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”