The deflation data add to a raft of other economic indicators that, on top of a struggling stock market and unraveling property market, pose an extraordinary challenge to the command and control approach of the Chinese government.
Prof. Edward Prasad (Cornell University)
America’s news consumers must be obsessed with being #1, because its media report ad nauseam the inevitability of Chinese economic and military hegemony. CNBC recently had a timeline showing China’s GDP growing from $363 billion in 1990 to 14.7 trillion in 2020, while CNN reported China’s 348-vessel navy is now the world’s greatest. Maybe free-market capitalism and American exceptionalism are myths, but I’d consider the source.
Like Vladimir Putin’s Hunter Carlson interview filibuster, where he stated as fact that China had “already replaced the US” as Numero Uno in the world. Nice try, Vlad, because my granular view of the People’s Republic of China begs to differ. Yes, the numbers are compelling, but the real story is this: China has a people problem (and BTW: its current numbers aren’t so hot).
In 2023, China’s exports fell 4.5%, real estate slumped 5%, and stock market declined 27% (source: CNN Business). Goods-and-services deflation is the worst in 15 years, pushing consumers and investors to the sideline, leading the Daily Express (UK) to report it’s “no longer certain China will become the world’s largest economy.” And, Citi’s global chief economist Nathan Sheets just predicted China’s economy won’t overtake the US’ until 2080. I cannot disagree.
I began spending 6 weeks a year in the PRC in 1993, when the majority of export manufacturing was run by ethnic Chinese, primarily from Hong Kong and Taiwan. Over 30 years, I watched PRC nationals become the primary factory owners, and the “outlanders” move their factories to other low-labor Asian countries. Not surprisingly, the factory-owning nationals noticed this.
By 2023, most of the wealthy nationals had homes in (and passports from) the Americas, Europe, or non-communist Asia, and many had opened factories outside the PRC (and its prying eyes). When a lot of newly enriched Chinese – Red and otherwise – have second homes and assets outside the PRC, it means they’ve already emotionally cut and run from communist totalitarianism. So – is economic hegemony a real thing?
Not when foreign-owned factories contributed 20% of tax revenue, 25% of PRC output value, and 50% of China’s foreign trade in 2023 (source: PRC Ministry of Commerce). In such an economy, Chinese patriotism bears no resemblance to America, where my Republican grandfather joined FDR’s War Production Board, and turned his furniture and textile factories into the “arsenal of democracy” in 1941.
How exceptional is the PRC economy with so much portable manufacturing (a frequent criticism of the US)? And, how dynamic is the PRC military, when countries in world wars need factory-owning and – above all – factory-innovating patriots, rather than “globalists” with homes in Oslo and Vancouver. It’s the big question no one is asking.
China’s global businessmen know the PRC’s economic miracle – GDP growth above 8.5% from 2000 to 2012 – occurred because Deng Xiaoping enacted market-oriented reforms and opened the country’s closed economy to the world. And, as Xi Jinping reversed those reforms and rattled his saber at the US, he alienated the affections of Chinese business globalists.
Further, Foreign Affairs recently reported Xi has sown widespread mistrust; rankling party insiders by replacing China’s long tradition of collective rule with a cult of personality, and disappointing everyday Chinese by bungling the COVID response. These are the hearts and minds he needs to put brothers, husbands, and sons in harms way against a lot of advanced militaries and nuclear powers. And that’s just one of China’s three big problems.
Number Two is that Xi’s quest for dominance in advanced computing and high-tech armaments, on top of his saber rattling, made him the bad breath blowing through the EU, NATO, and USMCA. In response, the 2024 National Defense Authorization Act addresses US supply chains. And, the EU launched an investigation into China’s trade practice on Saturday, announcing it would “absolutely make sure that we get fair competition.”
That’s a lot of economic and military might to antagonize, bringing us to Number Three. Look at Xi’s allies: Iran, North Korea, and Russia. Is there any honor or loyalty among those three bandits? Nope, and what free-market economy sources “advanced” anything from those three countries? Zero, raising the issue of Xi’s wisdom.
Xi can, of course, make a move on Taiwan; thereby setting horrible events into motion. After war in Ukraine and Hamas’s attack on Israel, that would be the Axis of Evil’s third strike upon the civilized world. In battles between Crouching Tigers and Sleeping Giants, the tiger always underestimates the giant. Otherwise, he would peacefully coexist. Napoleon, Hitler, Hussein – – how’d it end for those geniuses?