Hardly anyone cares because it all seems so far away now, but the news of the week is most likely the collapse of China. (Translator’s note: The original article appeared on September 8, 2023.) Real estate, currency, stock markets, technology, demographics: all these problems have now come together, and China faces stagnation at best.
1. The collapse of the housing market
China’s housing market crash: There are an estimated 80 million unoccupied apartments in China – a huge number even for a country as large as China. Real estate has fueled China’s growth for decades, but now it threatens to destroy it. One by one, the big Chinese development conglomerates are going bankrupt. But this time, no one knows how to resurrect China’s real estate market. The Chinese regime artificially stimulated the housing market for years and used it as an economic engine – and it worked! – but sometimes the market becomes saturated, and it has now happened in China.
2. The collapse of the Chinese yuan
Then came the marginalization of the Chinese yuan, which was presented as a currency destined to replace the US dollar as the world’s number 1 reserve currency. Premature. Whether the Chinese yuan is weak or strong, no one wants it as an international currency, because no one believes in the long-term reliability of the Chinese regime. And nobody wants to buy Chinese bonds. “It is very difficult to establish a reserve currency without attractive reserve assets. China has a problem. It wants foreigners to buy its bonds, but they are only sold from the beginning of 2022,” Jens Nordvig, the founder and CEO of the consultancy, recently noted Exante Data.
When large Chinese companies borrow money in international markets, it is always in Eurodollars (Eurodollar) and certainly not in Chinese Yuan.
Regardless of whether the Chinese yuan is weak or strong, it will not replace the US dollar, even in Southeast Asia. Although the recent strengthening of the BRICS (an informal economic grouping of countries comprising Brazil, Russia, India, China and South Africa) is an interesting geopolitical development, there is no indication at this stage that other BRICS countries are prepared to settle their trade transactions in the Chinese yuan – – and this is especially true for India.
As for the concept of the Chinese yuan as a currency reserved for the countries of the BRICS group, some experts have long expressed skepticism about this possibility. Danny Bradlow of Centers for Advanced Studies (Center for Advancement of Scholarship) working at the University of Pretoria, questioned the practicality of returning to the gold standard – there simply isn’t enough gold for that – and the use of cryptocurrencies. Danny Bradlow also questioned the reliability of cryptocurrencies in global trade. Some serious investors see cryptocurrencies as essentially analogous to the Dutch tulip mania of the 17th century. But then at least you were left with a tulip bulb.
Shirley Ze Yu, Associate at the London School of Economics and Political Science (London School of Economics and Political Science), while discussing the complexities of introducing a BRICS-specific currency, commented that the introduction of such a currency would require the creation of a number of institutions with shared standards and values. “It’s not impossible, but it would be very difficult to achieve,” she noted.
Chris Weafer, an investment analyst at a consulting firm Macro-Advisory specializing in Russia and Eurasia, called the proposal to create a BRICS-specific currency an “unviable proposition”.
3. The collapse of the Chinese stock market
It is likely that Xi Jinping, General Secretary of the Central Committee of the Communist Party of China, does not really understand how markets work. Perhaps he thought there would be no consequences for his interventions in the Chinese stock market. But his interventions have at least one consequence: a loss of trust. Why would anyone want to invest in a stock market that is constantly at the mercy of a communist “prince” and his subjective whims and fancies?
Under China’s new “anti-sanctions law,” almost anything can be labeled a crime and any property can be seized if China’s communist overlords so desire. A raid on the Shanghai headquarters of a consulting firm Bain & Company and the colonization (confiscation) of the Hong Kong financial center by the Chinese imperialists caused, from a purely financial point of view, among other things, that the Chinese market lost its stamp of reliability.
The problem is also that there are no private companies in China. The Chinese Communist Party is pushing a policy of “civilian-military fusion,” which means that all companies belong to the central government and it can appropriate their information at any time.
4. Lack of technological innovation
China’s aggressive policy, non-compliance with transparency and US accounting standards, long-term positive trade balance in China’s favor and China’s permanent and systemic alienation of American intellectual property have led the United States of America, despite decades of mutual good relations, to limit the “sharing” of American semiconductor technologies with China. The Chinese government doesn’t seem to have mastered the field yet, which may have added to Xi Jinping’s drive to seize control of Taiwan, a global hub for computer chips. Chinese companies and the government may be concerned about Chinese companies falling behind those from Japan, South Korea, Taiwan and the West. In the US, Republicans and Democrats are exceptionally in agreement on this matter.
5. Demographic collapse
Demographic curves are collapsing in all industrialized countries on all continents, with a few rare exceptions. For China, which, with a birth rate of 1.28 children per woman, seems destined to follow in Japan’s footsteps, this is true. Xi seems to be trying to reverse this downward trend, but so far he has only succeeded in accelerating it. Despite the formal end of China’s one-child policy in 2016 and the introduction of financial benefits and tax cuts for families, the birth rate has not increased significantly.
UN figures suggest – despite a slight increase in the birth rate shortly after the policy change – that the birth rate has fallen further since then. China’s birth rate has fallen from around 1.7 children per woman – similar to Australia and the UK – to 1.28 children per woman, one of the lowest rates in the world. This recent decline is the result of several different social and economic pressures that have built up in China over the years. A shrinking labor force is reducing China’s economic growth potential.
From the above comes this prognosis: Our contemporaries often forget that the Chinese regime is not the equivalent of British, American or Dutch democracy. The Chinese regime is a dictatorship in the strict sense of the word, a dictatorship of one party, and in its very essence it is a dictatorship of one man – Xi Jinping. If we are talking about the overthrow of a dictator, three possibilities come to mind – he can be overthrown by force, he can decide to leave on his own, or he can die.
Despite the failure of his economic policies, Xi Jinping is unlikely to decide to leave on his own. He may be hoping that Taiwan will fall into his lap on his own after the upcoming presidential election scheduled for January 13, 2024. In order to increase international trade, he could delay planned aggression against Taiwan or, conversely, as tyrants often do, escalate hostility toward Taiwan to distract the Chinese public from the economic crisis. However, this would not be a prelude to the “Chinese century”, but a desperate maneuver by a desperate man.
Xi Jinping has already ordered his military to “prepare for war” and “fight for victory.” Chinese spy balloons have already hovered over the most sensitive US military bases. Xi Jinping has also sent “hundreds of Chinese men of military age” into the United States across its open southern border – presumably to undermine US military retaliation by sabotaging airports, power grids, communications systems should China attack Taiwan , drinking water supply, bridges, ports, highways, tunnels and other strategic infrastructure.
Xi sees his “window of opportunity” — open under a possibly compromised Biden administration — closing, with the U.S. led by a president who shakes his hand in the air, says “no comment” when asked about the burned-out city in Hawaii and assures Russian President Vladimir Putin that a “small incursion” into Ukraine would be fine.
Xi knows Biden administration fled Afghanistan, dismantles US energy independence and supports wind farms, allowed Chinese spy balloon to complete its mission over sensitive US military bases, canceled US Justice Department program China Initiativewhich tried to prosecute industrial theft, allowed TikTok, Confucius InstitutesConfucius classes in elementary and middle schools, illegal Chinese “police stations,” lets China buy up American farmland—often located near American military bases, and does virtually nothing to stop American investment in China’s industry and military through massive public federal pension funds such as Thriftas well as private sector investment.
Larry Fink, CEO and Chairman of the Company BlackRock, urged investors to “triple their allocations in Chinese assets.” “We are one of 16 investment fund managers currently offering US index funds investing in Chinese equity companies,” said a company representative BlackRock television station CNN about a country using it to push America out of its leadership position and take its position.
Jamie Dimon, CEO of the US bank JP Morgan Chase, said that “he intends to operate in China in accordance with American foreign policy, and if American foreign policy requires it, he will absolutely stop expansion there.” In other words, investing in the communist China – that is, to a country that wants to replace the US as the world’s leading superpower and dominate the world – are not illegal. If China attacks Taiwan and starts a war, the US will also participate in financing this war.
The likelihood of war and the urgency of the situation are also evidenced by the military alliances concluded by the Americans in the Southeast Asian region.
Drieu Godefridi, is a lawyer and philosopher, a graduate of Saint-Louis University of Louvain. He holds a doctorate in legal theory from the Université Paris IV-Sorbonne. He is the author of The Green Reich.
Translation: Libor Popovský, Helena Kolínská
Provided by Gatestone Institute