Zoilo ‘Bingo’ Dejaresco III l January 31, 2024 l Business Mirror
DOUBTLESS, China’s golden years—in economics and politics—are slowly disappearing from view.
A dwindling population, debt-up-to-the nose, a real estate collapse and a more repressive political iron hand led to the decimation of the hope and optimism of the Chinese people resulting to what the Business Insider news website calls a “deflation.”
“Deflation” happens when there is steady supply, but people are not buying as contrasted with the “inflation” problem of the United States of America, which is categorized as having adequate demand with shortness in supply leading to high prices.
Consumer prices in China dropped for three consecutive months. Former US Federal Reserve Chairman Ben S. Bernanke said even just a full year of drop in consumer prices will weaken any economy for many years. It appears that it is not just food, but other non-core inflation items in China are causing the drop in prices.
China is, likewise, buried deep in debt—representing about 30 percent of its gross domestic product (GDP), according to Business Insider—and deflation makes money scarce for everyone; making debt difficult to service.
The case of overbuilding has left real estate prices soft; and since 70 percent of the Chinese people’s assets are in properties, this has torn asunder private sector balance sheets, according to the Societe General Group. Population control has, meantime, led to an aging population and a relatively smaller younger work force.
Japan worked its way out of its own mild version of stagflation for 25 years by restructuring debt and some fiscal stimulus (which Xi Jinping does not believe in). Instead, band aid solutions, like miniscule reduction in interest rate and a $140-billion one-time assistance to ailing local governments, did little to pump prime the economic appetite of the nation.
Besides, a Rhodium Group analyst opined that “China does not have much taxes collected outside of investment-led growth” (which is slowing down tremendously) so there are little incremental fund sources amid a rising debt level.
Even the recent 4.3-percent rise in its GDP is anemic compared to the 10 percent normal rates during China’s past years of might and glory.
Meantime, people today just do not buy, not invest and not expand amid depressed feelings.
External solutions
CHINA is trying to mend alliances abroad to find some quick fix to its maladies. Despite their crossing of swords in the geopolitical chessboard, China still does big trade business with the US to the tune of $700 billion even back in 2022.
It does big trade with Russia, which has been avoided by the West like a plague following the Ukraine misadventure.
In fact, today, Russia is the biggest supplier of oil to the second-biggest economy in the world (19 percent) eclipsing Saudi Arabia (15 percent), getting a huge 10 percent discount from Moscow. It is clear that while China hankers for world peace, it cannot afford to fight Russia in any political issue including Ukraine. There is mutual trust between Moscow and Beijing.
While everything points southwards, China has not let up on its defense spending, aware of its primary goal of reunifying with Taiwan (by all means) and the pesky problems it has created in the South China Sea. Political experts have advised China to improve its communication levers with Taiwan to avoid “miscalculation.”
This is especially true with the recent election of William Lai Ching Tie as Taiwan head and with the US never shy about its promise to aid Taiwan against a Chinese Mainland annexation.
In the meantime, while the relationship of China has been bright with both the Latin America and Africa, there is so much trade friction these days that could lead to some kind of “trade war” between Europe and China. Europe is also strengthening its ranks militarily (in relation to the Ukraine problem) as most of them see the possible return to power of Republican ex-President Donald Trump, who has always been chummy with Russia strongman Vladimir Putin.
The debt-burdened Africa, on the other hand, has been advised by China (with its de-dollarization bid) to use the yuan and their local currencies.
The South China Morning Post reports that, as of late, China has been egging the Group of 77 to lobby for overhaul of the political institutions (like the North Atlantic Treaty Organization, or Nato) and economic bodies (World Trade Organization, the International Monetary Fund and the World Bank; the latter two created strongly upon America’s behest) to short circuit their “disproportionately favoring the West.” (Geopolitics, as we know, often paralyzes the smooth operation of the Nato Security Council).
Chinese premiere Liu Ghozong said that the “ global financial system should be rooted in equity and inclusion and committed to multilateralism.”
During its 100percent GDP growth heydays, China set up its own alternative financing sources for those nations who could not otherwise access credit under the old set up, like, the New Development Bank, the Asia Infrastructure Investment Bank and the Silk Road Fund. The last has funded 3,000 road projects worth $1 trillion in 10 years.
Many of these have slowed down in the recent past alongside China’s weaker cultural reach, which is a function of the pervasive pessimism in all of China.
After the Covid 19 lockdown period, China appears headed for even more challenging times.
But Linette Lopez concluded “ Xi will never let go of saving face. That’s the nature of a one-man rule.”
*** Zoilo P. Dejaresco III, a former banker, is a financial consultant media practitioner and author. He is a Life and Media member of the Financial Executives Intitute of the Philippines (Finex). His views here, however, are personal and do not necessarily reflect those of Finex and the BusinessMirror. E-mail dejarescobingo@yahoo.com.