China’s Achille’s Heel: Economy Tracks Population

China’s baby bust is driving fears that China’s days as a manufacturing powerhouse are numbered. The simple fact is that most young Chinese cannot afford to have children. Young married couples are lucky if their parents are well off enough to help them to raise their child.

China is a Terrible Place to Do Business

It is not just ailing property giant Evergrande that is threatening Chinese prosperity. The entire business policy dictates of the ruling elite threatens future prosperity.

Besides banks and asset managers, some of whose investments in China have taken a big hit in recent months, several types of multinational firm are at risk. One group includes those that make most of their money in China from pandering to a gilded elite who flaunt their $3,000 handbags and sports cars. Another encompasses companies that irritate their customers for what can be construed as Western arrogance; Tesla, the electric carmaker, is an example. A third category includes European and American makers of advanced manufacturing equipment and medical devices that China feels it should be producing itself.

As usual, the threats come in the form of policy announcements that sound deceptively bland. One, “common prosperity”, is a catch-all phrase extending from a reduction in social inequality to more coddling of workers and customers to the nannying of overstressed youngsters. Its most obvious impact is on Chinese tech, tutoring and gaming firms, which have lost hundreds of billions of dollars in market value as a result of government crackdowns. Yet multinationals, too, have been caught in the fallout. In a few days in August the valuation of European luxury brands, such as Kering, purveyor of Gucci handbags, and LVMH, seller of baubles and bubbles, tumbled by $75bn after investors finally took Mr Xi’s common-prosperity agenda seriously.

Vanishing Allure of China Business

Evergrande is a symbol of China’s rush to grow too much, too quickly, based upon massive and ultimately unmanageable debt. It is not alone in its insoluble dilemma. The real estate giant has over $300 bn in liabilities. An employer of 200,000 people, if Evergrande falls, it will take a lot of China down with it. Because Evergrande is not only an over-leveraged real estate powerhouse, it is also a very big Chinese “shadow bank.”

Peter Zeihan says “China is Doomed”

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3 Responses to China’s Achille’s Heel: Economy Tracks Population

  1. bob sykes says:

    First, as Japan is demonstrating, you can have a falling population and a rising GDP.

    More importantly, every country in the world, except for sub-Saharan Africa has a falling population. It is not as apparent for the US as others, because of mass immigration, both legal and illegal. However, the White population is falling, and it is the White population that keeps the US economy growing. Our high immigration rate merely adds to the dependent population.

    China’s manufacturing sector comprises almost 30% of all the manufacturing capacity in the World, and it is 50% larger than the US. It is also more modern and more heavily automated. As David Goldman at Asia Times points out, China has Huawei’s real 5G, not the fake 5G being rolled out by Verizon and other American companies. Huawei’s 5G is several times faster than the American fake, has a much higher bandwidth, and a much lower latency. China has 70% of all the 5G base stations in the world. Its main application in China is the further integration and automation of factories, and China is adding AI to its 5G networks to leverage its 5G advantages.

    All told, the loss of productive people is a problem for every country on Earth, even the huge African emigration wave is a brain drain on Africa. However, China seems well positioned to continue to grow like Japan. It is the US with its falling productive population and the intense divisions among its races that is in trouble.

    And then, as pointed out in today’s Asia Times there is the looming debt default on US treasury notes. We are already over the statutory debt limit, but Treasury has been playing accounting games to hide the default.

    It would be a big help to everyone if al fin the next level would turn its analytical skills on the US, which is where all the real problems lie.

    • Yung Tao says:

      You have some good points. Yet, your analytical skills are flawed also as you provide no balanced perspective. China grew through enabling freedom. Now, freedom is disappearing rapidly. You think Chinese enslaved people will be as highly motivated to make China great? If you think so, take a look through your history books to see how the productivity of slaves compares to the productivity of free people. Yes, I am from Singapore.

  2. ddswaterloo says:

    China is 1.5 billion people.

    With this mentality, if China was 2.5 billion you would still be arguing the same thing.

    China should reduce it population drastically. 500 million would be a reasonable number. It only gets there by reducing its numbers at some point.

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