China’s Economic Collapse Carries a Warning About Our Own Future

EJ Antoni & Peter St Onge

Source Link

KEY TAKEAWAYS

1. China’s state-dominated economy is going the way of all centrally-planned economies—down the drain.
2. The cause, in short, is an incompetent government that routes trillions to politically-favored industries and state-owned enterprises.
3. One cannot help but notice the striking parallels between China’s mistakes and increasing U.S. government intervention in our own economy.

Christmas is coming early to America, but in the form of a warning, not a gift.

Just as Ebenezer Scrooge was shown his future, enabling him to change his ways, America is seeing its own future in China’s ongoing economic collapse. This specter from across the Pacific should scare us into correcting course before it’s too late.

China’s state-dominated economy is going the way of all centrally-planned economies—down the drain. With many in the media loudly proclaiming that “China’s 40-year boom is over,” it’s worth contemplating why this is happening, if for no other reason than to avoid the catastrophe here at home.

China’s manufacturing base, the mainstay of its economy for decades, is hemorrhaging. Its trillion-dollar homebuilding industry is collapsing under unsustainable debt levels. And its unprecedented infrastructure campaign has been a crash course in malinvestment.

The Chinese Communist Party’s panicked response has been to order banks to buy stocks in an attempt to buoy falling stock prices and the Chinese yuan. For its own part, the CCP has finally given up on publishing phony economic statistics and now just refuses to publish them at all. One way to deal with historically high youth unemployment is to ignore the problem.

For perspective, China’s economy was about 77 percent the size of America’s in March 2022. Today, it is closer to 68 percent. What began as anemic growth is becoming a full implosion.

The cause, in short, is an incompetent government that routes trillions to politically-favored industries and state-owned enterprises, all while suppressing the very entrepreneurs and markets that began launching China’s rise to prominence 40 years ago.

But the CCP has taken a decidedly dark turn of late, with ever more government intrusion in the economy. The regulatory state has even clamped down on internet and financial companies, such as Alibaba and Ant, whose billionaire founders were seen as challenging the CCP’s authority.

The average Chinese citizen has effectively had an unspoken deal with the CCP for 40 years: As long as economic times are good and the people get richer, the party can do whatever it wants, personal liberty be damned. That meant turning a blind eye to the imprisonment of dissidents and the enrichment of party bosses. But it was a small price to pay, so long as the economy kept growing at light speed.

But now that the CCP is losing its economic “mandate of heaven,” regular Chinese folks are losing confidence in their government’s handling of the economy for the first time since the global financial crisis.

President Xi Jinping is now achieving barely 5 percent growth in China, which is mediocre for a “developing” country and deeply disappointing to Chinese, who have gotten used to miracle growth.

Mediocrity is not enough compensation for a population that has endured some of the most notorious COVID lockdowns, only to see them ended almost overnight without explanation. That clarified for many Chinese that Beijing doesn’t know what it’s doing, and that government’s failures can be—and often are—catastrophic.

The CCP’s mishandling of everything, but especially the economy, has left it facing an increasingly skeptical citizenry that is pulling back on spending and investment as it loses confidence. Foreign investors and private enterprise are retreating. China’s labor force is shrinking.

The CCP’s attempts to stimulate the economy will likely just flip the current deflation to more inflation, which could drive massive capital flight overseas while piling more debt on top of China’s $50 trillion mountain.

The situation is bleak, yet one cannot help but notice the striking parallels between China’s mistakes and increasing U.S. government intervention in our own economy.

The Biden administration’s preference for higher taxes and more regulation of business, as well as the pouring of trillions into politically favored businesses and voting blocs, should set off alarm bells. Further, attempts to stimulate the economy by pouring in freshly printed money have resulted in 40-year-high inflation, while anemic growth has left Americans frustrated. The result is stagflation—the combination of high prices and slow growth.

Productive investment hasn’t grown under President Biden, whose approval rating on the economy is a paltry 36 percent. A recent poll shows that most people (58 percent) believe that his policies have specifically made things worse. Home affordability is at a 34-year low. Americans have accumulated record credit-card debt amid skyrocketing grocery bills. Paychecks are bigger on paper, yet people are poorer.

The stark realization for Americans is that we are becoming more like China. The question is whether the ongoing collapse of China will motivate us to change our ways, or just to ignore the warning and risk the same fate.