Potemkin Economy: More warning signs about serious problems with the Chinese economy

It’s been obvious for years that China has a Potemkin economy, kept alive by slave labor, market bubbles, and government underwriting. it can’t last forever. The latest grim forecast about the economy comes from Peter St Onge, an economist with a much deeper fund of knowledge about and understanding of the Chinese economy than I could have in a thousand lifetimes.

The biggest hint that the Chinese economy was in trouble was the demise of Evergrande, a massive property developer in China. The bankruptcy was huge, with the company’s assets valued at a probably inflated $245 billion and debts of $300 billion. However, Evergrande was just the biggest pop in the Chinese real estate bubble, not the only one.

Image: An abandoned luxury project in China. YouTube screen grab.

Across the board, Chinese ventures have been having problems, whether with overvalued assets, the Belt and Road initiative (which was fading even before Israel blew up the Belt and Road port in Yemen), or its demographic implosion, which will leave it as a nation of old men.

The military is also somewhat illusory. In May or June, a nuclear submarine sank in a Chinese shipyard—although, to be fair, we had a disastrous Navy ship fire a few years back, and a New Zealand ship just ran aground and caught fire. These things do happen.

Generally, though, the Chinese military has a competency problem with both men and equipment. My guess is that this is because communist countries do things in a slipshod fashion. The only spur to work is fear. As is the case with all slaves (which is what people in a totalitarian state are), when there’s no immediate oversight, people do as little as possible,

China is no longer on the edge of a recession. Instead, it’s dropped into the full danger category, forcing the Politburo to hold an emergency economic session and to start printing money like crazy to prop up the manufacturing, banking, and real estate sectors:

Specifically, Beijing's going to dump about 3.8 trillion yuan -- roughly half a trillion dollars -- to keep the economy running.

At the same time, China is slashing interest rates.

By the way, does any of this sound like déjà vu all over again? Because if it does, you’re right. It’s exactly what the Biden government has been doing to force a smiley face on the American economy. That is, it’s printed money and slashed interest rates.

The problem, of course, is that, whether in China or the United States, monetary policies cannot make up for a vacuum within the economy itself. If all the other government policies disincentivize the most important capital a nation has—the human capital—no government jiggery-pokery can keep the economic flywheel spinning.

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