President Joe Biden in his May 28 interview with Time claimed that China “has an economy on the brink of the abyss. “
He is right.
And we are worried about this, because Xi Jinping could try to solve his economic problems by starting some other war.
At first glance, Biden’s grim assessment is flawed. The official National Bureau of Statistics reported that China’s gross domestic product far exceeded expectations, emerging five percent in the first calendar quarter of this year with the same era last year. This is a slight mejora. de the strong expansion of five percent recorded over last year’s total.
But none of those reports make sense. As Anne Stevenson-Yang of J Capital Research told me this week, “I feel like the numbers don’t mean anything anymore. “
There is now a gap between the reported effects and what we can observe. The widely followed Rhodium Group estimates that the economy grew by about 1. 5% last year. That’s about the “now close to 2% annually,” Biden reportedly told a Democratic Party. donor organization in Park City, Utah, last August.
Since then, expansion has almost slowed. ” The Chinese economy is in a slow recession,” Andrew Collier of Hong Kong-based Orient Capital Research told me.
“The new companies are definitive, no one is finding employment, millions of people are paying mortgages on apartments that have not been built, the municipal facilities are definitive. . . it’s a bleak scenario for the Chinese,” says Stevenson-Yang, who also wrote the story of Wild Ride: A Brief History of the Opening and Closing of China’s Economy. “The sad thing about China is that the economic style has reached the end of its useful life and there is nothing to be done yet to replace it or incur wonderful suffering. “
“It will have to be scary when the business style just stops working,” he added. “We had an impressive moment in 2008, but we knew that if we got out of the rough patch, capitalism would work for the most part. “
China is now going through its long-delayed crisis of 2008.
In 2008, Chinese leaders Hu Jintao and Wen Jiabao vowed not to suffer an economic downturn and embarked on the largest debt-driven stimulus program in history. China has embarked on a structural frenzy and recorded double-digit growth. As a result, the country is now largely overbuilt. For example, China, according to a former deputy director of the statistics bureau, has enough empty apartments to house more than 1. 4 billion people, or the entire population of the country. Some estimate that there are enough empty apartments for 3 billion.
Infrastructure, in addition to China’s railway system, has also been overbuilt. Complaining of a debt of around 900 billion U. S. dollars, China’s State Railway Group has begun servicing the last 26 high-speed rail stations.
Hu and Wen’s successors will now have to find a way to pay off the railroad and all other debts. Even if China’s economy grew as fast as it is said to be growing now, it would still have no way to do so.
China’s overall debt-to-GDP ratio is likely to be around 350% or higher. No one knows because there is a lot of “hidden debt” and Beijing has published inflated GDP statistics.
One thing we do know: a debt crisis is looming and it may be the biggest in history.
Almost all observers propose that China move to a consumption-based economy before it is too late, but Xi Jinping will not. Nobel laureate Paul Krugman recently told Bloomberg TV that China “seems strangely incapable” of taking “even modest steps toward a refocus on domestic demand. “
Xi will not stimulate domestic demand or inspire admission. After all, admission would bolster ordinary Chinese, weakening the Communist Party’s grip on the economy. It would also erode the strength of state-owned enterprises, a pillar of the Party, and even undermine the monetary stability of the gigantic but precarious state-owned banks.
Xi has only one solution: invest money in factories and hope to export his way out of this difficult situation. However, this plan assumes that other countries will continue to settle for Chinese products. “No matter what the theories about flexible trade are, this is just not going to happen,” Krugman said. “We can’t absorb it. The world will not settle for everything China needs to export. “
Countries are already beginning to resist. On May 14, Biden announced tariff rate hikes on metal and aluminum, semiconductors, electric vehicles, batteries and their parts and critical minerals, solar cells, ship-to-shore cranes, and medical products. personnel and enterprises of China’s unfair industrial practices,” according to the administration.
Biden’s tariff measures will drive a trend. Imports of goods from China fell by 20% last year. China is no longer the main importer of the United States. exports to China also fell by four percent. Overall, bilateral industry between the United States and China fell by 16 percent last year. This year, bilateral industry fell 3 percent in the first four months.
It is possible that the European Union will simply meet its demand by imposing higher tariffs, and even Beijing’s friends in the “South” are reluctant to settle for Chinese goods.
So far this year, Chinese exports have not been impressive (up 2% in the first five months, compared to the same period last year), meaning that Xi Jinping’s plan has not succeeded. Collier doesn’t think China’s economy is going to “collapse”; “There are too many moving parts,” but the “structural decline,” he says, “will last for years. “
“I am hopeful that this can lead to a moderation in China’s ‘wolf warrior’ international relations and a global improvement given the importance of industry and the U. S. dollar to the economy,” Collier said.
Moderation in Chinese politics is a possibility, but China’s competitive leader would possibly make the decision to take a more bellicose approach. Last August, Biden called China a “ticking time bomb. “The cause of a detonation may also simply be Xi Jinping’s realization that China’s economy cannot be saved, which would mean that he would see a window of opportunity near to realize his vast ambitions.
And he could understand the last window as a way to remain in power. If you are Xi Jinping and face a declining economy, will you settle for a forced retirement and imprisonment imaginable or will you invade a neighbor?
Signs of discontent are already appearing among China’s leaders and military. A war, Xi might think, would likely save his political enemies from power.
Gordon G. Chang is the protagonist of China’s Coming Collapse and China Goes to War. Follow him on X, formerly Twitter, @GordonGChange.
The perspectives expressed in this article are those of the author.
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