China, recently the world’s economic engine, faces headwinds directly linked to trust-erosive political missteps:
#1: In the absence of national-level oversight, local authorities sanctioned unhinged development & construction funded by banks siphoning kickbacks to corrupt, unaccountable local politicians. Real estate drove 30% of the Chinese economy, which is now in free fall with 22 million vacant condos and prices -6.3% yoy. Evergrande was the canary and property tax income will collapse.
#2: One-child policy caused an aging population and a gender imbalance (6 males for every 5 females). China’s population peaked in 2023 and is declining from 1.4 to 0.9 billion by 2070. Population decline is terrible for the economy as fewer people work/consume and less housing is needed. Efforts to revive birth rates are failing due to 20%+ youth unemployment (incl. graduate engineers), record consumer debt, and anemic sales (Apple’s China sales are -25% yoy). The gov’t pushed education to transition the economy from mfg to services, but those under 30 remain un(der)employed and disenfranchised.
#3: The gov’t hid & lied about the COVID origins and the totalitarian lockdown caused a revolt that had to be stomped out by censorship and liberty infringements. The lockdowns also disrupted supply chains and instigated global inflation. Now exports are down 10%+, steel & iron prices are plummeting (= less manufacturing), and there may be deflation (gov’t data can’t be trusted).
#4: The IP theft went unpunished while China was just a low cost producer of plastic widgets. However, China never earned anyone’s trust, “Made in China” is a laughing stock label, and the economy never transitioned to high-tech services because they couldn’t attract capital, partnerships, or talent.
#5: China blossomed using cheap labor to attract global manufacturing. Under Xi they have gradually increased the barriers to do business in/with China instead of facilitating capital inflow. Today foreign companies avoid China and repatriate jobs despite recent overtures to Yellen. The flight of capital (-53%) has lowered valuations of Chinese companies, hurting pensions and retail investors (who, wanting to get out of yuan, have pushed gold prices to record highs).
#6: Xi understands that imperialism fuels nationalism. It also deteriorates international relations, as do spy balloons. China detests the west uses Taiwan as leverage while disrespecting the “One China” heritage. China’s window for a takeover is shrinking since Taiwan’s older generation (who better appreciate the connection to a unified China) is replaced by a more resistant generation who’s taught that Taiwan is independent. Xi intends to stay in power until this has been resolved.
#7: Ali Baba has dwindled to a shadow of its former self and Jack Ma is in hiding. Many believe the CCP viewed Ma as too powerful. This is the most blatant example of their “tech crackdown” - an ominous backdrop as they push into EVs and AI.
