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China is the original riddle wrapped in a mystery inside an enigma. A country striving for modernity but feudal in its treatment of its citizens, Beijing’s economic identity is a combination of Communist orthodoxy and crony capitalism. As you might expect, the two don’t work well together.
On the outside of the riddle, China is booming, the people are subservient and happy, and the government is looking to the future with confidence. This is the picture the Chinese Communists paint for the world to see. The reality is much different.
China is being crushed by debt, has become dependent on high levels of debt, and has created a bubble in several sectors, like housing and household goods.
One noted Chinese economist said in 2019, “Basically, China’s economy is all built on speculation and everything is over-leveraged.” He was proved right when the massive overbuilding of housing caused the market to collapse in 2021.
« As a result, tens of millions of apartments have no residents, millions have been sold but not finished, and those that are inhabited are declining in value », writes Wessie du Toit in Persuasion.
Consumer spending in China is its Achilles’ heel. China makes more than enough goods to dominate world markets, but the 1.2 billion Chinese are lagging in how they spend their money.
The country is so dominant when it comes to making and building things because the state has structured the economy to prioritize massive investments in housing, infrastructure, and manufacturing. Many Chinese firms are effectively subsidized to one degree or another, and frequently produce more than China or the world wants to buy. The nation’s warehouses bulge with unsold stock, its urban lots with abandoned cars and share bikes, all casualties of ill-conceived government schemes. The problem, aside from waste, is that these investments have long yielded diminishing returns in terms of sustainable economic growth.
