China’s is a boom and bust economy. Xi only magnifies the busts.
That’s hardly fair. They’ve had two years of negative growth in the past 50. The US, meanwhile has managed recessions in 1980, 1982, 1992, 2001, 2008, and has mostly skulked along in the 3-4% growth window while China has been etching some 8%’s and 10%’s along the way.
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Ah but now they have unwillingly supply-side economics. See a pattern?
Perhaps, though there are some who argue declining birth rates contributed to the decline of the Roman Empire. In any case, we do know that Japan has been dealing with the issue for about 20 years now with limited success.
Japan had the advantage of being a wealthy nation when it hit the demographic wall in the 1990s that caused it’s property market to crash, ushering in 20 years of stagnating GDP and deflation. China isn’t nearly as wealthy and so the social/economic impact could be much more negative.
I’m not a fan of Xi, but I don’t think there is much that he can do to halt the decline. This may be one of those Karl Marx/Hari Seldon moments when the historical tide cannot be stemmed.
What the industrial revolution had going for it was a massive increase in productivity. We managed the transition from rural to urban and whale oil to electricity because the transition made the nation wealthier. Hard to see how an aging population and declining work force will do the same.
Perhaps humanoid robots and AI will save us, provided we find a way to redistribute the wealth from the owners of the robots to an increasingly dependent aging population.
Keep in mind though that the Chinese system works a bit differently than the West. When the central government targets a growth rate, it becomes the responsibility of every downstream official to meet that rate. If you are the governor of a province or the mayor of a town or the president of a regional bank, your continued employment depends on initiating enough projects and selling enough property to meet the growth target. That’s why the debts of local governments and banks are so high. https://www.reuters.com/world/china/china-orders-indebted-local-governments-halt-some-infrastructure-projects-2024-01-19/
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China’s regional banks facing US$300 billion loss
I guess that’s a lot, but I confess to now knowing a lot about the Chinese banking system.
I do know that a single US bank, SVB lost about that much in a single weekend without collapsing the economy. They had something like $50B in withdrawals one day, either had or faced $100B the next day, and then were shut down with the consequent loss of that much and more. (Although the Feds stepped in and guaranteed the deposits, even those over $250,000, which was most of them.)
So yeah, maybe it’s a consequential problem, or maybe Xi can somehow make it go away with some adroit financial legerdemain. Dunno.
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The Chinese banks most at risk are hundreds of small, mostly rural banks that are mostly state-owned and mostly cater to single households/small businesses. To maintain the mandated economic growth over the last decade or so, these banks made a lot of dubious loans at the the direction of and backed by local governments. The chow mein has hit the fan and most of these banks are in trouble at a time when most local governments are heavily in debt.
The solution at the moment is to consolidate the rural banks into larger concerns that will be under greater state scrutiny. Not sure how pooling a bunch of small insolvent banks into a bigger troubled bank will solve the problem.
What the national government is trying to avoid are bank failures that cause a widespread run on the banks. However, at some point one would think that the banking system will have to be cleansed of the bad performers. Such “cleansings” in the US were called the Great Depression and Great Recession. In Japan it led to the bank failures initiating the “Lost Decade”, a time of stagnant economic growth and deflation.
China is trying to get through a situation just as bad while maintaining 5% economic growth. It is hard for me to see how.
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China can no longer optimize its economy with any central controls. The private sector is no longer function to optimize the economy either. That happens as the cycle moves on.
The only reason China has better trade numbers and growth numbers very recent are the Biden tariffs to be implemented soon. People here are buying under the wire from China.
The Chinese industrials will in relative terms contract their global footing for many years to come.
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If the former small banks are merged into a larger entity, there is no longer a bad performer to cleanse, is there? Only the possible bad loans … which they might be able to paper over?