By many measures, China looks and smells like it's already in the early stages of a major financial crisis and deep recession.[a] Publicly, the ruling party adamantly insists otherwise -- but that's always to be expected from politicians. We ought to consider only the data, not what they say. The data looks and smells really bad.
My biggest hope is that the economic pain will induce soul-searching and push China away from authoritarianism, leading to the country's gradual transition into a modern democracy -- to the detriment of party apparatchiks and their psychophants, whose power and importance depends on maintaining the status quo.
My biggest fear is that party apparatchiks start pushing for policies that can lead only to armed conflict in the hopes of holding on to their power and status -- e.g., they might push for annexing Taiwan by force in the short run, ensuring a confrontation with the West. Few things impede political change as well as armed conflict.
And assume any number they provide to the “outside” is also exaggerated in their favor. So I assume any number provided is at least, a best case figure, or total invention.
Regardless of the political and economic issues, the CCP leadership is well aware that they still lack the amphibious lift capacity to invade Taiwan's main island. It will take a few more years at least to build that capacity. In the mean time if they choose to make a push it will likely be toward some of the smaller islands closer to the mainland.
I mean this would be good for the whole planet, if only we got stop the 10 cent army today instead of 40 years from now when they have poisoned discourse for the whole planet.
Thanks! Actually, it looks like both spellings are acceptable, but "sycophant" is more common. Maybe using the less common spelling was a Freudian slip on my part...?
For some fascinating background on China's present economic troubles check out this 11 August 2023 opinion piece in The Guardian by George Magnus, a research associate at Oxford University’s China Centre:
China's REPORTED GDP 'growth' for 2022 was +2.9%. In a year where Chinese LNG demand was down 22%, their real estate market (which represents 33% of Chinese GDP) was in the midst of a collapse, literally welding Chinese citizens into their apartment buildings, and the WeChat payments flowing through their system were down over 20% yoy. In 2023, YOUTH UNEMPLOYMENT is somewhere between 20% and 50%, 48 local governments are in some stage of default on their debt (LGFV debt is approximately $10trillion or just under 60% of GDP), the majority of Chinese property developers are in default of their dollar bonds (71% are in default of over $180 billion in bonds), Xi has ordered all corporate and macro level dat to be severed to the West, and the Chinese government is reporting +5.5% GDP 'GROWTH'?! Reputable economists don't believe these numbers from the CPC
The overproduction of housing and other real estate in China has been a clear bubble that must eventually burst for at least 15 years. I’ve been stunned consistently they’ve managed to stave off the inevitable for this long. There are entire sections of cities that are entirely devoid of residents, entire sky scrapers empty - entire blocks upon blocks of empty sky scrapers. It could be waved away as long as growth was astronomical. But with weaker global demand, domestic demand waning, and almost every company figuring out their China production exit in some way or another, it’s bound to pop some day soon.
My worry is chinas instability economically leads to political instability leads to wars to distract and focus away from the man behind the curtain.
One must remember that back in 2015, China established capital controls on the yuan.
That + the pandemic (a massive, epic increase in money supply and cheap credit) helped China keep that going.
AFAIK China's housing bubble began in 2008, after the housing bubbles of the West stopped giving China the growth it needed so much. So yeah, they kept the bubble going for long (and they're still trying to "soft-land" the economy, but I don't believe there's a soft-landing possible that doesn't lead to a Japan situation).
NYC vacancy rates are single digit, while Shanghai is around 15% and Nanning is around 25%. It’s incomparable. Imagine if 25% of the apartments in NYC were completely vacant.
Sounds absolutely great, since when is having a surplus of basic needs a bad thing? if a country produces too much food, water or electrity everyone thinks its great, but somehow housing is different?
What would majority of NYC residents who rent think of that market?
First, having extreme excesses of anything is a waste. Imagine a city where 25% of the houses were abandoned. That’s Detroit. It’s not good. It’s blight.
Second, they are being financed in a Ponzi scheme with rents that are so high no one can rent them. They aren’t really built to be lived in. They’re being built to be built to drive debt investments.
Third, if you produced way too much food, it rots. If you produce too much electricity, it is wasted into the ground. Water into the ocean. That’s pointless and a waste.
that overcapacity is built on credit to developers and home buyers. Most of these loans extimate a bubble level price of decades of earnings of average household (should be 2-5 times your income), justified by the old speculative rush to flip the property to the next speculator few years down the line. The toy is broken and a lot of families cant even afford the interest on the loan. Banks and regulators are freaking out. Developers are also overleveraged, sold a lot of offplans properties that the bank cant even seize bcs these projects never got built/finished.
Are these "Chinese Trust Companies" like family offices in the US? The description in the article made me think so, just trying to understand what the equivalent is in Western markets.
My understanding is that is that in the Chinese system of commercial paper (corporate depth) not only is the company responsible for paying back the money but anyone who ever held and sold that piece of paper. These trusts are a type of (shadow) bank that manage this risk.
Yes, a trust is a non-bank financial institution that is responsible for packaging risk or directly extending credit to for example, local real estate / development projects.
No, it’s more like in the “Trust Buster” sense from US economic history. These are big conglomerates that control numerous subsidiary businesses across a number of industries. Japan, Korea, and numerous other countries have similar business entities.
Not my advice but the advice of Jack Ma. You know, the guy the CCP effectively stripped of most of his influence for warning them about problems with China's banking and regulatory system.
Jack Ma said that China should "not worry about financial systemic risks" and warned about "Collateralization with a pawnshop mentality" https://interconnected.blog/jack-ma-bund-finance-summit-spee... because Ant Financial was making uncollateralized loans on a huge scale, something they were only able to do because they weren't subject to the same regulations as established financial institutions, and this was about to change.
With Ant Financial being just another regulated lender, there was no way to justify their inflated valuation and by proxy the valuation of parent company Alibaba. Hence the sharp decrease in stock price.
So I think you have your causality backwards: Alibaba didn't lose value because of Jack Ma's warning, rather the "problem" with China's regulatory system he was warning about was that it was going to make Alibaba lose value.
(And invoking his advice when another financial systemic risk is rearing its head might not be the most appropriate.)
Europe tried this with Russia (fossil gas) and still ended up in a bad spot. Trade is important and can be beneficial, but one should still prepare for war if peace is desired. The mental models of some nation state leaders deviates from what one would consider logical. They won’t hesitate to burn what has been built for their goals.
“Socialism” but without any of the social safety nets, from what I hear. Lots of retirees getting their pensions reduced, their personal savings in the form of real estate (~75% of household wealth) sinking in value, can’t even see a doctor without waiting for months (unless paying high fees out of pocket), high debt loads both public and private, deflationary pressures, and oh, the whole population shrinkage thing in the long run. Daunting challenges even for a fearless leader that knows what he’s doing, not to mention the one they’ve got.
> Lots of retirees getting their pensions reduced, their personal savings in the form of real estate
In socialism, there’s no need for a pension. The state will decide what to distribute, how much and to whom.
> can’t even see a doctor without waiting for months (unless paying high fees out of pocket)
In socialism, you get allocated resources and services from the “community” aka state. When resources are finite, you wait in lines. We’re already seeing that in nations with socialized healthcare without a private option
> the whole population shrinkage thing in the long run
Thank you for bringing that up. All modern economic systems, socialism included, require growth.
Prior to the most recent National Congress of the CCP, the General Secretary of the CCP and Paramount Leader of the PRC would only serve two terms of 5 years. Xi Jinping is now in his third term. He also made a show of having his immediate predecessor dragged out of the proceedings without explanation, and so Hu Jintao was unable to cast any votes.
When the voting was all said and done, Xi Jinping was retained for a third term as Chairman Winnie the Pooh; and Li Zhanusa who appeared visibly upset and attempted to help Hu Jintao until being pulled back by Wang Huning and Li Keqiang of the Hu faction were not retained for the 20th Central Committee.
In order to show Hu Jintao was not disappeared, he was later appointed to oversee the funeral proceedings of his own immediate predecessor, Jiang Zemin, over 35 other people who were ahead of him on a list of people to oversee the proceedings.
So you tell us, did Chairman Winnie the Pooh here hijack the CCP or is he just their frontman?
That's an interesting question. The Economist attempted to answer it with their series "The Prince" (https://www.economist.com/theprincepod), and I believe their conclusion is that Xi has indeed consolidated power around himself and is nearly an autocrat at this point. Two provisos on this, however:
- The author, Sue-Lin Wong, is something of an outsider, and outsider reporting on China typically misses some subtleties of the real situation in the country.
- Given the nature of China, there will never be a fully autocratic leader there, though it may appear that way to some, and the would-be autocrat might be deluded into thinking they are.
That was their hope that Xi would be an easily controlled puppet. If that was the case, it would still be business as usual without the giant messes of Wolf Warrior diplomacy, the ending of one China two systems policy, and the kidnappings of Jack Ma and other capitalist elites which has led to decoupling and a mass exodus of said elites and as many assets as they can take.
Xi is not their front man. Xi is now their ruler who wants to regress China back to Mao’s system.
The CCP also adopted capitalism. I don't see how they hijacked it.
The country that has been building military bases all around china? The country that has a history of attacking china for 200 years? The country that contemplated nuking china? Is that a serious question? If china's official stance was that the US was it's top enemy and their goal was to 'contain the US' and proceeded to build military bases all over canada, mexico, cuba, etc, we'd take that as a declaration of war.
Even without all this, the world’s existing systems of Government have a challenge ahead of them with emerging digital intelligence.
We rarely can predict or even conceive of the next era when the previous era is in retrograde before big changes, though people like to pretend it’s all very linear and predictable in history books.
China is only solving its own problems, including the high leverage, high debt, and unequal wealth distribution that everyone has mentioned. These have nothing to do with Western countries. If there is any relationship, it is not on a political level, it is merely business. China only wants its common people to live better lives, that's all.
Since 1840, China's goal has always been national independence and harmonious coexistence with the countries of the world. During this period, China also experienced democracy under capitalism, but these all failed under the dual interference of the United States and the Soviet Union. You may also say that China eventually chose to be like the former Soviet Union, but as long as you walk around a little, look around a little, come to China and see, China is completely different from the former Soviet Union. If people lack basic understanding of history, but rely on biased media propaganda, adopt preconceived views to treat China, or anything, it would be inappropriate. Moreover, even up to now, China is still willing to coexist peacefully with any country, and China's politicians and civil servants are still open enough. If we do not cherish such a rare atmosphere, one day in the future, when all countries' politicians adopt populism and warmongering, no one will have any good results.
IIT PRC collapcist think some how CCP proactively managing economic risks with 5% growth is a sign of collapse, almost every other major economy is in recession by that standard. Like tech crackdown, three redlines on real estate, local gov deleveraging, cracking down on bad banks (henan), and now Trust drama - they're problems PRC regulators has been seeking out to manage because they have the economic and political headroom to do so. And they can do so relatively responsibly, i.e. actual deleverage, and punish bad actors, not just print dollars/bail out like US (due to dollar privilege), precisely because CCP has political power to push unpopular interventions without breaking the economy. They don't always take, but they're more powerful levers/tools than what democracy offers. The very fact that this article is about Trust Companies trying to circumvent regulators means PRC still needs more authoritarianism, not less.
I would not trust anything written about China. They’ve become masterful at deception. They want to have this image that they are weak and limping as they slowly take over the West.
They truly are. They could make anything, yet they choose to make junk and attempt to scam everyone at any opportunity. It's a surprising immoral country for someone who view themselves as being on the moral high horse. And they know that they are a nation of scammers, because what do they buy when visiting Europe? Baby formula and designer brands, because they don't trust the stores in China. Seems like a weird way to run a country.
China continues to insist that the rest of the world respect it and its culture, while making zero effort into understanding or respecting any other culture. Why we keep listing to the CCP is beyond me, the west should have cut it's loses more than a decade ago.
But the downsides of being a Western in China are too big and since it's somewhat rooted in the culture by now ( arbitrary laws), I shouldn't go... Ever
There are millions of Americans doing business in China, 2 Michael's in jail isn't something that can be considered an arbitrary law as much as Canada keeping a Chinese citizen in jail.
There was an arrest by the US outstanding, Canada was required by the extradition threaty to at least act, supreme Court found it lawful. There was already a warrant for her arrest for over 4 months in the US ...
Ming acknowledged her false statements about Iran to enable her to trade with US.
I think this is a bit unfair, evryone in the west has profited incredibly from China, greatly, and while I don't like the CCP at all, I think it's really sad the people of China who basically built the last 30 years, will be on the receiving end of a potential major financial collapse and are less likely to profit from their hard work and sacrifice.
For the world, this is all bad news, China may not have the money to at least clean up some of the toxic waste land and again it might end up costing everyone on earth dearly.
China is also a major trade partner for a lot of countries so they might be heavily impacted by this news too.
My biggest hope is that the economic pain will induce soul-searching and push China away from authoritarianism, leading to the country's gradual transition into a modern democracy -- to the detriment of party apparatchiks and their psychophants, whose power and importance depends on maintaining the status quo.
My biggest fear is that party apparatchiks start pushing for policies that can lead only to armed conflict in the hopes of holding on to their power and status -- e.g., they might push for annexing Taiwan by force in the short run, ensuring a confrontation with the West. Few things impede political change as well as armed conflict.
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[a] See https://news.ycombinator.com/item?id=37101496 and https://news.ycombinator.com/item?id=37101229 for background.