China’s Economy Is Collapsing And Here’s Why You Should Worry

Gordon G. Chang is the author of The Coming Collapse of China and Nuclear Showdown: North Korea Takes On the World and is an expert on China and China-US Relations. He lived and worked in China and Hong Kong for almost two decades as Counsel to the American law firm Paul Weiss and earlier in Hong Kong as a Partner in the international law firm Baker & McKenzie. His writings on China and North Korea have appeared in The New York Times, The Wall Street Journal, the Far Eastern Economic Review, the International Herald Tribune, The Weekly Standard, and the South China Morning Post. Additionally, he has appeared on CNN, Fox News Channel, CNBC, MSNBC, and Bloomberg Television. Outside the United States he has spoken in Beijing, Shanghai, Hong Kong, Seoul, Singapore, Tokyo, The Hague, Vancouver, and Taipei. He has served two terms as a trustee of Cornell University

By Gordon Chang

Chinese ruler Xi Jinping has staked his rule on making China larger by annexing neighbors, so Taiwan is not his only target. He needs success to assure a precedent-breaking third term as the Communist Party’s general secretary, but the Chinese people, preoccupied with a failing economy, are in no mood for their leader’s aggression.

We start with the Party’s storyline that the relaxation of COVID-19 lockdowns is leading to an economic revival. (RELATED: CHANG: Biden Administration Is Handing Space To China On A Silver Platter)

Don’t believe it! The ongoing downturn is not merely the result of disease-control measures. The most fundamental problem is that Xi has been reversing reforms and re-instituting strict state control. He is a totalitarian at heart.

The second-most fundamental problem is that China is carrying a staggering load of debt. The Bank of International Settlements estimated that the country’s debt was equal to about 290% of the gross domestic product in late 2020, and there has subsequently been a rapid accumulation of indebtedness, during the pandemic. When adding the so-called “hidden debt” and deflating GDP to minimize the effect of inflated official reporting, the country’s ratio is now around 350%.

The debt, however large it may be, is distorting the economy, especially the crucial property sector, which accounts for about 30% of GDP. Home prices are declining country-wide, but, more worryingly, sales volumes are plunging. Home sales fell 34.5% in the first five months of this year compared with the same period last year. Property developers are defaulting one after another. One of them, the Evergrande Group, is struggling under $305 billion in obligations.

Banks are troubled. There have been at least six bank runs since mid-April, in Henan and Anhui provinces. There are restrictions on deposit withdrawals elsewhere, including Shanghai, the financial capital. China’s banking system is showing the strain of an economy that looks like it is contracting.

Investors are fleeing. The bond market in May recorded its fourth-straight month of outflows as investors chased higher yields in the U.S. The Chinese central bank cannot match the Federal Reserve’s rate hikes because higher rates in China would push the economy deeper into the red. The renminbi, not surprisingly, is trading at its lowest level in 20 months.

Beijing cannot expect others to come to the rescue by buying Chinese products, as they did in 2020. The world, unfortunately for the party, is headed into recession or worse. It will be a “calamity,” Charles Ortel of the “On the Money” podcast tells me. As he notes, “Not since the OPEC oil shock have global economic conditions been so unsettled.” With trends moving against Beijing, the world’s next great economic crisis will almost surely be China’s.

Why should we care? For decades, the primary basis of legitimacy of the Communist Party has been the continual delivery of prosperity. Now, because of the accelerating downturn, the Party’s only remaining basis of legitimacy is nationalism.

Chinese foreign policy since 1949, when the Communist Party came to power, has had one overarching goal: the maintenance of Party rule. Therefore, the world should expect Beijing to engage in even more nationalistic behavior to justify its existence.

In fact, the Chinese Communist Party is increasingly belligerent. The Chinese military, for instance, violated sovereign Taiwan airspace in February and in late May intercepted and damaged an Australian reconnaissance plane in international airspace over the South China Sea. This month, General Wei Fenghe, the defense minister, made threatening public comments directed against the United States during the high-profile Shangri-La Dialogue, a security conference in Singapore.

Yet these Communist Party aggressors face a fundamental problem, something evident from their unwillingness to come clean about battlefield losses. It took them eight months to admit they had suffered four dead from a sneak attack they launched against India’s forces in June 2020 in Ladakh in the Himalayas. Chinese officials, according to both Indian and Russian estimates, undercounted the dead by a factor of 11.

The skittishness of the regime suggests its leaders know that the Chinese people, suffering from an economic downturn, are in no mood for another military misadventure abroad. A combined air-sea assault on Taiwan, even if successful, would result in massive Chinese casualties.

Xi Jinping, however, wants to march on neighbors, so peace in Asia depends in large measure on whether the Chinese people are able to restrain him. The millennia-old contest between China’s rulers and its people has never been more consequential.

Gordon G. Chang is the author of The Coming Collapse of China. Follow him on Twitter @GordonGChang

12 Truth Bombs from Milton Friedman

As Milton Friedman wrote, “Governments never learn; only people learn.”

By Jon Miltimore

American economist Milton Friedman rose to prominence in the second half of the 20th century as one of the leading critics of the prevailing economic theories of John Maynard Keynes, whose mixed economy model became the standard for many developed nations during and after the World War II-era.

Born in Brooklyn to a Jewish family of modest means in 1912, Friedman distinguished himself scholastically at a young age. After graduating high school at age 16, he attended Rutgers University where he studied math and economics. He continued his education at the University of Chicago, where he received an MA in economics and would ultimately retire in 1977 after more than 30 years of teaching—a year after receiving the Nobel Prize for his contributions to economic science. Friedman continued writing and speaking publicly through various mediums—magazine columns and television, academic journals, and newspaper op-eds—until he died in 2006.

The Economist has described Friedman as “a giant among economists” and “the most influential economist of the second half of the 20th century.” Here are 12 things he said to serve as food for thought:

  1. “Underlying most arguments against the free market is a lack of belief in freedom itself.” – >Capitalism and Freedom (2002)
  2. “I’m in favor of legalizing drugs. According to my values system, if people want to kill themselves, they have every right to do so. Most of the harm that comes from drugs is because they are illegal.” – As quoted in ‪If Ignorance Is Bliss, Why Aren’t There More Happy People? (2009)
  3. “With some notable exceptions, businessmen favor free enterprise in general but are opposed to it when it comes to themselves.” –Lecture “The Suicidal Impulse of the Business Community” (1983)
  4. “It’s a moral problem that the government is making into criminals people, who may be doing something you and I don’t approve of, but who are doing something that hurts nobody else.” – America’s Drug Forum interview (1991)
  5. “One of the great mistakes is to judge policies and programs by their intentions rather than their results.” – Interview with Richard Heffner on The Open Mind (Dec. 7, 1975)
  6. “You must distinguish sharply between being pro-free enterprise and being pro-business.” – Big Business, Big Government (1978)
  7. “The society that puts equality before freedom will end up with neither. The society that puts freedom before equality will end up with a great measure of both.” – From “Created Equal,” an episode of the PBS Free to Choose television series (1980)
  8. “Governments never learn; only people learn.” – As quoted in The Cynic’s Lexicon: A Dictionary Of Amoral Advice‎ (1984)
  9. “We have to recognize that we must not hope for an unattainable Utopia. I would like to see a great deal less government activity than we have now, but I do not believe that we can have a situation in which we don’t need government at all.” – As quoted in The Times Herald, Norristown, Pennsylvania (Dec. 1, 1978)
  10. “The great virtue of a free market system is that it does not care what color people are; it does not care what their religion is; it only cares whether they can produce something you want to buy. It is the most effective system we have discovered to enable people who hate one another to deal with one another and help one another.” – “Why Government Is the Problem” (February 1, 1993), p. 19
  11. “The case for prohibiting drugs is exactly as strong and as weak as the case for prohibiting people from overeating. We all know that overeating causes more deaths than drugs do.” – America’s Drug Forum interview (1991)
  12. “There are four ways in which you can spend money. You can spend your own money on yourself. When you do that, why then you really watch out for what you’re doing, and you try to get the most for your money. Then you can spend your own money on somebody else. For example, I buy a birthday present for someone. Well, then I’m not so careful about the content of the present, but I’m very careful about the cost. Then, I can spend somebody else’s money on myself. And if I spend somebody else’s money on myself, then I’m sure going to have a good lunch! Finally, I can spend somebody else’s money on somebody else. And if I spend somebody else’s money on somebody else, I’m not concerned about how much it is, and I’m not concerned about what I get. And that’s government. And that’s close to 40 percent of our national income.” – Fox News interview (May 2004).

This article is republished from Intellectual Takeout.

The Liberal Mind In Action

Somehow, I am not surprised they would do something like this.

How about you?