China will keep funneling underpriced credit to unproductive firms that can’t repay their loans, continuing the country’s decline in productivity and rise in debt. These trends mean a greater likelihood of a major financial crisis and longer-term economic stagnation.China Regress
China’s image as a global economic powerhouse is wearing thin. Party leadership must display a facade of robust economic growth while hiding the essential “Ponzi scheme” nature of China’s fatally over-leveraged self-entrapment from the world and from its own people.
…at the highest levels of Chinese economic policymaking circles, there is a recognition that nonproductive investment has become a serious problem. In an important July 2021 essay by Chinese leader Xi Jinping on the country’s “new development dynamic,” for example, he demanded that China improve the quality and returns of economic growth and that the country should begin to pursue “genuine rather than inflated GDP growth.”
In theory, it would be possible to accomplish this by shifting a huge amount of investment with low or negative economic returns into high-productivity sectors of the new economy. But Beijing has been trying unsuccessfully to do this for years, and for reasons I have discussed elsewhere, this is likely to be almost an arithmetical impossibility.Michael Pettis
China’s leaders are caught in a fatal economic trap of their own devising.
Smart international investors are running away from China, having learned their lesson. But there is a sucker born every minute, and David Goldman is not the only one. Paying dividends and bond payments with borrowed money is not a long-term strategy. When investors no longer loan money to the bad actors, the game is up.
Growth must take precedence. Xi will therefore meet the current downturn in housing prices and construction with renewed efforts to funnel cheap credit to state-owned enterprises.China in the Red
China’s large banks continue loaning money to bad debts, for reasons that have everything to do with “keeping up appearances” and with political connections.
China’s Economy As a Paper Tiger
China Has a History of Breaking Itself Into Pieces
“The empire long united must divide, long divided must unite; this is how it has always been.”
― Luo Guanzhong, Romance of the Three Kingdoms, Vol. 1 of 2
To the world, Communist China appears as a united juggernaut, strong, powerful, and rich. But at the highest levels of party in-fighting, it’s a jungle. Xi may have achieved a third term as “absolute” ruler, but China has a history of splitting itself down the seams at the most inconvenient moment. Xi must forever watch his back, while he gets ever older and his enemies ever younger and more determined.
China isn’t a nation – it’s an empire. Whatever problems western societies have, the people who live in those societies live there voluntarily.
By contrast, collectivist, authoritarian empires like China (and the former USSR) are inherently antithetical to human welfare, and most people now ruled by Beijing know it. If the People’s Liberation Army ceased to exist tomorrow, the Chinese empire would also cease to exist.
At the very least, for example, China would lose Xinjiang, Manchuria, Tibet, Nepal, Hong Kong, and Macau (as well, of course, as Taiwan, which China still claims). In effect, China would revert to the old idea of “China Proper,” the 18 provinces that have always been the core of Chinese civilization.
Because so much of China’s population find themselves part of China involuntarily, in order to hold the country together the CCP is forced to spend more on domestic security than it spends on national defense. And that’s today, while China is still being appeased and coddled by the West.
China is certainly an economic and military powerhouse, but remember that, in aggregate, the U.S. and its allies spend vastly more on defense, have vastly larger economies, are vastly wealthier, and account for a much larger share of world imports and exports.
As China’s growth continues to slow, as the consequences of over-investment and the associated credit bubble come home to roost, and as the democracies increase their pressure on China to liberalize or be isolated (i.e., Cold War II), China will go the way of the old USSR. The CCP will be overthrown, the Chinese Empire will break up, and the world will be spared the possibility of being dominated by yet another tyranny.Once Again, China Doing the Splits?
At the very first sign of China starting a significant regional war, all international props will be pulled away, and China’s lack of skeletal substance will show. China’s impossibly long and vulnerable supply lines will be exposed and exploited. Without outside coddling and investment, China will fold. Considering China from all perspectives, the paper tiger cannot maintain its ferocious facade for much longer.
In the historical past, China has broken up into warring kingdoms many times. Past is prologue.