Beijing’s House of Cards Economy Is Crumbling

Beijing’s decade long “can-kicking” may finally be reaching its limit.
Beijing’s House of Cards Economy Is Crumbling
Residential buildings and apartments in Guangzhou, in China's southeastern Guangdong Province, are seen in April 2023. (Ludovic Marin/AFP via Getty Images)
Fan Yu

We’ve predicted many times in this publication China’s impending economic collapse. But at no time has there been as many economic whirlwinds causing havoc in China as today. Beijing’s decade-long “can-kicking” may finally be reaching its limit.

The Chinese Communist Party (CCP) leaders in the Politburo meeting last month called the country’s economy “torturous.” Such an ominous description from the CCP brain trust is exceedingly uncommon and suggests the situation on the ground is even more dire.

Let’s rewind to the beginning of 2023, when most mainstream publications and economic experts predicted an economic bounce back as the CCP lifted years-long COVID-related restrictions.

But just the opposite has happened.

Consumers aren’t spending. In fact, China has the opposite problem faced by the United States: deflation. Official statistics for July reported that consumer prices had fallen by 0.3 percent compared to a year earlier, after being stagnant for several months.

Deflation means there’s a shortage of demand in the economy.

And one can see that play out on several fronts.

China’s exports to the rest of the world fell in July by 14.5 percent, at the sharpest pace since early 2020. This has been the trend going back a full year, despite two months of increases earlier this year. Eroding trade ties between China, the United States, and Europe reflects a reset of sorts, given political tensions and the result of manufacturers reshoring production since 2020. Exports to the United States fell 23.1 percent in July.

The fall in exports coincided with a decline in factory activity, which contracted for the fourth consecutive month. At the same time, the country’s imports also fell by 12.4 percent last month, driven by a severe drop in crude oil (20.8 percent). Imports of integrated circuits—no surprise—were also down significantly. The latter reflects weak Chinese domestic and internal demand, something that CCP regime leader Xi Jinping has been pounding the table for years.

There is a lack of economic demand everywhere one looks.

New loan volumes, according to the People’s Bank of China, fell to their lowest monthly amount in July since 2009—more than a decade ago—as another data point that supports the specters of deflation in the economy. This result is despite a new rate cut by the central bank enacted in June to spur such lending.

China’s enormous real estate sector, which has long been a growth engine and has accounted for as much as 30 percent of its GDP, is again faltering.

This time, real estate developer Country Garden missed two bond interest payments, according to mainland China reports. While it technically has 30 days to remit payment before it is considered in default, Country Garden’s liquidity issues are a worrisome development following the collapse two years ago of Evergrande. Country Garden has been one of the top five developers in China by several measures.

During the last two decades, China has chased growth at all costs spawning loads of bad debt, unprofitable infrastructure projects, empty apartments, and commercial real estate properties, as well as excess supply in multiple sectors such as steelmaking and manufacturing, which it has used to flood the world with cheap products.

The plan was for China’s burgeoning middle class, growing global stature, continued population growth, and domestic demand to eventually grow into what has already been built. That’s what the CCP leaders have been vocal about over the last few years.

But there couldn’t be a wider disconnect between CCP leaders and the reality on the ground. The country is facing enormous unemployment issues. Urban unemployment for youths—16- to 24-year-olds—rose to a record high of 21 percent in June, according to official data. That’s three times the rate in the United States. The true unemployment picture could be even worse, as a Chinese scholar cited by Caixin, a mainland business magazine, states that around 46 percent of China’s youths are either unschooled or unemployed.

The private sector—including small- and medium-sized businesses led by entrepreneurs—has been cut down to size. Mr. Xi’s “common prosperity” doctrine in 2021 has served to restrain growth in the private sector. Some of China’s biggest tech companies, such as Alibaba and Tencent, have been told to please the Party first and foremost at the expense of innovation.

And the fabled middle class? Their wealth, mostly in the form of real estate, is on the cusp of disappearing.

None of the dreams envisioned by CCP leaders have materialized. And we’re reaching a time when the economic façade is about to come crashing down.

Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.
Fan Yu is an expert in finance and economics and has contributed analyses on China's economy since 2015.
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