There was a bit of news that did not get a lot of attention from the mainstream financial media (no surprise there). The narrative that the United States is having its power threatened by China is absurd. Nevertheless, the media needs to keep this idea up because it helps to scare people.
The reality is that China is in a freefall. There is a good chance that the country will not exist in its present form by the end of this decade. It could break into anywhere from 2-5 pieces. The CCP is doing its best to reign things in and maintain control. This is a tall task considering what is taking place.
One of the main issues is that China is the leading global exporter. This served the country very well over the last 40 years. Unfortunately for them, the proverbial music is about to stop. As highlighted a number of times on this blog, the demographics are going to cause a major headache for the nation.
There is also the fact that they Chinese are also upsetting much of the developed world. At the top of the list is the United States.
Huawei Down 30%
The title of this article is meant to get your attention. What if a company like Apple suddenly had a drop of their revenues to the tune of 30%? How would one be feeling about that?
Of course, taken in a vacuum, it might not mean much. However, in light of all else that we pointed out about China over the last few months, it is an eye-opener.
The situation is exactly what Huawei, one of China's leading technology companies, experienced. This company is at the forefront of 5G technology along with being the second largest smartphone maker in the world. Due to its banning by the United States, the 2021 revenues were down 30%.
Guo said next year "will come with its fair share of challenges" but that he was satisfied with Huawei's 2021 business performance.
"An unpredictable business environment, the politicisation of technology, and a growing deglobalisation movement all present serious challenges," the letter, published on the company's website, read.
It does not appear there is optimism that things will recover in 2022.
Economic Contraction
There is no way to sugar coat this. Chinese companies are facing major headwinds, even without a global slowdown. If the worldwide economy does suffer a setback, for whatever reason, this is going to be catastrophic for the planet's second largest economy.
So far, we saw a slowing growth rate. The last two years were mired with difficult circumstances, so perhaps the Chinese can be excused on this one. However, with the diversification of supply chains underway, there is no way that China is going to benefit. As more is manufactured elsewhere, the piece of the pie that China has will decline.
Ultimately, it will likely result in a contraction of the economy. Many feel the economy is already at a point of being flat. The increase is due to the government's blatant manipulation of the numbers. It is hard to conclude things are going to expand when the real estate market, accounting for 30% of GDP by most measures, is tightening.
We are even getting news of situations like this:
Evergrande, the indebted property developer is now ordered to demolish 39 structures for "breaching building approval procedures". Source
At least local demolition crews get some work out of this. For Evergrande, it is going to be difficult to sell the units that were reduced to a pile of rubble.
Nevertheless, there are signs in many areas of the economy that China is in trouble. A slowing growth rate, even if it doesn't go negative, with their debt load is going to be problematic. For decades, the country was able to outgrow its problems. This is no longer the case.
When a nation's technology sector is starting to get hammered, there are major issues. Between sanctions around the world as well as the CCP's desire to reign in the "tech billionaires", it is hard to see how expansion is going to remain in force.
The next 12 months will likely tell us which direction things will go in for the largest economy in the Pacific.
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