CHINA’S ECONOMY IS HEADED FOR ONE OF THE LARGEST MELTDOWNS EVER:
In the past, when the economy look fatigued, China’s business community could count on the central government to create growth with massive stimulus programs. That is, after all, how former Premier Wen Jiabao avoided contraction in China as the rest of the world suffered during the 2008 downturn.
Wen went big. In the half decade beginning in 2009, Beijing added an amount of credit equal to that in the entire U.S. banking system. The premier flooded an economy that at the end of 2008 was not even a third the size of America’s.
Wen went too big. Anne Stevenson-Yang of J Capital Research tells me that the Chinese have long compared their country to a train whose last car is on fire. The train has to go fast to make sure the flames blow backwards. As soon as the train slows, flames engulf the passenger cars.
“That is China and debt,” Stevenson-Yang, also author of China Alone: The Emergence from and Potential Return to Isolation, says. “If you add enough money to the system, you can keep refinancing the old debt, but you have to add money exponentially.”
The country has been exponentially incurring indebtedness, perhaps creating debt about seven times faster than it has been producing nominal gross domestic product.
Nobody knows how much debt China has accumulated, but total country indebtedness could be an amount equal to 350% of GDP. Because of the infamous “hidden debt” and Beijing’s misreporting—exaggeration—of economic output, the percentage could even be higher.
However much debt there is, senior Chinese leaders are facing problems they cannot solve, something evident from, among other things, defaults by large property developers, the so-called “mortgage boycotts” of homeowners refusing to pay loans, and bank runs.
The Communist Party knows—and has known for a long time—the game could not go on forever. Wen Jiabao himself in 2007 talked about what has become known as the economy’s “Four Uns.” Growth then, he said, was “unstable, unbalanced, uncoordinated, and unsustainable.”
What happens now?
Flashbacks:
● November 13, 2019: How to Conduct Business with Chinese Companies That See a Dark Future.
● July 6th, 2022: Business Exit from China Accelerating. “The exit from China makes sense for many businesses and will probably have positive geopolitical consequences as the U.S. becomes less dependent on production in a communist regime. But the fundamental transportation problems the U.S. faces will remain the same, and some might even get worse.”