China’s economic crisis

Once renowned for its economic triumph, China is now famed for its economic slowdown and structural defects. The situation is so serious that many question if the Chinese Communist Party has both the financial bandwidth and political flexibility to climb out of its self-inflicted circumstances.

Problem is, as much as 70 percent of the net worth of Chinese households are tied-up in property. Hence, along with the drop in property values came the obliteration of personal wealth. This led to massive defaults on amortization/installment payments on properties purchased. For property developers, this was another nail in their coffin since they were already reeling from poor sales and debts falling due.

And then there is the Belt & Road Initiative , a plan conceived from the devil’s belly. It will be recalled that the BRI was designed to give China first dibs in sourcing scarce raw materials, to control vital infrastructure, to control trade routes and to create new markets for Chinese products. All these, plus the avalanche of subsidies provided to state-owned enterprises, contributed to China’s mountain of debt. As of last September, China’s debts stood at 280 percent of GDP . China’s debts increased by 4x in the last 12 years as the need to stimulate the economy through spending became more urgent.Within a span of two years, the CCP enacted a series of laws that spooked investors.

Worse, China’s rapidly aging population caused those in the workforce to save the lion’s share of their salaries to care for aging relatives. China has the largest precautionary savings rate in the world, consisting of 35 percent of their net worth. This leaves no room for consumption outside the basic essentials. Consumer spending accounts for just 30 percent of the Chinese economy, compared to 60 percent in Japan.

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