China: China February 2024


February 28, 2024: China continues trying to make the best of a bad situation they cannot seem to control; a shrinking population, a workforce that is shrinking even faster and markets for its exports leveling off. These three factors mean China’s Ponzi scheme economy has reached its limits with substantial declines now in progress. Other East Asian nations have similar problems, some not involving on-going Ponzi scheme financial systems, after having experienced a sustained economic boom that has moved much of the population into the middle-class. China too has prospered and given several hundred million Chinese prosperous middle class lives. This is unprecedented in Chinese history. One of the downsides of this prosperity is that couples have fewer children. When poor, families have more children because that is how people can create some support for their old age. Children do that and in the absence of savings, children have traditionally supported their elderly parents. Because of all the prosperity, that ancient form of old age care is eroding.

A prosperous China is now suffering from this, with fewer babies born each year to replace those dying. The current Japanese birth rate is 1.39. In 2008 it was noted that China’s birth rate had fallen to 1.8 births per woman and that was beneath the replacement rate of 2.1. It has since declined to 1.16 and, worse, the now repealed One-Child policy fatally reduced the future number of females of child-bearing age. The result is that the absolute number of new Chinese births for the rest of the century will be a small fraction of what China’s overall population would otherwise indicate. China’s total population will begin a rapid collapse starting in the next few years, probably down to 650-800 million in about 30 years.

But the biggest immediate problem is the growth of retirees with a steadily shrinking number of workers to support them. Proposals to allow more births run into arguments about limited resources. Japan is way ahead in this population decline curve, and China does not want to join them, but no one has yet come up with an acceptable alternative. The impact of fewer births in urban areas over two decades ago is showing up in growing shortages of skilled labor. The costs of manufacturing high tech items is growing, forcing Chinese manufacturers to move more factories to nations with cheaper labor. The military is giving the troops a raise, especially the technicians. Otherwise, it can’t recruit them, or keep them. South Korea already has a birth rate of 1.11, which is lower than Japan’s. Taiwan has the lowest worldwide at 1.09, followed by South Korea at 1.11, China at 1.16 and Singapore at 1.17. The American birth rate is 1.66 but most Western nations have lower rates. For Europe as a whole, the rate is .98.

Chinese manufacturing activity has been shrinking since 2022 and that is one of several indicators that the Chinese economy is in trouble. The problems are largely self-inflicted. The shrinking of Chinese economic activity is the result of several different economic problems, including consumers not resuming their pre-covid19 spending habits. Less consumer spending was not expected. None of this should be a surprise because all the problems have occurred in China before, but not all at once. Paying attention to Chinese history is a respected popular tradition for basing major decisions on. Chinese leader Xi Jinping came to power in 2012 and initially concentrated on reinforcing government control of the military. Xi, like most Chinese leaders, pays more attention to history than foreign counterparts do. Chinese military history is measured in thousands of years while Westerners, in most cases, have a few centuries of it and don’t pay as much attention to past experiences as China does.

Chinese economic history over those long periods did not change much either. It was largely feudal and, since 1910, China has been trying to develop a form of government capable of handling economic problems more effectively. Xi Jinping has had some success and recently saw the Chinese banking sector improving to the point where it can assist in reviving the economy. The economy is still in bad shape, with too much debt, and many foreign companies pulling out of China while too many Chinese companies are barely staying in business with a growing number slipping into insolvency and bankruptcy.

An example of unique Chinese economic problems can be seen in the current real estate crisis. The usual solutions are not working as well as the government expected. The largest problem is corruption at the provincial and local level. Over the last decade there has been a major effort to purge the false reporting from national economic statistics. The false data problem is not gone but at least it is recognized. This was painful because it revealed that past economic growth was more uneven and less than everyone believed. Many foreign economists had figured this out but now everyone knows. China now realizes it has a dangerous real-estate bubble that must be deflated with extreme care lest it could cause a major economic recession. China is still trying to develop systems to verify economic data coming from provincial officials because of the risks a major real estate default poses to the entire economy. The major real estate firms are Evergrande and Country Garden and, to prevent a debt default, government owned banks and enterprises that hold much of this bad debt have been ordered to tolerate delayed overdue payments on this debt.

There are also political problems. Leader Xi Jinping has made himself leader-for-life and Xi now screens or makes all key economic solutions. Xi isn’t an expert in economics or aware of the complexity of the Chinese economy or historical examples of similar situations. Back in the 1980s China adopted a market economy and shed most of its socialist, state ownership of everything, responsibilities. China was still ruled by a nationalist dictatorship government. This threatens to create a similar situation to the one that occurred nearly a century ago when China had a self-appointed leader-for-life running what was officially known as a socialist dictatorship.

In the last few centuries, China had endured periods when independent warlords ruling portions of a divided China, and the communist Chinese feared this might happen again. For thousands of years the large East Asian area dominated by the Han variant of Chinese people was sometimes united, but more often divided into separate kingdoms. After World War II the Chinese communists won a decades-long civil war against non-communist factions and proclaimed a communist dictatorship for China, or at least most of it. There was a long list of neighboring territories that were still independent or belonged to neighbors and China is working its way through those as diligently and non-violently as possible. The most troublesome independent portion of China is Taiwan. After World War II Taiwan acquired protection from the United States before the new communist Chinese government could get organized and do anything about this troublesome Chinese provinces of Taiwan.

China is also having problems getting control of territories in the South China Sea which historically were not Chinese. The Philippines and other nations bordering the South China Sea are opposing Chinese efforts to take control of this watery region. In this case the opposition also has support from the United States and several other major powers in East Asia and Europe.

Similar situations exist because of islands off the Chinese coast controlled by Taiwan. A current example is China pretending to be angry at Taiwan because two Chinese citizens drowned when their speed boat overturned while they were trying to evade a Taiwanese coast guard ship. China responded that they would increase security around a small group of Taiwanese-controlled islands off the Chinese coast that China also claims.

Taiwan defended the actions of its coast guard because Chinese fishing boats and other vessels were operating in Taiwan-controlled waters, especially around the Kinmen and Matsu islands which sit a short distance from China’s coast. China’s coast guard declared that it would strengthen its maritime law enforcement forces and carry out regular law enforcement patrols and inspections in the waters around Kinmen and Xiamen. China insists that this is needed to maintain order and safeguard the safety of fishermen’s lives and property.

Chinese and Taiwanese fishing boats have been operating in the Xiamen-Kinmen maritime area since ancient times, and Taiwan points out that there never were any prohibited or restricted waters in that area.

China’s government professes goodwill towards Taiwan’s people but will never tolerate Taiwan’s disregard for the safety of Chinese fishermen, the office added.

Taiwan will continue to enforce the rules that ban unauthorized Chinese access to Taiwan’s waters around Kinmen. However, ships which carry no name, have no certification or port registration carry out continuous intrusions and make dangerous moves when trying to flee, leading to unfortunate incidents nobody wants to see or take responsibility for.

Kinmen, along with Matsu, has been controlled by Taiwan since the end of the Chinese civil war in 1949, when the defeated Republic of China government fled to Taiwan after losing to Mao Zedong’s communists and the new communist People’s Republic of China.

Kinmen was the site of frequent fighting during the 1950’s but is today a popular tourist destination, though many of the islets which are part of the island group are heavily fortified by Taiwan’s military and off limits to civilians.

Taiwan rejects Chinese sovereignty claims and accuses China of waging what it calls gray-zone warfare. This includes the Chinese use of irregular tactics to exhaust a foe without actually resorting to open combat, including sending civilian ships into or close to Taiwanese waters.

Taiwanese support their government’s resistance to this Chinese aggression. China is still seeking ways to take control of Taiwan and reincorporate this “lost province” into China. Taiwanese do not want their country to become a Chinese province. As an independent state, Taiwan has prospered and became a major manufacturer of electronic devices and electronic components which are purchased by companies in the Americas and Europe as well as those in East Asia like Japan, South Korea, and many more in southeast Asia. China has become a major market for Taiwanese electronics and Taiwanese manufacturers have opened some factories in China. Taiwan is still where most of the production takes place and one reason China has for not attacking Taiwan is to avoid damaging the Taiwanese electronic components industry. Taiwan is a major world producer of these electronic components and an innovator when it comes to designing new components. The rest of the world would not appreciate China attacking Taiwan and disrupting all that electronics manufacturing and development of new items.




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