“Failure of China’s economic transition, danger to other parts of the world”


Since at least 2008, the Chinese have recognized the essential weaknesses of the economy hidden by the desperate catch-up of the last two decades to catch up with the Western world. China’s slowdown should have started elsewhere at the turn of the last decade, but has since been evaded by considerable financial and budgetary support (like elsewhere in the west), and above all, the new Pharaoh’s geopolitics. With academic ambition, the power of Xi has risen. It was also during this period that China shifted from strong growth based solely on exports to stronger growth based on the development of domestic infrastructure such as transportation, real estate and energy. In fact, even though the Chinese miracle continued primarily thanks to Western purchases from the world’s workshops, it was a new official macroeconomic doctrine.

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Within the framework of this new pharaoh model, it has been a Chinese model for 10-12 years, further exacerbating the slowdown in globalization (trumpist protectionism, Covid crisis, closure of certain markets based on geopolitical competition). The company is required to invest in the domestic market without worrying about the cost of capital or the rate of return on investment. The Chinese state guarantees assistance and relief in the event of a turnaround, especially through the management of the banking sector. We focused on this single purpose of moving at least tens of millions of young Chinese from the countryside to the city. This is a model that can be described as “too big to fail” at the forefront of the fierce pace of construction over the last decade. Rooted in the economic transition to the domestic market, this model is exploding in front of us. First, China’s urbanization was much faster than expected. It’s not decades away, but it’s only a few years, as evidenced by an empty pavilion built by a particular real estate developer that has recently gone bankrupt naturally. Therefore, no store is as big as one would expect in the real estate and construction sector (30% of China’s GDP). Encouraged by public authorities to take on more debt than reason, these promoters discover that demand is not what was initially expected. In particular, not only the one-child policy, but also the slowdown of the main vector of wage increases (foreign trade)) depleted housing demand. The population is aging faster than expected, and as a result of this demographic change, the world of work will lose 5 to 6 million workers annually over the next decade. Fifteen years later, China will present Japan’s demographic profile.

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Natural growth is a bit weaker than expected, and geopolitical competition has forced the Chinese government to quickly retreat all ambitious plans and readjust the economy for a lower growth regime. This means China, which has low GDP growth, less surplus capacity to be returned to other parts of the world, and instead tends to export inflation to other parts of the world. Indeed, other parts of the world continue to procure certain basic commodities from China (reviving a factory for simple manufactured goods is certainly long and complex for the West), but local production In low and disrupted supply chains, the supply will be increasingly expensive. Inflation is also coming from China.

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In addition, China is trying to secure its traditional energy supply while developing renewable energy to escape the local environmental hell (pollution). Therefore, through energy, China is contributing to the recovery of current inflation, not only for all raw materials but also for essential materials. Paradoxically, the only term we see about this negative impact on China’s global economy is the actual local financial crisis, a scenario similar to Japan in the early 90s. Against the backdrop of difficulties for local real estate developers, we found that China’s growth rate this summer did not exceed 5%. Regional financial shocks caused by Covid’s strong resurgence and the uncontrollable real estate crisis will certainly be negative in the short term, but in the medium term they will calm global inflation by China and perhaps geopolitical tensions. Will avoid. A few years (China working on the financial crisis will not embark on an invasion of Taiwan, except for a dictatorial step that will probably surely give in to the country).

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The current recession in China’s economy (coal shortage, collapse of home sales) underscores the uselessness of a model based solely on the Communist Party’s decision to steer this economy through large-scale public investment. The fact that most small locals still only hold exports (which should diminish next year due to the normalization of post-Covid consumption in the West, especially in the United States) makes this China’s transition. Proving failure. It was a decoy for at least a few years.

In reality, China’s prosperity depends on its openness to the world and its globalization. China must choose: it cannot be both a strong and prosperous economy (first in the world?) And most of its neighbors and the geopolitical enemies of the west.

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