Before you look like this guy, get the facts.
By focusing on the reacquisition” of Taiwan, Chinese President Xi Jinping is determined to “bring war to the West,” with an invasion likely before the end of 2024. When his third term was confirmed in March, Jinping cited the need to “promote peaceful development of cross-strait relations” with Taiwan but stressed that his country should oppose “external forces” and pro-independence movements. In essence he wants Taiwan to be totally under the influence of the Chinese Communist Party.
Indeed, history has a way of repeating: Taiwan has been governed independently of China since the end of a civil war in 1949, but Beijing views the island as part of its territory. The dispute over Taiwan is a global flashpoint, with most in the West considering it a self-governing nation. Beijing, meanwhile, has called for “reunification” with Taiwan, last year describing its status as an “unalterable” part of China; foreign ministry said in April a that Taiwan was an issue of Chinese “sovereignty and security” and warned against foreign interference.
These facts are on the table, but Xi Jinping is playing a weak hand. Ratcheting up his military drills around Taiwan are just noise since China exported more than 4.25 trillion U.S. dollars’ worth of goods. At least 74 percent would disappear if China invaded. Just look what happened “on the hint of war”. China’s said exports fell by 14.5% in July from a year ago, while imports dropped by 12.4% in U.S. dollar terms. July’s negative results were game changers for Xi Jinping’s master bluff.
The issues of annexing Taiwan were carefully reviewed by our G-101 SPM AI algorithm when we asked the question in 2021? What would happen if China attempted the take Taiwan by force? The big Elephant in the room is its population, estimated at 1,425,671,352 people. The welfare of such a mass of citizens requires an economy that functions at near capacity. Our algorithm predicts that a 20 percent jolted to China’s exports would create a liquid crisis and cause widespread panic in the country. Even if China annexed Taiwan in a “flash-war” the damage on all fronts would not alter the events in mainland China and the world.
For the moment, allow us to present the “current events "in Three Parts:
Part One: China’s Economy by the Numbers
Now much has the United States invested in China? Direct investment — investment that involves control — in China and Hong Kong is about $215 billion. Portfolio investment — basically stocks and bonds — is a bit more than $300 billion. Around $515 billion in total, and not a big number. U.S. office buildings are currently worth about $2.6 trillion, or around five times our total investment in China.
U.S. investments in China are small. Questionable and arbitrary Chinese policies, many potential investors fear that the nation may be a kind of Roach Motel: You can get in, but you may not be able to get out.
What about China as a market? China is a huge player in world trade, but it doesn’t buy much from the United States — only about $150 billion in 2022, less than 1 percent of our G.D.P. So a Chinese slump wouldn’t have much direct effect on demand for U.S. products. The effect would be larger for countries that sell more to China, like Germany and Japan, and there would be some ricochet effect on America via sales to these countries. But the overall effect would still be small. A Chinese economic crisis might even have a small positive effect on the United States, because it would reduce demand for raw materials, especially oil, and as a result possibly reduce inflation. None of this means that we should welcome the possibility of a Chinese slump or gloat over another nation’s troubles. Even on purely selfish grounds, we should worry about what the Chinese regime might do to distract its citizens from domestic problems.
Part Two: China’s Economy Hit with Crisis of Confidence
Chinese growth has been cooling for some time now. Another possibility is a sort of inverted “China shock,” in which, rather than a Chinese manufacturing boom devastating legacy industrial sectors in places like the American Midwest, a slowdown in one country simply dampens prospects everywhere — with the biggest impacts to economies in East Asia and Southeast Asia that are closely tied to China.
That future is not inevitable, in part because China is already scrambling to troubleshoot its woes; in part because China remains more of a manufacturing producer than a consumer, leaving the world as a whole a bit less vulnerable to fluctuations in Chinese demand; and in part because the United States and to a lesser degree Europe have moved past reflexive austerity policies toward something that might give them a bit more flexibility in navigating choppy waters.
But it’s also because much of the economic fate of the next few decades hangs on the speed and scale of the world’s green transition, whose shape is not yet known. That is how large the project is — potentially a new industrial revolution, rapid and global, remaking and reimagining not just energy but infrastructure and transportation and industry and agriculture.
The Chinese advantage in green technology is large, too. The country has installed nearly half of the world’s wind power capacity in recent years, and last year it installed nearly half of new solar capacity; it also is now the world’s largest exporter of electric vehicles. Even in the midst of a Chinese slowdown, the country’s green sectors could still find themselves thriving in a green new world — perhaps to the detriment of the German auto industry and America’s dreams of becoming a domestic renewable powerhouse. (This would be something more like the first China shock.)
But the big question remains an open one: If the energy transition now represents the world’s most obvious investment opportunity, can a shift away from austerity in the developed world actually take the place, and do the job, of a 40-year Chinese boom? Can those on the periphery keep up with that spending spree? Will a green transition — even a miraculous one — be enough?
Part Three: China’s economy lost its cool.
China was unstoppable, is plagued by a series of problems, and a growing lack of faith in the future is verging on despair.
Earlier this year, David Yang was brimming with confidence about the prospects for his perfume factory in eastern China. After nearly three years of paralyzing Covid lockdowns, China had lifted its restrictions in late 2022. The economy seemed destined to roar back to life. Mr. Yang and his two business partners invested more than $60,000 in March to expand production capacity at the factory, expecting a wave of growth. But the new business never materialized. In fact, it’s worse. People are not spending, he said, and orders are one-third of what they were five years ago. “It is disheartening,” Mr. Yang said. “The economy is really going downhill right now.”
For much of the past four decades, China’s economy seemed like an unstoppable force, the engine behind the country’s rise to a global superpower. But the economy is now plagued by a series of crises. A real estate crisis born from years of overbuilding and excessive borrowing is running alongside a larger debt crisis, while young people are struggling with record joblessness. And amid the drip feed of bad economic news, a new crisis is emerging: a crisis of confidence. A growing lack of faith in the future of the Chinese economy is verging on despair. Consumers are holding back on spending. Businesses are reluctant to invest and create jobs. And would-be entrepreneurs are not starting new businesses.
“Low confidence is a major issue in the Chinese economy now,” said Larry Hu, chief China economist for Macquarie Group, an Australian financial services firm. \ Mr. Hu said the erosion of confidence was fueling a downward spiral that fed on itself. Chinese consumers aren’t spending because they are worried about job prospects, while companies are cutting costs and holding back on hiring because consumers aren’t spending. In the past few weeks, investors have pulled more than $10 billion out of China’s stock markets. On Thursday, China’s top securities regulator summoned executives at the country’s national pension funds, top banks and insurers to pressure them to invest more in Chinese stocks. Last week, stocks in Hong Kong fell into a bear market, down more than 20 percent from their high in January.
From its resilience to past challenges, China forged a deep belief in its economy and its state-controlled model. It rebounded quickly in 2009 from the global financial meltdown, and in spectacular fashion. It weathered a Trump administration trade war and proved its indispensability. When the pandemic dragged down the rest of the world, China’s economy bounced back with vigor. The Global Times, a mouthpiece for the Chinese Communist Party, declared in 2022 that China was the “unstoppable miracle.”
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One factor contributing to the current confidence deficit is the prospect that China’s policymakers have fewer good options to fight the downturn than in the past.
In 2018, with the economy in a trade war with the United States and its stock market nose-diving, Xi Jinping, China’s leader, gave a rousing speech. No one should ever waver in their confidence about the Chinese economy, despite some ups and downs, he said. “The Chinese economy is not a pond, but an ocean,” Mr. Xi said. “The ocean may have its calm days, but big winds and storms are only to be expected. Without them, the ocean wouldn’t be what it is. Big winds and storms may upset a pond, but never an ocean. When you talk about the future of the Chinese economy, you have every reason to be confident.”
But in recent months, Mr. Xi has said little about the economy. Unlike past crises that were international in nature, a convergence of long-simmering domestic problems is confronting China — some a result of policy changes carried out by Mr. Xi’s government.
After the 2008 financial crisis, China unleashed a huge stimulus package to get the economy moving again. In 2015, when its real estate market was teetering, Beijing handed out cash to consumers to replace run-down shacks with new apartments as part of an urban redevelopment plan that gave rise to another building boom in smaller Chinese cities. Now, policymakers are confronting a far different landscape, forcing them to rethink the usual playbook. Local governments and businesses are saddled with more debt and less leeway to borrow heavily and spend liberally. And after decades of infrastructure investments, there isn’t as much need for another airport or bridge — the types of big projects that would spur the economy.
China’s policymakers are also handcuffed because they introduced many of the measures that precipitated the economic problems. The “zero Covid” lockdowns brought the economy to a standstill. The real estate market is reeling from the government’s measures from three years ago to curb heavy borrowing by developers, while crackdowns on the fast-growing technology industry prompted many tech firms to scale back their ambitions and the size of their work forces.
When China’s top leaders gathered in July to discuss the rapidly deteriorating economy, they did not deliver a bazooka-style spending program as some had anticipated. Coming out of the meeting, the Political Bureau of the Chinese Communist Party presented a laundry list of pronouncements — many rehashed from previous statements — without any new announcements. It focused, however, on the need to “boost confidence,” without detailing the measures that showed policymakers were ready to do that.
“Whether you have confidence in the Chinese economy is actually whether you have confidence in the Chinese government,” said Kim Yuan, who lost his job in the home decoration industry last year. He has struggled to find another job, but he said the economy was unlikely to worsen significantly as long as the government maintained control. Confronted with dwindling confidence, the government has fallen back on a familiar pattern and stopped announcing troubling economic data.
This month, China’s National Bureau of Statistics said it would stop releasing youth unemployment figures, a closely watched indicator of the country’s economic troubles. After six straight months of rising joblessness among the country’s 16- to 24-year-olds, the agency said the collection of those figures needed “to be further improved and optimized.” The bureau this year also stopped releasing surveys of consumer confidence, among the best barometers of households’ willingness to spend. Confidence rebounded modestly at the start of the year, but started to plummet in the spring. The government’s statistics office last announced the survey results for April, discontinuing a series it began 33 years ago.
Instead of giving people less to worry about, the sudden removal of closely followed data has left some on Chinese social media wondering what they might be missing.
Laurence Pan, 27, noticed that something was beginning to go awry in 2018 when customers at the international advertising agency in Beijing where he worked started to scale back budgets. Over the next few years, he hopped from one agency to another, but the caution from clients around spending was the same. He resigned from his last employer three months ago. Mr. Pan said that he had secured new jobs quickly in the past, but that he was struggling to find a position this time. He has applied for nearly 30 jobs since last month and has not received an offer. He said he was considering part-time work at a convenience store or a fast-food restaurant to make ends meet. With so many uncertainties, he has cut back on his spending. “Everyone is having a hard time now, and they have no money to spend,” he said. “This might be the most difficult time I’ve ever been through.”
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