“… the country is “exponentially incurring indebtedness, perhaps creating debt about seven times faster than it has been producing nominal gross domestic product,” he added.
Chang recently interviewed fellow China expert and author Anne Stevenson-Yang, who told him that “the Chinese have long compared their country to a train whose last car is on fire.”
“That is China and debt,” Stevenson-Yang said. “If you add enough money to the system, you can keep refinancing the old debt, but you have to add money exponentially.”
With that in mind, Chang estimates that the total amount of debt accumulated by the Chinese Communist Party could be equal to 350% of the country’s gross domestic product.”
Comment: I dunno. I remember the people who long predicted the collapse of the Soviet economy. They were right. pl
https://www.newsmax.com/newsfront/gordon-chang-china-economy/2022/09/06/id/1086280/
Col.,
I suppose given the broad sweep of history, the Chinese economy will eventually collapse. But Gordon Chang is something of a one-trick pony, having been predicting collapse for years and years.
July 31, 2001 https://www.amazon.com/Coming-Collapse-China-Gordon-Chang/dp/0812977564
Awe shucks, I missed the opportunity to congratulate Gordon Chang on the 20th anniversary of his prescient book.
—————
I do not pretend to understand China’s economy. My free advice to China is to onshore as much of their foreign based assets as possible to avoid having it stolen by NATO countries.
Russia, Iran, and Venezuela found out the hard way that even gold is not safe if it is stored in the U.K. U.S. Treasury debt holdings are a liability for them, not us.
(BTW theft includes depriving the owner of their property, it does not require the thief to benefit from it)
China at least is much closer to self-sufficiency in tech and manufacturing, like Putin dreamt Russia would be or become. Raw materials is totally different matter, but the West isn’t exactly self-sufficient in raw materials either. And as we have seen with Ukraine crisis, the countries outside ‘West’ are not very eager to hop in with the sanctions, so they probably would be even less likely to hop in to sanction China and embargo their trade. For some random African or South American country, and even some Asian countries, Russia or China aren’t threats, they are far away opportunities.
It won’t be a collapse but a role reversal. They’ll become capitalists and we’ll continue down the path of becoming communists.
The midterms will tell you if we decided to turn around or March down that path. .
The hybrid economy in China has two systematic problems. They cannot allow a liberated economy for political reasons and they have reached the limits of what a command economy can accomplish. Add to that the shrinking population and you have a rather dim future. Their recent decisions to curtail capitalism and increase political control over the economy will probably accelerate the decline.
They are also playing a dangerous game with Russia. At least in the EU there is increased concern about what China stands for and they are much dependent on trade with them and others. Too many see similarities between Russia and China and that will hurt them also. Then, is China capable and willing to do what is required? Politics may keep them from it.
Lars
Command economy? Are you kidding me? China has some state owned firms but most of the economy is more laissez faire than the US. China is using the same mix of state owned firms and private enterprise that made Taiwan/Japan/South Korea the successes that they are. The leadership in Beijing must have read How Asia Works by Studwell.
JamesT,
You are missing a huge aspect of their growth. Each local communist party apparatchik is given a growth target. That’s why they have had such huge investments in property & infrastructure funded by the banking system directly and indirectly.
blue peacock,
Tom Orlik talks about this extensively in his book which I plug below. Remember when MITI used to call Japanese CEO’s in and tell them how they were going to organize their industry? China is following the very successful Taiwan/Japan/SouthKorea model.
As others have said, Gordan Chang has predicted the ‘Coming Collapse of China’ for a couple of decades. He will be proved right eventually. Communism and the will of the CCP to survive no matter what, plus staggering debt and a restive population will combine to do it. The Chinese people’s basic instinct historically is to turn inward.
It won’t necessarily collapse. The whole housing industry might collapse however China doesn’t really need more houses so what would this matter? They kind of need to try to pivot their economy from construction and manufacture into higher in value chain – which they are working about incredibly hard. The big question is whether they can deflate the bubble and restructure the debt and endure the recession without their new emerging higher value chain companies going under.
China itself isn’t exactly directly comparable to Soviet Union, it’s not a command economy and the supreme leadership doesn’t micromanage everything, areas and leader lower in the totem pole have significant autonomy. IMO China is much closer to a typical western mixed economy country than Soviet Union ever was, and because of this probably isn’t as susceptible to total collapse (economywise at least) like Soviet Union was. China actually governs much harsher ‘market’ economy than most westerners even understand, social security is very minimal. However disgruntled citizens might still overthrow the Communist Party if the bubble pops too hard and people lose all their savings and all their assets (like investment apartments) lose too much value.
Great interview of Tom Orlik who is the author of ‘China: The bubble that never pops’:
https://www.youtube.com/watch?v=uKQJY510rks
He is being interviewed by the Atlantic Council so it is not “Russian propaganda”. Orlik is the Chief Economist at Bloomberg and lived in China for 10 years.
The map shows they aren’t going anywhere. They may very well take over sometime but not through conquest. They will ethnically accede through occupation of the highly skilled jobs here that others no longer need to do. This place became inordinately, overly filthily wealthy. And that leads to decadence and downfall. By inclination and tasked by duty, the military worries about sneak attacks cyber, nuclear, bio etc. Even those last would be done by very subtle incremental steps. Anything overt, as with nuclear, we have ample deterrence for knock out shots even if they take us out -subs, 800 bases and Cee I’m gAy everywhere. That might occur. But we will be long in our graves by then and our heirs raising bouncy slender eyed great great .. grand children who have marvelous cuisine. Financial collapse? Quite likely and probably ongoing. So? That’s been dealt with. It’s why Crypto was invented in a Manhattan project held in part in Scranton PA in 08 .. – guys from all over the world made sure , they thought, that they’d have weapons at hand. They do. China’s not going to be allowed to go down the tubes.See Apple. Everyone watched too much TV and internet – that’s to sell arms, maybe start some non apocalyptic wars to generate the debts for our fed ponzi scheme and for crooked pols to dupe de dupes into voting for ME!
Why did the subject switch from bearskinning to all the teas in Cathay? I have my suspicion something is cooking. From the behinds behind the scenery.
I told y’all something was whupped. A Daisy after Galizzard of Trustworthyness, staked her old royal hand? Insects roasting on an open fire, jack the ripper whistling at yo hos, yuletide ..
His name was Jerry Vale:
https://youtu.be/OdEMa58K6Lg
https://www.theguardian.com/uk-news/live/2022/sep/08/queen-elizabeth-ii-health-royals-medical-observation-latest-news-live-updates
Jerricles had songs for every occasion:
Jerry Vale – Pretend You Don’t See Her.
https://youtu.be/nXMd4L3UksE
He even had one for Joe the you must be the Joe King Biden (or his Dock?)
Jerry Vale – Non Dementicar
https://youtu.be/sqr5fFeijlU
Squeakingy Fromme a Witchly speaking. Will the plods of humour be having us song a bit with new Queen to Pawns Swan Camilla meeting Calm All Ya, or Kamala? Thrilla Dilla Kamala Camilla?
“”Last fall’s failure of Evergrande Group, which effectively triggered other defaults in the crucial property sector, is a warning of what will happen” nationally, Chang continued.”
The failure of Evergrande Group wiped out the lifetime savings of millions of Chinese citizens, who were steered into investing into Chinese real estate by their own banks and government restrictions on investments. They aren’t the only ones to get screwed by Xi and company.
https://money.usnews.com/investing/news/articles/2022-09-07/china-state-firms-takeover-evergrandes-1-1-billion-holding-in-shengjing-bank
Evergrande has $300 billion in debt. There’s several trillion dollars in debt among just the property developers. With ordinary folks buying 5-6 apartments with no cash flow, plowing their retirement plan into properties all on the basis that prices only go up. Now that the price escalation is stalling and even going into reverse in some areas and even worse, financially insolvent developers not completing projects and leaving folks who paid their deposits high & dry. A massive bailout is definitely on the horizon. The implications of the bailout is unknown. One thing is certain tighter capital controls are coming to prevent capital flight as insiders try to get their money out before devaluation. This can be seen in FDI rate of change as investors are concerned about both Hotel California and political risk.
Economic Collapse is too strong a term. That’s not gonna happen IMO. However, the elephant in the room is the CCP’s banking system. It is huge relative to the size of their economy and they are essentially insolvent. The size of the Chinese banking system is at least twice ours maybe 3-4 times. Add in shadow banking and it is significant. At some point they’ll have to be recapitalized. That will happen either slowly as they did in Japan when they went through the same problem of a banking system that grew way too huge, through tougher lending standards and retained earnings from their new assets. Or an outright bailout by Xi. The most credible analysis would lead to the conclusion that it will have to be a massive bailout.
All in all it will reduce Chinese growth. Xi ain’t helping that at all currently with his zero-covid mania that is further causing growth to falter. Add that all with the demographic fall and China may very well get stuck in the middle income trap.
Watch the controlled exchange rate of CNY, watch capital controls and watch how local governments get funded . They will provide important clues.
Chinese people are uncommonly weak minded. 70 plus percent of them are heavily invested in shady real estate deals that left them holding the bag. They did NOTHING when the bottom fell out. They will continue to do nothing because they know the CCP will curb stomp them if they try. So what it collapses. Nobody can do anything about it unless the want to get tortured or die.
Same is happening in the US. We are becoming the CCP under Democrat tyranny. Nothing can be done about it. We are not in a recession. No inflation. STFU while we raid the opposition’s house.
Chinese people are uncommonly weak minded.
I would respectfully submit that Westerners do not always appreciate the exact details of the Eastern Asian mental process. Thus when a Westerner is tempted to denigrate an Easterner as “weak-minded,” it would be preferable to pause and wonder whether there might be some nuance unglimpsed by the Western eye. I would also add that more Americans ought to consider Taiwanese analyses of PRC weaknesses.
Example:
https://www.youtube.com/c/LeisRealTalk
Anne Stevenson-Yang quoted in the article is a highly credible financial analyst and money manager with deep experience. She wrote several research reports on the property developers including Evergrande and the level of fraud. While she was early her investors were able to get out well in time. Those who said nothing has blown up yet and prices are still growing have taken a bath.
China may not entirely be a command economy meaning every edict comes down from Xi. However to do business or any organizational activity in China one has to be connected with CCP leadership either in the regions or in Beijing.
The issue with China is its banking system which has primarily funded the GDP growth demanded by the politburo in Beijing. Most of the funding went into fixed asset investment. As debt couldn’t be repaid on the original terms and to prevent it from being categorized as non-performing they were extended and additional financing provided. This is how the CCP “growth miracle” was created.
https://twitter.com/mkt_sentiment/status/1561340858921877504?s=21
This is just one aspect of the problem in CCP’s banking system. Xi will want to avoid any kind of social instability. To do that one can expect increasing repression and a bailout of the banking system. Key questions are what happens to their currency if Beijing takes these losses on to their balance sheet or how do these losses get apportioned? The loss has already been incurred unless asset prices are reinflated.
While I believe in this case it is better to read financial analysis by credible analysts this book is pretty good.
https://www.amazon.com/Red-Dream-Communist-Financial-Deterioration/dp/1119896150/
China experiences some serious spontaneous uprisings now & then. The popular will may appear under control, letting leadership have its way – as long as it delivers. When it doesn’t, things have been known to go non-linear in a flash. The Party in Charge is aware & watches over all, keeping things just right down-on-the-farm… & the factories, mines, & wherever else mass emotion could ignite. Must be nerve-wracking. A “problem of the 2nd (or 3rd… can take awhile for spontaneity to burst forth) generation” may be building. {Here, we just let it go & see what happens.}
According to Professor of Finance, Beijing University, Michael Pettis China has run into the classic over-investment trap of developing countries, which ends up with massive debt problems. Japan did the same in the 80’s and have struggled since then to solve the debt problems. But they have failed due to the political interests involved (the export business).
https://twitter.com/michaelxpettis/status/1567517496541958147
If China doesn’t want to end up like Japan there needs to be a transfer of wealth (higher wage etc) to Chinese households aka domestic consumption. But that hurts the export sector which will fight any policy that increases wages significantly.
The northern part of my state has a lot of resort properties and wilderness – many of the people I knew that ran resorts and campgrounds sold when they retired and many of those retirees sold to (what we later found out) were Chinese (read CCP) interests… Some built luxury hotels in places, where there are not adequate roads, and offered no rooms to guests and had unfinished rooms… just strange.. I am wondering what will happen to those properties if the CCP falls (and I believe it is falling – financially) If it falls – how difficult will it be for anyone else to purchase these properties – they could be stuck in ‘legal limbo’ for years (IMO) – I am not an attorney just follow legal issues a bit… It is an issue worth considering..
Commenting this late won’t even add entertainment value, but here goes.
China’s situation must be viewed in the context of the plurality of global crises playing out now, a universal background of unrest and economic contraction, contrasted against China’s economic rise during the late ’90s to early ’00s, a period of general growth. Of particular consequence is the global financial crisis of ’07–triggered by Wall Street’s unrestrained looting of the US economy–and the US establishment’s handling of it, which not only “kicked the can down the road” but is also the vehicle for massive wealth transfers from the poorest to the wealthiest. The ’07/’08 crisis was the death knell of globalization, struck by the globalists themselves. The US-China decoupling under Donald Trump and the ongoing Russia-West conflict will finish it off.
China’s housing market is a Ponzi scheme, described well in comments above. Its framework was establish pre-’08, and activity only intensified after. The Three Red Lines burst the bubble, but under current global conditions China has no way to save the sector–at least, none the CCP is willing to undertake. Meanwhile, the contagion is spreading.
Ponzi schemes look good until the money dries up. China’s economy has looked good up till now, but the global economic contraction is exposing its flaws; among those flaws are malinvestment, systemic mismanagement, lack of regulation, and corruption. Protestations that the US is no better off–and perhaps worse off–in these areas are justified, but that can be discussed elsewhere.
Returning to China’s housing market as an example, in addition to using funds from one project to start others, developers put up shoddy buildings–some falling apart even as they are opened, others unfit to be finished at all. Developers are also accused of paying out up to 30 per cent of gross in bribes to local officials. Put two and two together. Local officials in turn lavish gifts upon Party bosses. The top Party echelons are said to have taken in over US$100B annually, pre- Wuhan flu. Corruption was endemic to imperial China, and it is endemic to communist China. Everything looks good when the money is flowing.
In the meantime communist China touts lifting millions out of poverty. Yet communist China also defines the poverty line at something like US$600 per annum. This from the nation that has produced the most new billionaires over the past decade. While subsistence living in China has heretofore been extremely cheap, the cost of consumer goods–particularly electronics and automobiles–is comparable to that of the US. And Chinese are encouraged to consume: a Chinese man cannot marry unless he has a house and a car, unless his parents pay for a lavish wedding; the celebrants dare not attend unless they bring cash or expensive gifts; in ’19, talk went around Chinese social media that if one was patriotic, one would buy two cars–this where parking spaces in top-tier cities can cost upwards of US$10K. (If talk went around Weibo how Vladivostok was historically Chinese, the FSB had better take notice). Peasants earning $600 a year can’t afford this kind of life, and middle-class families can’t really either. So how do they? They borrow. Everything looks good when the money is flowing.
Communist China has experienced phenomenal growth over the past two decades. but this growth bears scrutiny, just as any important economy bears. How was it accomplished, and is it sustainable?
The easy Western money has dried up, and will not return despite all globalist insinuations. As it evaporates it reveals that Capitalism with Chinese Characteristics is really synonymous with Western capitalism, with all the worst bits amplified: crony capitalism, rampant fraud, wealth inequality, wage slavery, debt slavery. Any real remedy must be fundamental and systemic.
So what now? It seems likely that communist China is headed for a repudiation of capitalism. It won’t be labelled as such, but nonetheless so. Fundamental indeed. We in the West are in no position to gloat, as the can from ’08 is to heavy to be kicked any farther. We’re headed for a similar point via the Great Reset. The globalists won’t call it for what it is either; we’ll still have markets, but they’ll be far less freer than before. We’ll be far less freer.