A New Way for China?

An Uncertain Future

Hong Kong embraces democracy, rejects Beijing. Worse: Communist party officials deluding themselves — this delusion could lead to civil war inside China.

The people of China must follow where the Communist Party of China leads them. Yet, if things get bad enough — if too many promises are broken — they may decide to stop following, and find their own way into the future.

Inflation, Skyscraper Curse, Property Bubble

A Dark Future

Chinese businesses are facing an increasingly dark future. For most western businesses at this time it is best to just cut their losses.

China’s economy is hurting right now. On the one hand, food prices are soaring. See China’s consumer prices rise at fastest clip in nearly 8 years, as pork prices continue to soar. On the other hand, exports are plunging. See China’s exports decline for third successive month in October. Reliable economic indicaters (as opposed to official government statistics) paint an economy in trouble. See China’s economy is in more trouble than markets think. See also China’s car sales drop for 16th consecutive month as October falls 4 per cent. The tariffs are not helping nor is the Chinese government’s crackdown on private businesses. On top of the economic issues, many Chinese companies have become both wary of and angry at the West, particularly the United States. This too makes things riskier for foreign companies… __ China recapitulates 1990s Russia

Prices are rising

In what is becoming a daily scene in markets, restaurants and office buildings across China, ordinary citizens cannot help but share their worries about the sharp rise in the cost of living, and discuss how to save money.

This trend comes in response to a new environment of rising prices and slower economic growth, which is leading to growing discontent among the public. __ https://www.msn.com/en-my/money/topstories/chinas-rising-prices-driven-by-pork-crisis-leaving-a-bad-taste-in-the-mouths-of-chinese-consumers-businesses/ar-BBXcFdG?

Skyscraper Boom Crashes

As China’s economic growth slumps to three-decade lows, credit for property developers has been turned off. FT also learned that construction of more than a dozen skyscrapers, some more than 900 feet tall, have been postponed or behind schedule in 2019.

“Demand for office space has weakened considerably due to the slowing economy,” said Cherry Hu, an analyst at Cushman & Wakefield in Wuhan. “The situation is not going to improve any time soon.”

__ https://www.zerohedge.com/markets/chinas-skyscraper-boom-halted-amid-developer-default

Ominous Property Bubble

… long-term, malinvested projects that seemed to be feasible will eventually become impossible to carry out. Resources pulled toward early stages of production will need to be liquidated, and the economy will inevitably suffer a predictable recession. __ https://seekingalpha.com/article/4307929-chinas-growing-real-estate-bubble

China Follows Japan’s Example

China is rapidly growing old as bad debt accumulates.

Population Demographics

China resembles Japan in what is arguably the most important long-term factor affecting debt and prices: population demographics.

Japan’s paradigm shifted when it’s workforce began to shrink, which was ~15 years before its overall population began shrinking, and China is in a very similar position today.

$250 Trillion in Global Debt: How Can That Be Paid back?

In light of population demographics, increasing needs of healthcare of retirees, and massively underfunded pensions I again ask, $250 Trillion in Global Debt: How Can That Be Paid back?

Population demographics alone show the futility of central bank efforts to cram more debt into a global financial system choking on debt. __ https://www.fxstreet.com/analysis/key-thought-of-the-day-china-today-is-like-japan-in-1989-201911241406

Since the financial reforms of Deng in the late 1970s, China has been on a wild economic ride. Thanks to a huge amount of overseas investment and technology transfer from the outside, China has maintained the appearance of an increasingly prosperous industrial and military power. But the investment has slowed, and the technology transfer is becoming more reluctant — as decades of Chinese theft, counterfeit, and piracy pile up. China’s roller coaster is beginning the inevitable decline.

China’s government can make things much worse if it chooses badly on Hong Kong:

Foreign companies will accelerate their exit from the Chinese market by moving to safer manufacturing countries, including the United States and India. The benefits of operating in other countries will make abandoning China so attractive that once they leave, they won’t return. These include safeguarding their intellectual property, full ownership, avoiding sweatshop, prison and child labor, stronger labor and environmental laws, less bribery and corruption, and higher quality control.

  • China’s international and business reputations will suffer greatly.
  • Foreign investments in China will slow or cease, at least for a few years.
  • Chinese companies will lose stock market value around the world, as happened following the imposition of tariffs by President Donald Trump on Chinese products.
  • Unemployment in China would rise with the loss of manufacturing and tourism, which will further contribute to a post-massacre recession or depression. The CCP should understand that 100 million unemployed Chinese would create the conditions for a revolution…
  • Countries that dispute China’s territorial claims, particularly in the “first” and “second island chains” surrounding and beyond the South China and East China seas, will dramatically increase their defenses and their activities to protect the freedom of the seas and airways in the region.
  • The Philippines may become a stronger U.S. ally against Chinese expansionism, and the United States will be better able to unite the region against China…
  • China’s “One Belt, One Road” initiative could be at risk from host countries, as anti-China feelings arise worldwide.
  • Chinese citizens will see their incomes fall as the economy drifts to recession and perhaps depression.

__ Source

Promises of rising wealth have been made to the Chinese people, but the economy is showing signs of difficulty — the promises are beginning to fall by the wayside. Over the long span of Chinese history, when the people are disappointed they begin looking for new places to shift their allegiance.

With all his opponents in jail and his fellow citizens either cowed into silence or awed by China’s wealth and power, Xi should be in a prime position to celebrate his nation’s birthday and bask in the glory of a successful plenum. But his actions and the society he and his minions are creating speak less to confidence than to a small-minded obsession with control. China shook the world because its people dared to dream big. Those dreams are being squeezed into the narrow Chinese dream of Xi Jinping.
__ Source by John Pomfret

The most accurate view of China today may come from fiction: the novel “China Dream” by Ma Jian. One must understand both the people and the incentives that they face. Neither task is easy.

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