Date: 08/16/2023
Author: Mr. X
For the last century of its existence, the Ottoman Empire was habitually called the “Sick Man of Europe.” No matter what its leaders did, the signs of deterioration were deep-seated and the Empire was likely doomed without a revolutionary alternative. After World War I, the onetime geopolitical juggernaught utterly collapsed.
The collapse of China has been predicted by many people for decades, and yet Beijing continues to grow in strength and power… until recently. Now, the Chinese economy is stagnating, and there are signs its people are growing impatient. It’s the Sick Man of the Global Economy.
Youth unemployment has been surging in China. It was over 21% in June. I would tell you what it was more recently, but I can’t – because the Chinese government has decided to stop reporting it. Instead, the National Bureau of Statistics says that the situation is “generally stable,” but won’t tell us what that is. Even China’s tightly controlled social media couldn’t remove all the criticism generated by this decision.
China’s real estate crisis is also resurfacing. The Evergrande debt crisis brought Beijing to the brink of disaster about two years ago. Now, “Country Garden” is facing a similar crisis, reportedly missing at least two payments. The company has suspended trading of onshore bonds and shares hit a record low earlier this week.
State-backed developer Sino-Ocean missed almost $21 million in interest payments. It is poised to lose about $2.7 billion in the first half of 2023 as it seeks various waivers. It claims it has enough assets to cover its debts, but time will tell.
Dalian Wanda Group, China’s largest commercial property developer, is facing its own problems. The company has been unable to move forward with an IPO in Hong Kong amidst debt concerns. It was downgraded by Fitch Ratings and S&P Global earlier this year and a Shanghai court recently froze almost 2 billion yuan worth of shares frozen until June 2026. Senior vice president Liu Haibo was also taken away recently by Chinese police.
Finally, Zhongrong International Trust Company, which has major exposure to real estate, has missed some repayment obligations.
China’s economic growth target of 5% looks increasingly unrealistic. Retail sales, industrial production, and fixed-asset investment were all down. The People’s Bank of China has been forced to cut rates as it tries to boost the economy with stimulus. However, that won’t solve the underlying problems of housing and credit bubbles. “We may be at the end of the period when China, the world’s second-largest economy, served as the world economy’s main growth engine and the main driver of international commodity prices,” said Desmond Lachman in Barron’s in June. The CSI 300 Index is also coming off its worst performance in five months and the MSCI China Index has lost all gains for the year.
This morning, Asian markets are down as the Chinese economic crisis spreads. It is also draining oil prices, despite Russian and Saudi supply restrictions, as the failure of the Chinese economy is reducing demand on oil. The security first program of President Xi Jinping may be facing its most serious challenge as the government fails in its traditional duty to deliver economic growth, now its main source of legitimacy. I expect that if China can’t pull out of this economic crisis, it will seek a geopolitical triumph – perhaps by forcing a conflict over Taiwan. It would be a desperate move, but China is rapidly running out of good options.
Mr. X is an investment analyst working in the Washington DC area who specializes in the intersection of business and public policy. After fifteen years working in politics, he writes on a classified basis for RogueInvesting.com to bring you news on what those with power are debating, planning, and doing
