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Is China f-cked? An op for the US?

My take on all this. China has two bombs going off: 1. a real estate meltdown of biblical proportion 2. a demographic nightmare (too many old farts).


Actually, there's a third bomb. China's personal consumption rate is very low, so it's economy is completely dependent on exports to the EU and US. The EU is contracting so China's fortunes are in our hands.


While China is getting weaker, the US manufacturing/tech freight train is gathering steam. China can't continue to play the role as the bad global actor and still sell to the US. We can and should exploit that.


China Falls Into Its Own Trap

Its economic model is unsustainable, but reform is too risky for the Communist Party.


By Walter Russell Mead, WSJ

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Oct. 14, 2024 5:08 pm ET


Wars in the Middle East and Ukraine dominate the headlines, but the Indo-Pacific remains the fulcrum of world politics and where the 21st century will take shape. While bombs fall and missiles fly elsewhere, the Chinese Communist Party is wrestling with its greatest challenges since Deng Xiaoping’s reforms fueled a generation of blistering growth in the 1980s. Unfortunately, the economic choices China is making look set to promote greater repression at home and increased tension with neighbors and trading partners around the world.


According to recent Wall Street Journal reports, up to 90 million housing units across China stand empty in a country whose population is falling. Real-estate developers cannot service their loans. Local governments, which have long funded their programs by land sales to developers, are drowning in debt. With government encouragement, Chinese households invested nearly 80% of their total savings in real estate. Now that house prices have fallen about 30% since 2021 in some markets, shocked consumers are reining in their spending. Industrial profits are down 17.8% in the past year. Youth unemployment continues to rise. Europe and the U.S. are planning new tariffs against an expected flood of cut-price Chinese exports. Banks don’t want to lend, and foreigners don’t want to invest.


Faced with these problems, China is dodging the difficult task of structural reform. Policies designed to deflate the real-estate bubble are being replaced with measures to strengthen housing demand. Banks will be subsidized to make more loans to flailing factories and overindebted local governments. Efforts to rein in make-work infrastructure spending by local governments (like unneeded highways and bridges to nowhere) will likely yield to a renewed emphasis on creating jobs, even as subsidies encourage unemployed youngsters to get more degrees to qualify for nonexistent jobs.


The People’s Republic of China is caught in a trap of its own making. The success of China’s one-child policy spawned a demographic crisis. The relentless focus on housing created the biggest real-estate bubble since the dawn of time—and locked local governments and hundreds of millions of ordinary Chinese into an unsustainable Ponzi scheme. The success of China’s market reforms created wealthy entrepreneurs and an educated, ambitious middle class that must be suppressed and controlled if Communist rule is to survive. Tenacious support for an export-oriented manufacturing strategy and the infrastructure it needs committed China to a development path that offers diminishing returns at home and increasing hostility from abroad.


Globally, Beijing’s overreliance on export-driven economic growth and nationalist chest-thumping to lend communist rule an air of legitimacy impaled China’s communists on the horns of a dilemma. China’s massive industrial economy depends on raw materials and energy from abroad, as well as on access to foreign markets. But the geopolitical ambitions of a rising China and the export avalanche from its titanic industrial base combine to alienate foreign partners and undermine the free-trade consensus that allowed the country to flourish for so long.


Xi Jinping and his aides are not stupid. They know that overdependence on housing, exports and big infrastructure is an economic dead end. They know that world markets won’t absorb continuing Chinese export growth. They know that saber-rattling over Taiwan and the Philippines alienates their closest neighbors and alarms the U.S. But shifting China’s economic model onto a more sustainable path is, they fear, too economically expensive and politically risky.


For Mr. Xi and his colleagues, the supreme goal of statecraft is the maintenance of Communist Party control. This partly represents the personal interests of a red aristocracy determined to defend its privileges, and partly a sincere conviction that a country of China’s size and complexity requires centralized government control to survive. Unable to address its structural economic problems, the Communist Party is returning to its comfort zone: its abilities to repress and to play the nationalism card. It cannot reform China’s economy, but it can force churches to replace images of Jesus with portraits of Mr. Xi. It cannot wean itself from export-dependent growth, but it can accelerate the implementation of high-tech totalitarianism, monitoring citizens at almost every moment of their lives. It cannot return to the era of double-digit economic growth, but it can rally public opinion by whipping up nationalist sentiment.


Meanwhile, Beijing is looking to green tech and information technology for another round of export-led economic development. It already dominates the global solar-panel market and is well on its way to similar success in electric vehicles. Replacing Taiwan as the producer of the world’s most advanced semiconductors would, Beijing hopes, cement China’s position as a global military and economic superpower.


Other countries are bound to resent and resist China’s ambitions in these fields. Trade friction will increase even as nationalist public opinion drives Beijing toward ever more assertive and aggressive policies in its neighborhood.


Twenty twenty-five is going to be an interesting year.

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