Posted on 05/29/2024 6:25:24 AM PDT by MtnClimber
How are things going in China? That is a question of great interest to everyone in the world, both inside China and out. Of all countries, China has either the largest or second-largest population (neck and neck with India at about 1.4 billion), and an economy that is a relatively close second to the United States in absolute production (although less than 20% as prosperous on the basis of per capita GDP). China’s economy has clearly grown rapidly since the 1980s, but there is conflicting information as to whether that growth is continuing, or perhaps stalling out. If China is continuing its rapid economic expansion under the increasingly authoritarian regime of Xi Jinping, its enhanced economic strength could pose a growing threat to its Asian neighbors and indeed to the rest of the world. But other information suggests that China’s economy is in grave distress, and that the country has entered into what could be a period of extended contraction and decline.
You would think that it would be easy figure out which scenario is the real one, but in fact it is quite difficult. I for one am betting that the decline has set in, but I do not claim to have the definitive answer. My bet is instead based on the perverse incentives created by a strict authoritarian/communist political and economic system, which I think lead inevitably to long-term decline, at least in relative terms compared to free economic systems. But at this point my view is only a bet. Arguing in favor of my side of the bet is that all the liberal media and economists dutifully chanted during the 1970s and 80s that the Soviet economy was rapidly expanding, and would soon overtake the United States. After the collapse in 1990, it all was revealed to be smoke and mirrors.
What does the evidence indicate as to China today? The problem is that getting real evidence from a dictatorship like Xi’s China is not so easy. Let’s consider a few reports.
From the New York Times, April 15, “China’s Economy, Propelled by Its Factories, Grew More Than Expected.” Excerpt:
The Chinese economy grew more than expected in the first three months of the year, new data shows, as China built more factories and exported huge amounts of goods to counter a severe real estate crisis and sluggish spending at home. To stimulate growth, China, the world’s second-largest economy, turned to a familiar tactic: investing heavily in its manufacturing sector, including a binge of new factories that have helped to propel sales around the world of solar panels, electric cars and other products.
Or again for the optimistic view, you could turn to the IMF, as dutifully recited by Reuters today, “IMF upgrades China's 2024, 2025 GDP growth forecasts after 'strong' Q1.”
China's economy is set to grow 5% this year, after a "strong" first quarter, the International Monetary Fund said on Wednesday, upgrading its earlier forecast of 4.6% expansion though it expects slower growth in the years ahead.
Well, that is the official line. But does state-directed expansion of production of things like solar panels and electric cars sound like real economic growth to you? Or does it sound more like the Soviet Union building more and more steel mills, far beyond any possible productive use for the output, because steel capacity was the “prestige” economic activity of the day? At the time they counted all the steel production in the Soviet Union as a 100% addition to GDP, just as today they count all the electric cars and solar panels coming out of China as a 100% addition to GDP.
For a different perspective, try Lawrence Person’s BattleSwarm Blog from yesterday, “China Throws Money At Semiconductors Again.” Person is talking semiconductors this time, instead of EVs and solar panels, but the gist is the same: state-directed investment in something that sounds prestigious but will be very unlikely to earn a profit (which is the same thing as being very unlikely to be a real addition to productive economic activity). Person quotes a May 27 report from NewsBytes:
China has launched a massive $47 billion fund, the largest in its history, to bolster its semiconductor industry and establish a local supply chain. This fund, equivalent to 344 billion yuan, is the third phase initiated by the China Integrated Circuit Industry Investment Fund [also known as the National Integrated Circuit Industry investment Fund Company (ICF), or just “Big Fund.”-LP]. It’s worth noting that this amount is twice the total funds raised in the previous phases in 2014 and 2019.
But Person points out that the previous 2014 and 2019 rounds of Chinese state-directed investment in chip-making resulted in rapidly shuttered factories and funds that disappeared into the hands of government cronies:
Do you remember the last time I covered where the money went to in those previous phases? The money went to companies like Wuhan Hongxin Semiconductor Manufacturing Co. Result? “Hongxin’s unfinished plant in the . . . city of Wuhan now stands abandoned. Its founders have vanished, despite owing contractors and investors billions of yuan.” Or maybe Tsinghua Unigroup. Result? The[y] arrested a whole lot of executives, a lot of money disappeared into various pockets, and “Tsinghua Unigroup abandoned its plan to build DRAM memory chip manufacturing plants in Chongqing and Chengdu in southwest China earlier this year.”
Here’s a previous piece from Person on April 25, “90% Of Chinese Factories To Close?” The piece focuses on a YouTube video from a source called China Observer — which, to be fair, is not a fan of the Xi/CCP regime. The video contains dozens of examples of Chinese businessmen reciting terrible business conditions for manufacturing in China today. Now, are 90% of China’s factories really facing imminent closure? I seriously doubt that. But are very large amounts of Chinese manufacturing being kept alive by the state in order to maintain the Potemkin appearance of a thriving economy? That is entirely possible. Also unsustainable.
Or consider the Epoch Times — again, clearly unfriendly to the Xi/CCP regime. But they have one recent piece after another about weak economic conditions in China, and particularly about state support for different sectors designed to keep up the appearance of stable economic activity when in fact there is vast overcapacity and inability to pay debt. For example, here is a May 27 piece on China’s latest “rescue plan” for its “failing real estate market”; here is one from May 24 on the closure of high-speed rail stations due to a “debt crisis”; and here is one from May 13 about China’s attempts to “hide negative foreign investor sentiment.” There are many more in a similar vein.
And did I mention that China has a frighteningly low birth rate and is facing a rapidly declining population for the rest of this century?
Just because China faces a period of serious decline does not mean that it will not be a threat to its neighbors and the world. However, if the world just waits them out, the seriousness of the threat looks likely to lessen over time.
I worry that China wants to destroy Taiwan...not take it over. The prosperity of Taiwans free markets have to be an embarrassment to the CCP. And tearing things down is what communists are really, really good at doing well.
When people wonder why all of these “military aged” Chinese men are crossing the border they need to keep the key parts of this story in mind.
For a young 20-30 year old Chinese man there is virtually no future. The economy sucks for most people. There are very few women to meet, date, and marry. They are stuck caring for elderly, sick parents in backwater towns.
They are not coming here to “invade”. They are coming here out of desperation.
I am not supporting allowing them into the country at all. But if you look at who is coming here, it tells you what you need to know about China.
Pick a commodity, virtually anything, like electrical power, and then look it up on Wikipedia and see which country uses half, or close to half of the total world’s consumption...and no, it’s not the US.
And don’t fool yourselves by sticking your heads in the sand, like the US government has been doing (and many here) for the past 35 years - we have many ways to measure Chinese consumption that are TOTALLY INDEPENDENT of what China claims. For example, regarding electricity, we can count the power plants they have, and use satellite heat maps to verify their operation, and then look at Australian coal exports to China...just one example.
Again, we won’t defeat, or even hold our ground, against China if we keep sticking our heads into the sand.
“They are not coming here to “invade”. They are coming here out of desperation.”
Since I don’t know any, and they are coming in ILLEGALLY, I’m willing to think that they may have ulterior motives. Especially because the ones you describe also don’t have the financial means to make it here, is it is VERY EXPENSIVE to get into the US via the Southern Route (cartels payoffs throughout the journey, for example).
...but then maybe that’s just me.
The prosperity of Taiwans free markets have to be an embarrassment to the CCP.
Whatever they are doing in Hong Kong, they will do in Taiwan.
However, it is good to remember that it required only 19 terrorists armed with only box cutters to shake America to its core, disrupt aviation, cast us into recession, and precipitate two very ill considered disastrous wars for which we have yet to recover.
I calculate from the government figures that in the last two years nearly 100,000 illegal Chinese have entered the country and I suspect they can find 19 men with box cutters among them. It is not beyond the cold-blooded ruthlessness of the Chinese regime to threaten the families of every one of these men with torture and murder if the men do not carry out sabotage on order.
We should help them by cutting off all commerce, canceling visas, and rescinding any already issued. Give Chinese 30 days to leave the US.
There are far fewer travelers - especially international visitors. Airports are nearly empty, unlike nearby Asian countries. The Chinese government did that to themselves with their ridiculously excessive COVID restrictions. Now those are completely lifted, but the damage is done.
Much of their current domestic business problems as mentioned in the article are due to Xi and his people thinking China was ready to function as an autarky in the wake of COVID. It clearly was not. International business pulled away strongly and now China is trying hard to woo them back again. They will eventually return, simply because the West worships Gaia and remains so hostile to manufacturing. But it will take time. In the meantime, a lot of low-quality Chinese factories and industries have closed permanently - just as many weaker businesses and restaurants in the US failed.
China remains, visibly, a very young country. I saw few people over 30. Talk of demographic decline is decades out and will have no real effect on the present nor on the major urban centers. Rural and girl-free farm villages are aging out of existence - but the larger cities will remain young and vibrant. This is by design.
Nobody talks about Taiwan. Nobody cares about Taiwan, other than Xi's people who try to keep domestic political supporters fired up. Nobody hates the USA, either. More than one told me they thought the USA and China should be great friends and allies, going forward.
Xi isn't going to live forever, so US diplomacy should be focused on solidifying relationships with and among China's neighbors and encouraging the redevelopment of trade with the next generation of Chinese leaders on more fair terms - not just signing quick deals to reward the Hunter Bidens of the world regardless of the eventual fallout. The Biden Administration clearly is not capable of this, but the return of a Trump Administration could look past Xi and work toward rebuilding a better bilateral relationship.
Thanks for your perspective. Good information.
The piece focuses on a YouTube video from a source called China Observer ... The video contains dozens of examples of Chinese businessmen reciting terrible business conditions for manufacturing in China today.
—
Writer obviously never watched the video. The video does not deal with “terrible business conditions for manufacturing”, but with the CCP move to shut down all low-end assembly manufacturing, to be replaced with Headquarters company, like Tokyo, New York, etc. I forget which video it was.
The China Observer
https://www.youtube.com/@ChinaObserver0/videos
Interesting...thx for posting
Much of that manufacturing should be moving to Mexico. That way they can take advantage of cheaper labor and NAFTA at the same time.
Peter Zeihan has been talking about the demise of China for years now. The Chinese admitted that their population has dropped by 100 MILLION people. From 1.5 BB to 1.4 BB. I am sure it was just a rounding error. (s)
I wish I had listened to him back in 2020 when I bought Matthews China Fund. It is down significantly(less than half) of what it was worth when I bought it in November 2020. It did go up for about a year and has cratered since then. It appears to have bottomed out finally. At close to a third of my investment.
Exactly.
Your thoughtful post and insightful observations about China spurred me to want to check your bio.
What a great collection of quotes! I read them all - there wasn’t one I disagreed with.
And they are as relevant today as when first spoken. Human nature doesn’t change, just like, as Rush used to say, leopards spots don’t change.
Whenever I want to understand the future of a country’s economic, sociological and military impact on the rest of the world, I ask a tourist.
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