There is something ‘rotten in the state’ of China
Behind the glitzy facade of high-tech supremacy, Beijing is suffering an economic breakdown
Images of high-tech glitz saturate China’s heavily-controlled media. Massive wind farms, colossal arrays of wind turbines, and robotic factories churning out electric vehicles are everywhere.
In successive snapshots, they illustrate the power of the ruling Communist Party’s industrial policy. But in reality, this is a facade as there is something “rotten in the state” of China to paraphrase Shakespeare.
Economic stagnation is spreading. Last week, reports highlighted the depth and scale of the challenges facing President Xi Jinping’s government. “China’s manufacturers are going broke. Overcapacity is leading to soaring bankruptcies,” The Economist stated.
Debt, damn debt:
- The world’s second-largest economy is immersed in red ink.
- Local governments have racked up as much as US$11 trillion “in off-the-books debt.”
- Many have set up “joint operation centers with the police” to chase back taxes.
It all hinges on exports … and exports are stagnant.
Alicia Garcia Herrero, chief economist for the Asia-Pacific at Natixis
Delve deeper: Seven days ago, China’s central bank reported that new bank loans plunged to a 15-year low. It came off the back of feeble factory activity, anemic consumer spending, and falling exports.
Between the lines: “It all hinges on exports … and exports are stagnant,” Alicia Garcia Herrero, the chief economist for the Asia-Pacific at Natixis, told the Reuters news agency, referring to the state of China’s economy.
Big picture: Pessimism hangs over the country after the real estate collapse in 2021. Up to 70% of household wealth is held in property.
Why that matters: Along with weak wage growth and rising unemployment, domestic spending has dried up to a trickle.
China Factor comment: Unemployment is also spiraling even though the data appears to have been doctored. Deflationary pressure and an exodus of foreign investment have only added to the gloom.