Why China will sink deeper into economic doom


In 2024, China will sink deeper into the tar pit of economic stagnation caused by statism and a refusal to embrace free market capitalism.

Xi Jinping, chairman of the Chinese Communist Party, prioritizes political stability and the primacy of the CCP over a dynamic economy. The data from countries all over the world are clear: big government and national industrial policy lead to stagnation.

China’s economic problems are well known: an enormous private sector debt burden, a real estate market in deep recession, an excessive household savings rate, accelerating demographic implosion, extraordinarily high youth unemployment, and decisions to reject state-of-the-art Western technologies. The very high internal savings rate, 45%, is over double the rate of the United States. Chinese households save because there is no social safety net. China’s efforts to encourage domestic consumption continue to fail. Deflation has taken hold in the consumer sector.

The Chinese government misallocates the high savings rate. It subsidizes state-owned enterprises that generate returns on assets at least 50% lower than the private sector. It builds cities where no one wants to live.

The Chinese private sector is dynamic, and the state sector destroys capital. But Xi Jinping chooses the state over increased prosperity. When the private sector becomes too successful, inevitably the CCP steps in and silences or arrests senior management. Entrepreneurism is punished. Xi demands total obedience. Unsurprisingly, foreign direct investment in China has turned negative. Capital is fleeing. 

China needs foreign capital. But Western business is choosing not to invest for a myriad of reasons including China’s use of slave labor and the absence of the rule of law. The growing tensions between the U.S. and China are also a contributing factor to capital flight.

Under free market capitalism, companies that want to stay ahead reinvest aggressively. In statist economies such as China’s, the government determines winners and losers. In China, the reinvestment imperative is undermined by the state. Consider what happened when Huawei introduced an advanced smartphone. Fears arose in Washington over China’s apparent technology advancement surprise. But the Huawei smartphone uses 7-nanometer technology. Apple and other U.S. technology companies are using 3-nanometer processes. The U.S. is two generations ahead. Top line: China will trail the U.S. in the race for technological supremacy as long as China chooses to put the state first.

China’s latest economic strategy is to pursue growth through exports, particularly exports of cars. This strategy will not work. The U.S. has already imposed tariffs on goods that China illegally dumps in the U.S. market. Europe, too, is waking up to the threat that China’s export strategy poses to their manufacturing sectors. Europe is not going to let China destroy a crown jewel of the European economy: its automotive industry.

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Europe will impose tariffs. A trade war with China is unfolding. As the world’s largest exporter, China will lose. 

Until China rejects the policies of Xi and embraces capitalism, the country will sink deeper and deeper into the tar pit of economic stagnation. The outlook for the Chinese people and its economy is not bright. China is increasingly uninvestable. 



This article was originally published by a www.washingtonexaminer.com . Read the Original article here. .