A year ago, only a few manufacturers in China were thinking about leaving. Now the strategic picture has changed.
In December, I had one company getting ready to source elsewhere,” he says. “Then I went back in May. They are all thinking about it now,” he says about the Chinese manufacturers targeting new hubs in southeast Asia. Mexico is also on the radar screen.
“You’re going to see more companies exploring outside of China,” Scannapieco says. “Unless you’re in China to sell to China, why be there? It’s becoming too much of a risk.” __ https://www.forbes.com/sites/kenrapoza/2019/06/27/china-trade-war-update-global-supply-chains-shifting-but-asia-not-easy-winner/#112411f0df56
It is not just US companies that are trying to reduce their risk exposure in China. European companies are doing the same thing.
China Economic Risks are Growing
Around 25% of credit in China is “rotten debt,” essentially dead meat. And another 25% is embodied in “dying meat.” Other than foreign investment which has been largely based upon foreign market demand, domestic investment in China is based upon political considerations — which tends to be economically misplaced, and often gets out of control. And as we have seen, foreign investments have been falling away recently, and more of China’s economy is tied up in Potemkin-style artificial stimulus.
Too much of China’s debt has been amassed in unproductive ways—unnecessary factories, insolvent “zombie” companies—and that gross misallocation of resources is eating away at key drivers of growth. __ https://www.bloomberg.com/news/articles/2019-01-17/forget-the-trade-war-china-is-already-in-crisis
This problem of unproductive debt has been conveniently hidden in China’s outsized economic growth statistics at least since 2008. It makes a joke of official GDP growth statistics coming out of China, since “unproductive growth” has an altogether different meaning than “organic growth” that comes out of supply and demand dynamics in an open, integrated economy.
The State Owned Enterprises [SOE’s] of China are too close to the splenic flexure of the CCP’s large colon for them to be properly debrided from the rotting body. After all, 90% of China’s millionaires are close relatives of party officials. The spice must flow, as they say, and spice does not flow from companies that have been allowed to die — even if that is what should have happened.
China’s Slow Decline and Fall
China’s rapid growth of the past few decades was based upon foreign investment and technology transfer, plus a few historic trends and events which will never happen again:
China’s growth in the last three decades received an impetus from several events that were “one-offs”—by their nature, they can’t happen again. Bringing previously unproductive peasants by the hundreds of millions to work in urban factories, that’s over. Joining the World Trade Organization, that’s over. Enjoying a huge working-age population with few children to raise thanks to the One-Child Policy—not only is that over, it has left a demographic hangover in the form of a gender-skewed citizenry whose median age is rising rapidly, straining the nation’s minimal social security system. __ Decline and Fall
China received a rare series of minor miracles to become as “faux rich” as it has become. Those miracles will never return. And as Chairman Xi’s China grows more rigid and authoritarian in the belief that the Chinese economy and Chinese people will continue to support it no matter how badly it misbehaves — the underlying fundamentals are eroding from under the feet of the dictatorship.
What is ailing China will soon be infesting all nations that host significant Chinese investment or enterprise — such as those involved with the One Belt One Road (OBOR) initiative. OBOR is turning into a massive debt exploitation/overproduction scheme which benefits corrupt leaders of indebted countries, but leaves the people as virtual slaves under an occupying army of Chinese overlords and collateral holders.
So far, most of these corrupt and soft-headed debt-enslaved governments have been third world countries — which can change governments and contracts very quickly. But some European countries [Greece, Italy, etc.] have dipped their toes into the alligator infested waters, and they are unlikely to survive the experience in one piece.
So, hope for the best but prepare for the worst. China is insinuating itself deeply into economies and political bodies around the world, and bringing its corrupt and authoritarian ways.
It is never too late to have a Dangerous Childhood © .