The Slow Meltdown of the Chinese Economy
By Thomas J. Duesterberg, 12/20/21, Wall St. Journal

China is experiencing a slow-motion economic crisis that
could undermine stability in the current regime & have
serious negative consequences for the global economy.
Despite the many warning signs, Western analysts & policy
makers are optimistic that Xi Jinping is up to the task of
managing the crisis. Such optimism is misplaced.

The U.S. & its allies have many tools to influence China’s
economy & need to weigh the consequences of an acute crisis
against the threat its current trajectory poses to the U.S.
Policy makers should be thinking of how best to deploy these
tools, instead of passively assuming the rapid growth &
stability of the Chinese economy will continue.

In December real-estate developers China Evergrande & Kaisa
joined several other overleveraged firms in bankruptcy,
exposing hundreds of billions in yuan- & dollar-denominated
debt to default. Real estate represents around 30% of the
Chinese economy, nearly twice the levels that led to the
financial crisis of 2008-09 in the U.S., Spain & England.

The real-estate industry has been key to keeping annual
growth above 6%. Yet a debt bubble has inflated by 20%
annually between 2014 & 2018. Originally intended to
accommodate rapid urbanization for the industrial economy,
the urban property market is now overbuilt. Some 90% of
urban households own their own properties & enough vacant
units are available to accommodate 10 years of urban
immigrants. Sales & prices have tumbled this year, & over-
leveraged builders & creditors are suffering the consequences.

After a major change in how central & local govts divvy up
tax revenue in 1994, Chinese local officials began to rely
on land sales for the income needed for improving infra-
structure & social welfare. At a minimum, 1/3 of local govt
revenues is derived from land sales. Another 10%-15% come
from related taxes on development.

But land sales fell by over 30% in late 2021, putting local
finances in jeopardy. Local govts have struggled to address
other priorities such as healthcare, pensions, environmental
cleanup, income inequality & education. Moreover, up to 80%
of household wealth in China is in real estate holdings, a
hedge against weakness of the social safety net. In other
words, an economic meltdown is a potential threat to the
implicit social compact in China between authoritarian
rulers & a quiescent population.

In his zeal to reassert the dominance of the Chi-Comm Party,
Xi has engineered a crackdown on some of China’s most
innovative industries & the entrepreneurs building them.
The party channels credit to state-owned enterprises to the
detriment of the more dynamic & job-creating private industry,
inserts operatives on the management committees of most
enterprises, & disciplines business leaders perceived to
resist Xi’s leadership. The clampdown on new industries such
as ride-sharing, private education, social media & online &
private healthcare, is especially damaging to growth.

Xi is privileging the less productive & less innovative
components of the Chinese economy while enhancing control,
limiting financing & punishing entrepreneurial leaders in
many leading industries. This isn’t a recipe for maintaining
strong economic growth. Despite the frequent assertions that
China is catching up or moving ahead of the West in tech
industries, it has a long way to go to achieve the self-
sufficiency & global leadership it seeks. U.S. sanctions on
advanced semiconductors, for instance, have gutted Huawei’s
ability to make its own 5G phones. China’s semiconductor
industry is 10 years behind world leaders, according to a
recent German study.

China’s commercial aviation industry doesn’t have an inter-
nationally certified jet to compete with Boeing & Airbus,
despite 3 decades of concentrated efforts. Its biopharma-
ceutical industry failed to produce an effective vaccine for
Covid. Steel, batteries & high-speed rail—where China is
competitive—are at risk of trade retaliation due to environ-
mentally harmful production practices & theft of intellectual
property. China’s alleged lead in AI could be blunted by
imposing the same limits on data flows into China that it
imposes internally, thus sapping its monopoly on big data,
& by limiting U.S. investment in Chinese AI firms.

China’s overall productivity levels also lag those of other
advanced economies. Xi’s turn to state-owned enterprises &
manufacturing certainly won’t improve this relative weakness.

In short, it's difficult to escape the conclusion that
China’s economy is systematically weakening & that Xi’s new
priorities offer little hope for a quick turnaround. The U.S.
& its allies could further compound Xi’s challenges by
vigorous enforcement of trade laws, limiting Chinese access
to technology & financing from the West, & imposing sanctions
against China’s brutal human-rights abuses in Xinjiang & in
countries in the developing world that it's trying to exploit
thru its Belt & Road Initiative. A good example of such
exploitation is the atrocious mining conditions for key
battery components cobalt & lithium in Africa & South America.

A major slowdown or acute financial crisis in China would
certainly have a negative impact on the global economy. But
U.S. & allied policy makers do have tools that could both
influence the direction of the Chinese economy & help repair
some of the accumulated damage to their economies from
Chinese mercantilism. A first step is to undermine the
narrative of a relentless, unstoppable economic advance
under Xi’s leadership.

Mr. Duesterberg is a senior fellow at the Hudson Institute
and author of a new study, “Economic Cracks in the Great
Wall of China: Is China’s Current Economic Model Sustainable?”

https://www.wsj.com/articles/slow-meltdown-of-china-economy-evergrande-property-market-collapse-downturn-xi-cewc-11640032283

On Sunday, January 2, 2022 at 9:27:59 AM UTC, David P. wrote:
> The Slow Meltdown of the Chinese Economy
> By Thomas J. Duesterberg, 12/20/21, Wall St. Journal
>
> China is experiencing a slow-motion economic crisis that
> could undermine stability in the current regime & have
> serious negative consequences for the global economy.
> Despite the many warning signs, Western analysts & policy
> makers are optimistic that Xi Jinping is up to the task of
> managing the crisis. Such optimism is misplaced.
>
> The U.S. & its allies have many tools to influence China’s
> economy & need to weigh the consequences of an acute crisis
> against the threat its current trajectory poses to the U.S.
> Policy makers should be thinking of how best to deploy these
> tools, instead of passively assuming the rapid growth &
> stability of the Chinese economy will continue.
>
> In December real-estate developers China Evergrande & Kaisa
> joined several other overleveraged firms in bankruptcy,
> exposing hundreds of billions in yuan- & dollar-denominated
> debt to default. Real estate represents around 30% of the
> Chinese economy, nearly twice the levels that led to the
> financial crisis of 2008-09 in the U.S., Spain & England.
>
> The real-estate industry has been key to keeping annual
> growth above 6%. Yet a debt bubble has inflated by 20%
> annually between 2014 & 2018. Originally intended to
> accommodate rapid urbanization for the industrial economy,
> the urban property market is now overbuilt. Some 90% of
> urban households own their own properties & enough vacant
> units are available to accommodate 10 years of urban
> immigrants. Sales & prices have tumbled this year, & over-
> leveraged builders & creditors are suffering the consequences.
>
> After a major change in how central & local govts divvy up
> tax revenue in 1994, Chinese local officials began to rely
> on land sales for the income needed for improving infra-
> structure & social welfare. At a minimum, 1/3 of local govt
> revenues is derived from land sales. Another 10%-15% come
> from related taxes on development.
>
> But land sales fell by over 30% in late 2021, putting local
> finances in jeopardy. Local govts have struggled to address
> other priorities such as healthcare, pensions, environmental
> cleanup, income inequality & education. Moreover, up to 80%
> of household wealth in China is in real estate holdings, a
> hedge against weakness of the social safety net. In other
> words, an economic meltdown is a potential threat to the
> implicit social compact in China between authoritarian
> rulers & a quiescent population.
>
> In his zeal to reassert the dominance of the Chi-Comm Party,
> Xi has engineered a crackdown on some of China’s most
> innovative industries & the entrepreneurs building them.
> The party channels credit to state-owned enterprises to the
> detriment of the more dynamic & job-creating private industry,
> inserts operatives on the management committees of most
> enterprises, & disciplines business leaders perceived to
> resist Xi’s leadership. The clampdown on new industries such
> as ride-sharing, private education, social media & online &
> private healthcare, is especially damaging to growth.
>
> Xi is privileging the less productive & less innovative
> components of the Chinese economy while enhancing control,
> limiting financing & punishing entrepreneurial leaders in
> many leading industries. This isn’t a recipe for maintaining
> strong economic growth. Despite the frequent assertions that
> China is catching up or moving ahead of the West in tech
> industries, it has a long way to go to achieve the self-
> sufficiency & global leadership it seeks. U.S. sanctions on
> advanced semiconductors, for instance, have gutted Huawei’s
> ability to make its own 5G phones. China’s semiconductor
> industry is 10 years behind world leaders, according to a
> recent German study.
>
> China’s commercial aviation industry doesn’t have an inter-
> nationally certified jet to compete with Boeing & Airbus,
> despite 3 decades of concentrated efforts. Its biopharma-
> ceutical industry failed to produce an effective vaccine for
> Covid. Steel, batteries & high-speed rail—where China is
> competitive—are at risk of trade retaliation due to environ-
> mentally harmful production practices & theft of intellectual
> property. China’s alleged lead in AI could be blunted by
> imposing the same limits on data flows into China that it
> imposes internally, thus sapping its monopoly on big data,
> & by limiting U.S. investment in Chinese AI firms.
>
> China’s overall productivity levels also lag those of other
> advanced economies. Xi’s turn to state-owned enterprises &
> manufacturing certainly won’t improve this relative weakness.
>
> In short, it's difficult to escape the conclusion that
> China’s economy is systematically weakening & that Xi’s new
> priorities offer little hope for a quick turnaround. The U.S.
> & its allies could further compound Xi’s challenges by
> vigorous enforcement of trade laws, limiting Chinese access
> to technology & financing from the West, & imposing sanctions
> against China’s brutal human-rights abuses in Xinjiang & in
> countries in the developing world that it's trying to exploit
> thru its Belt & Road Initiative. A good example of such
> exploitation is the atrocious mining conditions for key
> battery components cobalt & lithium in Africa & South America.
>
> A major slowdown or acute financial crisis in China would
> certainly have a negative impact on the global economy. But
> U.S. & allied policy makers do have tools that could both
> influence the direction of the Chinese economy & help repair
> some of the accumulated damage to their economies from
> Chinese mercantilism. A first step is to undermine the
> narrative of a relentless, unstoppable economic advance
> under Xi’s leadership.
>
> Mr. Duesterberg is a senior fellow at the Hudson Institute
> and author of a new study, “Economic Cracks in the Great
> Wall of China: Is China’s Current Economic Model Sustainable?”
>
> https://www.wsj.com/articles/slow-meltdown-of-china-economy-evergrande-property-market-collapse-downturn-xi-cewc-11640032283

> The U.S. & its allies have many tools to influence China’s
> economy & need to weigh the consequences of an acute crisis
> against the threat its current trajectory poses to the U.S.

The US and its allies are getting more and more sick with the Covid virus. The US is experiencing half a million new infections every day! Their economies will be either stagnanting or going down for another year. They will look to China for medical supplies of all sorts.

paul polikos wrote:
> David P. wrote:
> > The Slow Meltdown of the Chinese Economy
> > By Thomas J. Duesterberg, 12/20/21, Wall St. Journal
> > [...]
> > https://www.wsj.com/articles/slow-meltdown-of-china-economy-evergrande-property-market-collapse-downturn-xi-cewc-11640032283
> > The U.S. & its allies have many tools to influence China’s
> > economy & need to weigh the consequences of an acute crisis
> > against the threat its current trajectory poses to the U.S.
>--------
> The US and its allies are getting more and more sick with the Covid virus..
> The US is experiencing half a million new infections every day! Their
> economies will be either stagnanting or going down for another year.
> They will look to China for medical supplies of all sorts.
-----------
EVERY country needs to get more and more sick with the Covid
virus, and flu, too! We were all over-populated 50 years ago!
The scientists called for Zero Population Growth, but everyone
laughed and said "Fagettaboudit!" People thought they could do
whatever they wanted & get away with it! No, you can't! The
Laws of Nature supersede and overrule the human laws!
--
--