China’s economy is nosediving, something of a surprise:
I’m trying to think through the implications for the rest of the world.
If things get too bad then I’m always reminded of the words of Gerald Celente:
When all else fails they take you to war
Taiwan had better watch out!
If there is civil unrest in China, then the Taiwan situation can be more likely. Always helps to get people together. While I know there is a shift to decouple or derisk from China, I doubt there been that significant of a change yet. With both their imports and exports crashing, I think it may be an indicator of what is happening in other economies.
China is already slipping into deflation in some sectors. If it spreads it is incredibly hard to overcome, as our own 1929-1940 experience shows (and 2008-2019 to a lesser extent.)
The shadow banks are the next catastrophe to unravel… millions of Chinese savings gone.
Zeihan had a video on this a couple days ago. He’s careful to emphasize this is only one month of data, but he believes China is on the path to ruin. Besides the demographics problems he always talks about, he believes China’s model of government spending on infrastructure to juice the economy is no longer effective.
It is not that. The problem is rationing of resources. Particularly not enough water to expand no matter what. With no expansion economically there is no purpose spending on infrastructure. The economies of scale are in reverse.
He is so right about global demand. China’s factories are producing things with no demand. This can be stated in a lot of ways. That does not free up water that much. The government is in debt, the economy is failing, the US and Mexico are building factories and Mexican labor is cheaper. There is no point to building infrastructure.
He nails it about government support. There is no point.
We do not know if China will go to war. Oddly enough Xi controlling his people may stop the pressure for war.
Zeihan talks fast and makes many good points, but one of the ones where he is wildly wrong is in his “demographics” pitch at 1:50 in. He says “most consumption is done by people in their 20’s and 30’s.”
This is flat wrong. Baby Boomers account for more than 50% of spending in the US. There are more of them, they have more money, and they are liberal in spending it.
Fully half. Think about that. Break up the population into demographic category, as VISA does in the link below, and you have Millenials, GenX, GenZ, Boomers, Gen Greatest, Gen Silent, and now Gen A. OK, you can safety ignore Gen A because they’re kids and teenagers, but of all those others, Boomers spend 50% of all consumer spending!
Where he gets this “20’s and 30’s” are the biggest spenders is beyond me, but he doubles the insult by linking it with the Chinese population bomb (that cohort being smaller than usual thanks to the “one child” policy). In fact there is likely some effect of this “Population Bomb”, but it’s best not to overstate it, methinks.
The Chines Economic Observer is a bit like the UK’s Financial Times and has always taken a somewhat independant view of the Chinese economy. Quite a good read at times.
I was surprised when I read this frank article about “the coming collapse”
Indeed, as Rabobank’s Michael Every cites the Economic Observer, a subsidiary of Xinhua News Agency, which published a newsletter titled “Finance Bureau Chiefs in the Past Half Year”, and which concluded that local government finances and the national economy are reportedly "on the verge of collapse, and the thunder will explode at any time. To be sure, recent events ensure the coming collapse
Not a very good headline when you are heading up a meeting of BRICS in a few days on how to overthrow the US dollar based financial system 
Not the most economically literate paper in the UK but these are scary headlines:
We have all been telling you that for months if not years.
I don’t matter.
It’s the sixty or so countries that are attending BRICS that needed to be impressed
Their assets are under $500 per capita. The west has well over $100k in assets per capita.
Not really relevant when you want to set up an alternative payments system, which seems the main aim of the BRICS.
LMAO really? When you have no money there are no payments.
The BRICS group accounts for more than 40% of the world population and about 26% of the global economy and offers an alternative forum for countries outside diplomatic channels seen as dominated by traditional Western powers. Its influence and economic heft has more nations eager to join.
Over 40 countries, including Saudi Arabia, Iran, United Arab Emirates, Argentina, Indonesia, Egypt and Ethiopia, have expressed interest in joining BRICS, according to summit hosts South Africa.
You are correct, but I think you have to be careful about how much this applies to China. There are three big differences between the US and China on this issue.
As a consequence of these factors, the Chinese nearing retirement are not inclined to spend money. They are by necessity saving heavily for retirement. Combine that with the high unemployment rate of younger workers and there are few groups willing to buy stuff. That is why it is very difficult for China to stimulate domestic spending. Whatever money becomes available to “the masses” is put into savings for retirement.
I’m no Zeihan, but I don’t think China recovers economically until it makes substantial structural changes in how it supports its rapidly growing elderly population. It is only through more retirement security that Chinese domestic spending will increase to levels needed to sustain a growing economy (IMO), especially since the current aging population cannot depend on a lot of children to support them (the traditional “retirement plan”). But that will mean enormous state expenditures, money that Xi Jinping would rather use to build China into global world power.
This is a battle between what is best for the country and a dictator’s ego. I don’t like China’s prospects.
Neither do I.
My POV has very little to do with Xi or the CCP.
My POV:
The US (supported by EU, and the West) made China “most favored nation”, implementing trade deals which led to Chinese economic growth over the last 4 decades.
The US has, in the last 6 years, pulled back on China MFN status. The EU, the West is again supporting the US stance.
China is now having to economically stand on its own.
The US/West is actively sanctioning and implementing trade restrictions against China.
Geopolitically, China is aligning with the BRICS, other African countries, and ME, LA and SE Asian countries… WITH RUSSIA.
I’ve sold my China exposure stocks.
Except for a position in TSLA.
ralph
There is a distinction on legitimate v illegitimate power as Aristotle would describe it. The west wont wait for illegitimate powers to have much of a say. Nor should the west. The leaders who are illegitimate need to step aside. Life is not about spoiled brats. The depth of this is on all levels of interaction. Particular to economics the expectations should be a western repudiation.
India has a warm reception from the west. Modi makes his own decisions. If he does not want to work with the west but instead Putin and Xi we will begin to feel Modi is turning illegitimate. Like all politicians all of them have a dance to do. Working with the west makes India larger part of the west. Working against the west is a free choice.
The truth is that swinging door currently is the western cartel bringing down the price of Russian crude on purpose behind the scenes for both India and China.
West or East I do not trust any of them. The tools used right with power are sloppy at best. Used wrong we have some recourse in the west. That is the only thing we have. It is worth all of the wealth we have created. It is the sole difference between $500 in per capita assets and over $100k in per capita assets. I can say that but the spoiled brats dont care. There is never a big enough palace when the per capita assets are $500.
Zeihan spends a lot of time promoting Zeihan. If he’s not making bold claims he’s not doing his job, so I take him with a bit of salt. However, I think he misspoke in this case. I’ve heard him say differently in other videos (he repeats the same material a lot). I checked and according to BLS it is more the 30s-50s which are the prime spending years. In the US anyway.
Regardless, China needs to pull a rabbit out a hat. Their population is already going down. That is not an easy trend to reverse, and it might already be too late.
The main aim of BRICS (at least what they spend money their time and money doing) is running a development bank, similar to the IMF.
Money comes with strings, and the US pulls the IMF strings. BRICS would like to advance their agenda in the developing world as well. They do this by selling bonds to raise money for development projects. But at this point BRICS’ development bank is tiny compared to the IMF.
Possible, but he also could be talking about relative to their current earnings. 20s to 30s is the family formation age range, starting from birth through high school. Incomes typically increase from late 30s into the early 50s. Then things “get interesting”, depending upon the industry in which they work.
