It seems like everybody like to talk about China and their failing economy. I was very surprised that this is coming up now but I guess we are in a market situation where the world is about to end soon. There are many arguments that make sense why China is in a bad economic situation but I don’t really think this is the only way to look at it. In my opinion we should also take other angels into consideration and this is what I will try to do in this article.
China’s Current Situation
Before we try to change the narrative, let’s quickly summarize what the current hype is about. On the surface and from the view of a western country, China’s economy does not look too healthy at the moment as it is filled with half-finished Real Estate.
If we look further into this problem, you will quickly realize that what was happening there, can be compared with a giant Ponzi Scheme on a National level. Because Real Estate in China has a very big importance in the life of the Chinese people, the demand for properties is very high. It is so big that the construction companies are not able to build fast and big enough. But what is the real problem here?
The real problem is that these construction companies were using the money of the paying Chinese people to fund new construction projects, rather than finishing the current ones. This is what leads us to the current situation. Because of the pandemic, many projects had to stop and were not further continued. This is a problem because many Chinese people are now paying mortgages for properties that were not even started!
This obviously caused many protests in China, where people are boycotting any further payments and are demonstrating against the current system. The response of the Chinese government is very extreme. They are shutting all of these demonstrations down with the help of their military. On the financial side, they are bailing out all of the big real estate giants by lowering the interest rates which is the complete opposite of what the Western society is doing at the moment.
Different Perspective
While the Real Estate sector makes approximately 29% of China’s GDP, we still need to look at the rest of their economy, and this other perspective will and should give us another angle on the current economy situation in China. Their economy is currently going trough a transition so to speak. While until now the economy was more export driven, it will now start to become more domestic consumption driven. China aims to be the leader in several global technology sectors like electric vehicles, air craft and robotics. On this note, they already are one of the biggest suppliers for EV batteries and have already attracted many foreign investors!
Another angle reveals also that China is heavily invested into the development of countries in Africa. While Western countries are offering Aid for relief, China is supporting the development of infrastructure like water, telecommunication and renewable energies! China recognizes that African countries are right now in a very similar position like they were 50 years ago. This means that by investing in them now, gives them massive opportunities in the future. On top of that, the African continent is the fastest growing in terms of population. This means that in a few years, the population of these countries will explode and we all know that a fast growing population is a massive advantage for any economy (see also my latest article)
Conclusion
All in all, there is a reason for the current negative news about China’s economy. The short-term definitely does not look to great with the obvious real estate crisis. The biggest problem for the Western society is that this problem will also affect the US market as China and US are the biggest trading partners of each other. Once China will fulfill their transition to a more domestic consuming economy, the demand for US goods will fall and will affect the US heavily. Not only that but China also holds a great amount of the US debt which gives them also a good angle in the future.
Looking long-term, I must say that there are a lot of interesting developments in China that indicate for a great Chinese future. I also heavily believe that many investors will have a certain amount invested in the Chinese economy and that their investment into Africa might be paying off very soon. This is why I do not think that China is close to a collapse. They are just in a transition period.
Published by ga38jem on
LeoFinance
On 27th August 2022
Posted Using LeoFinance Beta
