The Chinese social contract is simple: give us a good Economy, and we’ll stay out of politics. The problem is, that contract is breaking down.
The Chinese economy has 3 pillars. Today, all 3 are under extreme stress.
The 3 Pillars
- Exports. Exports are down on a weak world economy.
Meanwhile, the US, China’s biggest trading partner by far, is decoupling from China. China is now only America’s third largest trading partner, behind Mexico and Canada.
- Real estate. After years of over-investment, China’s real estate sector is crumbling.
One of China’s largest developers, Country Garden, is nearing bankruptcy. Evergrande, another large developer, has already defaulted on its debt.
Half-built apartments litter second tier cities across China. No one knows if they’ll ever be finished.
- Tech. China’s government is cracking down hard on its technology sector, previously one of the world’s most vibrant.
Top entrepreneurs like Jack Ma simply disappear. Entire sectors are nationalized overnight.
China’s Economy Sputters
No wonder China’s economy is running on fumes. Recent data shows China has fallen into deflation.
Deflation can lead to a brutal cycle of lower prices, wage cuts, and declining economic output. A similar spiral has trapped Japan for a generation.
China’s economy is so bad, the government has simply stopped publishing many forms of economic data. After youth unemployment and consumer confidence hit worrying levels, it stopped reporting numbers entirely.
The Future
China’s population has begun to decline. Long the world’s most populous country, it lost that distinction to India this spring.
China is aging even more rapidly than Japan. The Communist Party’s one child policy all but assures a huge drop in population in the coming decades.
Fewer people means fewer workers and less economic output. With no history of immigration and a language that is hard for foreigners to learn, China is unlikely to make that up with workers from abroad.
Meanwhile, the best and brightest have a strong incentive to leave. Why work for a lifetime to build a great business, just to be disappeared like Jack Ma?
Wrap-Up
China’s economy is under assault on all fronts. And even if current challenges like the real estate crisis fade, demographics will hobble its economy for many years to come.
As China becomes weaker economically, it may lash out in anger.
Russia’s decline began long before China’s. Today, it is asserting the only power it has left, its military.
China may do the same in the coming years, attacking Taiwan. That would cost China a great deal — but it would cost the rest of the world, as well.
What do you think the future holds for China? Leave a comment and let us know.
If you enjoyed this post, subscribe for more like this!
Here are a few of my favorite recent articles to hold you over for the weekend!
From AI to Satellites, US Dominates All Competition
The Secrets of Sand Hill Road (Part Two)
The Secrets of Sand Hill Road (Part One)
Save Money on Stuff I Use:
Fundrise
This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.
More on Fundrise in this post.
If you decide to invest in Fundrise, you can use this link to get $100 in free bonus shares!
Misfits Market
I’ve used Misfits for years, and it never disappoints! Every fruit and vegetable is organic, super fresh, and packed with flavor!
I wrote a detailed review of Misfits here.
Use this link to sign up and you’ll save $15 on your first order.
