China is on the verge of massive collapse of its financial system due to the real estate bubble. Not to mention the demographic crunch from its one child policy.
Do a search in other media outlets, even Western ones, it's a major concern.
And yes, China is hurting a bit. Apparently the reduced coal imports are causing issues, but with wine and other food items, they have other countries they can buy from.
China is what? 20x the size of Australia? A little hurt in China means a lot of hurt in Australia.
Trees do not grow to the sky. China has a lot of problems, among them pollution, corruption everywhere, the failed state banking and securities markets, etc. They will bump into natural limits to growth, as indeed they have already in some cases.
In the long term, they have a bit of a population problem as their demographic dividend ends and their birth rate remains low.
reply