The video above offers a helpful summary of the challenges facing China’s economy, which is slowing after decades of rapid growth.
The challenges are real, but there’s a question as to whether China’s leadership under Xi Jinping is up to the task. Loosening the grips of the government is required, but Xi is going in the opposite direction.
This latest development is particularly troubling, as the Chinese government appears to be singling out a respected business journalist for their joke of a stock market. Read about the forced confession here.
The game in China has always been rigged. It was easy to keep playing this rigged game as Chinese industry fueled massive growth, the much of the fruits of that labor has been wasted on unnecessary projects and plenty of graft and corruption.
Throw in a new leader obsessed with consolidating power and promoting Chinese pride and strength over addressing real economic issue, and now you have real problems. Xi Jinping may turn out to be a complete disaster for China.
When China was booming, they couldn’t keep up with the demand for steel and cement. Now things are slowing down, and the over-investment in factories is leading to zombie factories that the government is afraid to let die.
When you read this article you get another glimpse as to why the China experiment may end badly. In the rush to move hundreds of millions of people from the farms to the cities, too much money was poured into more factories and apartments that weren’t needed. Central planning can work for a while, but then economic reality sets in, and projects built more to line the pockets of local officials end up being a huge drain on the overall economy.
David Ignatius is one of the more balanced commentators you’ll find, so when he write a piece stressing “warning signs” in China, it’s worth a read.
The government in China is trying to address the staggering amount of corruption, yet this effort seems to be having a destabilizing effect. Also, there are tons of bad loans in China and what appears to be a massive real estate bubble.
All of this spells trouble, and recent real estate sell-offs and bond sale cancellations have observers worried.
The rise of China and its impact on economies all over the world isn’t a new story, but this overview in the New York Times is worth reading. The tone is one of looking at the downside of China’s economic empire and the unwillingness of desperate partners like European nations to assert themselves. But there is an upside, as China can provide much needed capital to struggling countries, and this also gives China a huge stake in stability around the world. There are certainly concerns on issues like the environment and human rights, but one needs to look at the big picture as well. Fortunately, President Obama’s foreign policy is aimed at engaging but also containing China, and he has been willing to use our own leverage in this relationship.