Welcome to the second edition of Between The Lines. This week we look at de-risking as opposed to decoupling from China. Or should that be the other way around? Beijing’s debt mountain and surging Chinese unemployment among the young are other stories we are covering. So, let’s get started.
Clyde Prestowitz is a particular favorite at China Factor. He has seen it all and done it all.
He headed the first US Trade Mission to China in 1982 and served as an advisor to Presidents Ronald Reagan, George H W Bush, Bill Clinton, and Barack Obama. Oh, he is also the author of The World Turned Upside Down and seven other books on globalization.
Insightful and lucid, his latest newsletter is dynamite. Here is a brief glimpse:
European Commission President Ursula van der Leyen is a clever wordsmith as well as a politician. ‘Decouple’ from China sounds sooo absolute, sooo costly, sooo, well, final. But ‘de-risk,’ of course, depends on how one defines risk.
“So it sounds not so final, not too far-reaching, not drastic, just discreet and cautious. But the truth is that ‘de-risk’ is essentially the same as ‘decouple,’ it’s just a more elegant way of saying the same thing. Or perhaps it is a way of fooling the audience and even of fooling oneself.”
And that is just an aperitif. The main course is smooth yet substantial:
Let’s be real and not kid ourselves. There is no such thing as ‘de-risking’ with China. Serious de-risking means very substantial decoupling.
“Maybe we shouldn’t care if Starbucks sells coffee in China, but becoming dependent on a wide range of advanced products and technologies is not advisable for the United States or for any country committed to free speech, rule of law and democracy.”
To read the full article click on Clyde’s Newsletter.
China faces a US$23 trillion debt crisis
Ballooning debt is not just the preserve of the United States. There appears to be another mountain of cash owed by China.
Investment juggernaut Goldman Sachs has estimated that the world’s second-largest economy’s “total government debt is about US$23 trillion,” Bloomberg reported.
At the heart of the problem is excessive local government borrowing that has spiraled out of control. As Bloomberg pointed out:
While the chance of a municipal default in China is relatively low given Beijing’s implicit guarantee on the debt, the bigger worry is that local governments will have to make painful spending cuts or divert money away from growth-boosting projects to continue repaying their debt.
“At stake for Xi is his ambition of doubling income levels by 2035 while reducing the gap between rich and poor, which is key for social stability as he seeks to rule the Communist Party for potentially the next decade or more.”
Yet the challenge is not new. Back in 2021, China Factor reported that “a river of debt runs” through the economy. Now, it appears to be a torrent.
Number of Job Postings for Fresh Graduates | Base = Jan 21
Where have all the jobs gone?
It is enough to send a collective shiver down the spine of the Communist Party elite. Unemployment among those aged 16 to 24 jumped to a record high of 20.4% in April. The overall urban jobless rate eased to 5.2% during the same period.
To make matters worse, the situation is likely to deteriorate in the months ahead, according to data-driven research company Baiguan. In a newsletter, it warned:
This July, China is expected to welcome its largest class of college graduates. Over 11.5 million will find themselves in the toughest job market yet, as the economy slowly recovers from Covid and youth unemployment reaches an all-time high.
So, what went wrong? Baiguan again:
Many wonder why youth unemployment keeps rising while the overall unemployment rate stays steady at around 5%. Although Covid and the overall economic slowdown have certainly contributed to some struggles, a closer look at the data reveals a deeper implication of the high youth unemployment.
“[While] the job market is showing signs of stabilization, job-hunting conditions for new graduates, especially those seeking high-paying white-collar jobs, have not improved significantly.”
Unless President Xi Jinping and his inner circle of Xicophants find a solution, there will be rumblings inside the Party and the threat of social unrest.
China’s last emperor and the Hands of Time
Time and the tide of history wait for no man. In Hong Kong this week, a Patek Philippe wristwatch worn by the last emperor of China, Aisin-Gioro Puyi, went for US$6.2 million.
It was sold over the phone to an unnamed Asian collector, according to Phillips, the London-based auction house which managed the sale. Recalling the turbulent period of Puyi’s short reign, NBC online said:
Puyi was only two years old when he became emperor in 1908, leaving his family to move to the Forbidden City in Beijing. He was forced to abdicate in 1912 after the overthrow of the Qing Dynasty.
“In the 1930s, Puyi was appointed puppet leader of Manchuria, the northeastern region that Japan had occupied as part of its invasion of China. He tried to flee after Tokyo’s defeat in 1945 but was captured by Soviet troops and imprisoned in Siberia, where he had the watch with him.”
Puyi gave the timepiece to his Russian interpreter Georgy Permyakov before he was extradited to China in 1950. His family sold it several years ago to an anonymous European collector.
As for Puyi, he was arrested in China and imprisoned for almost 10 years. After his release, he “worked in a variety of jobs, including as a gardener at what is now the China National Botanical Garden in Beijing,” the South China Morning Post said.
He died in 1967, aged 61, from complications caused by cancer and heart disease.