There is no doubt that China’s golden years (economically and politically) are slowly fading from our vision.
A shrinking population, debt up to the nose, a real estate collapse, and a more repressive political iron fist have decimated the hope and optimism of the Chinese people, resulting in what Business Insider calls “deflation. “
“Deflation” occurs when the source is stable, but people are not buying, unlike the problem of “inflation” in the United States of America, which is classified as good enough demand with a limited supply resulting in high prices.
Consumer prices in China dropped for three consecutive months. Former US Federal Reserve Chairman Ben S. Bernanke said even just a full year of drop in consumer prices will weaken any economy for many years. It appears that it is not just food, but other non-core inflation items in China are causing the drop in prices.
Similarly, China is deeply indebted (accounting for about 30% of its gross domestic product (GDP), according to Business Insider) and deflation is making cash scarce for everyone; making debt difficult to repay.
The case of overconstruction has left asset costs low; and since 70% of the Chinese people’s assets are real estate, this has destroyed the balance sheets of the personal sector, according to the Société Générale Group. Meanwhile, the population has led to an aging population and a younger, relatively smaller workforce.
Japan has managed to break out of its own moderate version of stagflation over the past 25 years by restructuring its debt and adopting some fiscal stimulus (which Xi Jinping is not involved in). The $140 billion in economic aid to affected local governments has done little to stimulate the nation’s economic appetite.
In addition, an analyst at Rhodium Group estimated that “China does not collect many taxes outside of investment-led growth” (which is slowing down greatly), so there are few additional resources left from the budget amid emerging debt.
Even the recent 4. 3% increase in its GDP is anemic compared to the overall 10% rates of China’s last few years of strength and glory.
Meantime, people today just do not buy, not invest and not expand amid depressed feelings.
External solutions
CHINA is seeking to forge alliances to find a quick solution to its ills. Despite crossing swords on the geopolitical chessboard, China continues to make a huge industry with the United States on the edge of $700 billion, even in 2022.
It has a lot of industry with Russia, which the West has avoided like a plague after the Ukrainian misadventure.
In fact, today Russia is the largest supplier of oil to the world’s second-largest economy (19%), eclipsing Saudi Arabia (15%), and benefits from a whopping 10% reduction by Moscow. It is evident that even if China aspires to global peace, it cannot fight Russia on any political issue, including Ukraine. There is a mutual agreement between Moscow and Beijing.
While everything revolves around the south, China has not abandoned its defense spending, mindful of its main goal of reunifying with Taiwan (by any means) and the pesky unrest it has created in the South China Sea. Policy experts have pleaded with China to resort to its communication mechanisms with Taiwan to avoid “miscalculations. “
This is especially true with the recent election of William Lai Ching Tie as Taiwan’s leader and the fact that the United States has never hesitated to keep its promise to Taiwan against an annexation of mainland China.
Meanwhile, while relations between China and Latin America and Africa are excellent, lately there are a lot of industrial frictions that could lead to a kind of “industrial war” between Europe and China. Europe is also bolstering its ranks militarily (regarding the Ukraine issue), as most of them are considering the possible return to force of former Republican President Donald Trump, who has always been friends with Russian strongman Vladimir Putin.
The debt-burdened Africa, on the other hand, has been advised by China (with its de-dollarization bid) to use the yuan and their local currencies.
The South China Morning Post reports that, as of late, China has been egging the Group of 77 to lobby for overhaul of the political institutions (like the North Atlantic Treaty Organization, or Nato) and economic bodies (World Trade Organization, the International Monetary Fund and the World Bank; the latter two created strongly upon America’s behest) to short circuit their “disproportionately favoring the West.” (Geopolitics, as we know, often paralyzes the smooth operation of the Nato Security Council).
Chinese Premier Liu Ghozong said that “the global monetary formula should be based on fairness and inclusiveness and committed to multilateralism. “
At the height of its 100 percent GDP growth, China set up its own financing resources for countries that would otherwise not be able to access credit under the old configuration, such as the New Development Bank, the Asian Infrastructure Investment Bank, and the Silk Road Fund. The government has funded 3,000 road projects worth $1 trillion over 10 years.
Many of these have slowed down in the recent past alongside China’s weaker cultural reach, which is a function of the pervasive pessimism in all of China.
After the Covid 19 lockdown period, China seems to be heading towards even more difficult times.
But Linette Lopez concluded: “Xi will never give up the attempt to save face. That is the nature of individual government.
Zoilo P. Dejaresco III, a former banker, is a monetary consultant, media professional, and author. He is a Life and Media Fellow of the Institute of Financial Executives of the Philippines (Finex). Their perspectives here, however, are not public and do not necessarily reflect those of Finex and BusinessMirror. Send an email to dejarescobingo@yahoo. com.
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