The China Growth Story is over. This might be news to the West who seem to believe that things are going to keep going. Inside the borders, the CCP is well aware that the story needs to be rewritten. Thus, it is time to put a stake in this one.
However, before we do that, there is one piece of business left to take care of. No it is not the Olympics and presenting a good image on the world stage although that is certainly a consideration. Instead, it is the fact that Xi Jinping needs to secure his 3rd term.
Some question whether this is in doubt and it most likely is not. However, Xi needs to make sure he is in for a 3rd term, and possibly for life. This means not having civil unrest that could threaten the party's power.
For that reason, the tightening that started in 2021 will be delayed until 2023. In the meantime, easing is the course of action. Of late, the restrictions on the real estate developers was loosened and, unlike the Fed, the Chinese just lowered interest rates.
All of this is to make a push into the Fall when Xi looks to secure lifelong power.
Once that occurs, it is business as (new) usual.
Source
The Return To Communism
There was an article that was published in 2018 (I wish I could find it) that spelled out the situation in China. Basically, it is viewed that capitalism outlived its usefulness and now it is time to return to the basic tenets of China, communism.
This was widely held among the leadership within the country. At that time, it would likely have made the move had it not been for Trump's attacks. The decision was made to confront that and delay the tightening action that was going to take place. Once 2021 rolled around, the CCP was ready.
We saw the unleashing of attacks on major technology companies and the billionaires who built them. At the same time, the crackdown on the housing developers was stepped up. Throughout the year, the CCP seemed uncertain whether to help many of these entities out. While it looked like uncertainty from the outside, there is nothing of the sort. The CCP is well aware of what is taking place.
In fact, it is engineering it all.
They know the gig is up. For the last few decades, the idea was "embrace capitalism and we will make you rich". This worked for part of the country but, basically, China is still a poor country. It has a GDP per capita that ranks around 70th in the world. Now it is faced with an aging population, a situation that cannot be rectified anytime soon.
Essentially, the country grew old before it got rich.
Now it is time for a different path. Enter the tenets of communism which is a equality for all. The attacks on the wealthy are planned and by design. At the top of the CCP agenda is to bring prosperity to the entire population. This means going after those who are outpacing everyone else.
The West, especially the financial media, is caught off guard by this. For some reason, the belief was that if enough capital flowed into China, the effects of capitalism would make them embrace it. Not surprisingly, it turns out they really are communists.
In the end, the leadership is returning to its roots.
Economic Headwinds Spell The End
The CCP knows that growth is unsustainable of any degree. If we look at the Japanese, we see economic stagflation over the past 3 decades. This is the poster child for a demographically challenged country. China is well aware that it is entering this phase.
Therefore, the CCP knows that it has to tangent since selling the population on the idea of growing wealthy is done. The West would be well served to listen what is being said.
It is amazing how things can be so obvious yet overlooked.
Xi addressed the Davos crowd for the second year in a row. Perhaps it is the fact that he talks in code, mentioned flying dragons and whatnot, that confuses people. However, when you sift through his message, he is clear in his caution: things are not so hot. This is the second year in a row he carried that same message.
What was the result last year? Slowing economic growth in China.
Perhaps it is time to listen to Xi. The CCP is no longer interested in the approach over the last 30 years. Instead, it is returning to the government taking control of most aspects of the economy. The economy was always centrally planned to some degree yet is being ratcheted up.
The main problem was the growth rate came mostly from the real estate sector. Xi and his allies know that was unsustainable. The debt load the country acquired makes the US and Japan look financially prudent. A nation can create only so many ghost cities before it hits a wall. Again, this is something the leadership knew was coming. This was years in the making.
What took place last year will be the norm. After the hiatus to secure Xi's power, we can expect things to go full tilt. By the middle of this decade we are going to be looking at an entirely different economy. While China will still be a factor, simply due to its massive population, we can be certain what was present the last few decades will be dismantled.
And this means the growth story is going to end quickly. Expect flat growth rates by the middle of the decade, if not contraction.
This will have implications across the rest of the global economy.
If you found this article informative, please give an upvote and rehive.
gif by @doze
logo by @st8z
Posted Using LeoFinance Beta
