Date: September 15, 2023   Updated: December 4, 2023
Chinese Economic and Financial Problems are actually a Blessing in
Disguise. The Second coming of McCarthyism and Red Scare of the 1950's.
The list of China's economic and financial problems is long and
alarming. They are definitely enormous and overwhelming. But it
actually boiled down to one major development: decoupling and strangling
of China's upward move by the most powerful economic and military block
in the world.
People inside and outside of China are talking about it. The Western
propaganda machinery is celebrating China's distress. Some even
predicted the imminent collapse of the Chinese system. They painted a
gloomy picture of a faltering economy. But if one takes a deeper look
and analysis of the situation, China's economic and financial woes may
be a "blessing in disguise", and the Chinese people will survive all
that, like they have overcome many setbacks in their long history of
over 3000 years.
Summing up China's economic and financial problems
Real Estate Bubble.
China's real estate bubble is the mother of all Chinese economic
problems. China's real estate boom is actually a Ponzi scheme. It is
not sustainable. The real estate tycoon developers borrowed heavily by
issuing high-yield bonds to build huge developments. People will pay
higher and higher prices to buy those units. And the tycoons reap the
benefits of the frenzy and borrow more, build more and sell more
When times are good and the economy is booming, they keep getting richer
and richer and the bubble becomes bigger and bigger.
It ends up creating China's many ghost cities of empty high-rise
During the COVID lock-down, millions of people were out of work.
Economic activities were ground to a halt. New apartment units cannot be
sold, and the developers started to feel the liquidity pain. They would
need support from the banks. But China decided to crack down on reckless
lending in August 2020. It limited debt-laden property developers from
borrowing more. That starved developers of their funding, and then the
music stopped. They could not finish homes they had already taken money
for because they had spent it on buying the next parcel of land for a
new project. The market experienced a total collapse in confidence
and the bubble finally burst.
Houses weren't being sold, families weren't spending. New home prices
fell accordingly. Average new home prices in the smallest cities
collapsed even more drastically.
With 70 percent of Chinese household wealth held in real estate, and
when the real estate market is slow, their properties started to lose
value. People became frustrated and lost confidence in their financial
well-being, consumption shrank and economic slowdown followed.
China's Shadow Banks Problem.
Trust companies are wealth management firms that usually claimed to have
a central-government-owned enterprise background. Some trust companies
listed state-owned enterprise as their investor. That lent them
legitimacy and credibility in people's mind.
Trust firms sold investment products to Chinese companies and wealthy
individuals. The trust firms manage $3 trillion in assets. They are not
subject to the same regulations as conventional banks and face few
requirements to publicly disclose information about their operations.
People felt safe because of their relationship with state-owned firms
and had a license from China's banking regulator. They believed that
their investments were backed by the government and were lured by a
promised high annual return.
The trust firms extended loans to property developers for the country's
construction boom. They also invested in real estate, stocks and bonds.
Now that many property developers are defaulting on loans as new home
sales have stagnated, the shadow banking section also face the threat of
High Amount of Local Government Debt.
Local Government Financing Vehicles, LGFVs, played a key role in funding
infrastructure projects. The LGFV debt is more than CN¥9 trillion and
The LGFVs were mainly financed by the shadow banking sector, and some
have also turned to offshore markets via dollar bonds. Offshore branches
of Chinese financial institutions have been major buyers of those bonds.
Local government income is often associated with real estate and land
sales. They have few options for raising funds. A sharp drop in income
from land sales have put considerable pressure on debt repayment.
Some local governments are pushing lenders to extend maturities and cut
interest rates, which in turn is increasing the pressure on banks,
putting some rural banks and bondholders at risk of defaults.
Thus, the worsening outlook for LGFVs has also exacerbated the problems
facing the shadow bank lenders. A number of projects financed by LGFVs
may default, with consequences for the bondholders.
Local Government Corruption.
Although it is not a major problem in large first line metropolitan
cities, it is still rampant in remote 2nd and 3rd tier localities. Many
officials benefited from unproductive and meaningless projects such as
building statues and monuments here and there and received kickbacks
from the developers.
Sanctions, Decoupling, Tariffs caused Stagnation.
With decoupling, technology sanctions, rising labour costs, and tariff
imposed on China produced products, many large foreign firms found that
it is much cheaper to produce elsewhere.
Labour and land cost in many other Asian and Latin American countries,
including Mexico, are more competitive compare to the rising costs in
China. China's "factory of the world" status is slowly evaporating.
They are moving out of China one by one steadily.
This resulted in economic stagnation and lower factory output, which
in turn contributed to higher unemployment, especially among the young
Recent graduates talk about "lying flat" by doing as little work as
possible to get by. They become "full-time children" who live at home
with their parents.
Some reports on China's youth unemployment cited a rate as high as 40%.
The real number may be close to 25%.
They can afford to do so as long as they have 4 grandparents and 2
parents to support them. It is ironic that China is accused of using
forced labour while the spoiled youths are allowed to stay idle at home.
They will continue until they cannot afford to, when the grandparents
are too old and the parents are retiring.
By that time, the
rising youth employment problem will resolve by itself.
China's Ageing Population.
In 2023, China was overtaken by India as the most populous nation in the
world. It is predicted that the Chinese population will start to
contract. The fertility rate is falling. China's one-child policy ended
up creating more male person than female. A lot of male people will have
problem getting married to start families of their own.
Although the one-child policy was ended in 2016, women in large cities
have lower interest in having children than ever, and it will take time
before China can achieve balanced demographics again.
On top of that, the population is ageing. More and more people will reach
retirement age, and not enough young people are willing to take their
place. And China is not expected to have positive inflow migration to
mitigate the problem.
This demographic predicament will put a heavy burden on the country's
social safety net.
Increasing and Accelerating Capital Outflow.
Together with a shrinking and ageing population, many wealthy people are
emigrating with their wealth. Capital outflow has always been a
problem. Many entrepreneurs have offshore arrangements and only remit
back home a small portion of the revenue generated from their product
sales overseas. They can easily do that by tinkering or tailoring the
overseas sales invoices.
A lot of businesses engaged in illegal trading of foreign exchange by
collecting RMB in China and providing foreign currencies overseas.
China suffers bigger and bigger FX outflow after PBOC cut policy
interest rates, which added depreciation pressures on the currency.
With China's currency at the weakest it has ever been, and with FX
outflows accelerating sharply, panic might follow. Many people resort
to buying gold as a hedge.
The government needed to stop the outflow of money. It needed a strict
auditing of manufacturing companies.
A little bit of history
China owed its economic development to the West's globalization, and
likewise, China's economic woes were due mainly to Western technology and
economic strangulation. In reality, the whole gamut of China's economic
difficulties boiled down to this one single major development.
Obama's Pivot to Asia and TPP
Obama first started the "Pivot to Asia and TPP" project to counter
China. He stopped INTEL from providing CPUs for China's supercomputers.
Those measures were mild, limited, cautious and understandable.
But they were just the beginning of a larger, more ominous trend.
Neo-McCarthyism of president Trump
Trump has a personal animosity against China and Hong Kong. In 1994, his
real estate empire was facing difficulties. He had to fly to Hong Kong
to meet with the local tycoons and solicited a bailout. After the
bailout, the relationship went sour. Trump ended up losing a protracted
lawsuit and settled grudgingly with the Hong Kong tycoons.
He considered that a major and lifelong humiliation and blot on his
self-proclaimed invincibility. When he became president, he decided to
take vengeance. He picked on Huawei first and started the "national
security" campaign against China. He blacklisted Huawei and ordered
Canada to arrest its CFO. On top of that, he imposed tariffs on many
Chinese products. Trump's personal vendetta against China and Hong Kong
ushered in what history will surely honour as the 2nd coming of
McCarthyism in the U.S.
His administration utilized every available resource to thwart and slow
down China's technological advancements.
Soon, the media picked it up and feasted on it. U.S. as a nation is
totally dominated by media hype and people are susceptible to
spoon-feeding by media propaganda. Hysteric China bashing and
demonization gradually became a national pastime. It is not easy to stop
this new McCarthyism movement once it started.
Under the spectre of such negative mood, foreign investments and capital
started to move out. Soon, foreign owned factories followed. One by one,
they would move to Vietnam, Mexico and India.
The internal situation in China was not helping. The national COVID
lock-down led to stagnation in economic activities and consumption. The
real estate Ponzi balloon felt the pressure and finally had to burst.
It just so happened that Trump was brought down by the COVID-19
pandemic. He caught COVID and spent time in a hospital. That gave
China a break and room to breathe. Had it not been the COVID outbreak,
more drastic, extreme and unpredictable measures would likely have been
Biden cannot afford to deviate from the precedent set by Trump
When Biden became the president, he had no option but to continue the
policy and trajectory set by Trump. Especially that the media was fully
enjoying and reaping the benefits of selling the China bashing and
demonization agenda. But his measures were still rather moderate and
More importantly, the Russia-Ukraine war kept Biden totally occupied and
the nation and media decided to "kind of" leave China alone temporarily
for the time being.
Consequently, Biden's China measures looked just like some secondary
afterthought. He refrained from further alienating China by imposing a
total sanction for fear of bringing about a tight and formal
Now China has until the end of 2024 to prepare for the next U.S.
president. No matter who that person is, the strangulation will continue
and will surely only get more stringent. So China must be prepared for
the coming hard time. It is better to go through it now than facing the
shock when the next guy comes along.
Chinese Political and Social Adjustments to meet the Challenges
A cursory review of China's history will convince us that the resilient
and hard-working people there will overcome the country's difficulties,
as it had done many times in the past.
Despite all the negative narratives and predictions, so far, China
seemed to be doing just fine.
China's economy expanded at a 4.9% annual pace in July-September
2023. While it was slower than in the past, it is still very
respectable. Bear in mind that a large percentage of China's GDP is
actually accounted for by the real estate sector. With the housing
bubble collapse, and China's economy is still showing positive
growth, it actually paints an encouraging picture about the Chinese
economy, and it obviously means that activities in the industrial
sector actually surged.
People are feeling very upbeat and are spending liberally. The
number of Chinese tourists visiting overseas, domestic flights and
trucking have already risen above the pre-pandemic level.
Chinese people are not unaccustomed to tough times.
Only the current young gen-z population has unrealistically high
expectations and become "spoiled and arrogant before getting rich". They
must learn to adjust and "eat a bit of bitterness" to overcome the
A generation of Chinese who grew up knowing nothing but boom times, and
recent graduates either can't or don't want to find jobs. The
government had to tell the young people to suck it up and "eat
bitterness" for the good of their family and the nation.
Repatriation of the talented.
Chinese young people studying abroad now choose to go home. The U.S., once
the land of opportunities now becomes the land of no-opportunities for
the Chinese under this Neo-McCarthyism era of anti-China sentiment. In
2019 more than 82% of the 580,000 overseas Chinese students returned
home. To those potential talents, China is now the new land of
The repatriation of these hyper-connected and/or talented individuals
deprives the U.S. and its allies of intimate knowledge about the inner
workings of the Chinese government.
Think about Qian Xuesen, the father of China space program, and all
those high-tech companies run by people with Chinese sounding names!
For the sake of clarity, Qian Xuesen or Tsien Hsue-shen, co-founder of
the Jet Propulsion Laboratory, and a professor at MIT and Caltech, was
under house arrest for five years during the McCarthyism/Red Scare era
of the 1950's. He was repatriated in 1955 in exchange for the American
pilots captured during the Korean War. He then became the "Father of
Chinese Rocketry and Space Program". And all those "Long March CZ
rockets" were developed under his auspices.
Sanctions, Decoupling, Tariffs, Foreign manufacturers moving out
of the country forced China to move up the food chain as quickly as
One way or another, China will not be stuck with making shoes for Nike
and assembling iPhones for Apple for too long. It needed to move up the
food chain. This Neo-McCarthyism movement only accelerated the pace.
It is going to happen naturally and inevitably as China's labour costs
increased relative to other developing countries. The Chinese are
already building their own brands worldwide, similar to what Japan and
South Korea had done before.
Huawei, DJI, LENOVO, BYD and other Chinese EV and automobile makers are
the obvious examples.
Chinese EV and ICE Cars are selling well. Chinese carmakers are
overtaking Japanese and European rivals in the South African market,
particularly in the family SUV category. In the first 11 months of 2023,
the Haval H6 was the top-selling SUV, while Chery Tiggo 8 Pro was in the
third place. Those vehicles represent value for money, offering more
features at lower prices. China will soon start selling airplanes,
super yachts, jumbo cruise ships.
Chinese media reported on Sunday 2023.09.24 that Brunei GallopAir has
signed a letter of intent to purchase 15 ARJ21 and 15 C919 at the 20th
China-ASEAN Expo in Guangxi. This is the first C919 order and the second
ARJ21 order by an overseas airline. The contract is worth US$2 billion.
The aircraft will first obtain certification by the Ministry of Civil
Aviation of Brunei before delivery and are expected to begin operations
in the third quarter of 2024.
It is not clear if the U.S. will stop the delivery of aircraft parts to
China. However, it is widely believed that COMAC has already stockpiled
the parts for a sufficient number of aircraft before they can localize
the supply chain by 2030.
China is heavily engaging in building mega luxury cruise ships and
As an example, IAG yachts built by Yaguang Technology Group Co. Ltd are
some of the finest ones built in China. The yard started building yachts
in 2005 and accumulated experience on the yachts they delivered over the
years. The yard has been delivering high quality yachts up to 41 meters
and 500 gross tons.
The first large-tonnage luxury cruise ship, built in Shanghai,
is expected to be unveiled by the end of 2023. The move is to mark a
major breakthrough in the field of large-scale cruise ship construction
in the country. The gross tonnage of the ship will reach 135,500 metric
tons, with a total length of 323.6 meters and a width of 37.2 meters.
With 2,125 rooms, the ship can accommodate a maximum of 5,246
China is now making up for the loss of iPhone assembly business by
getting into global energy and food trading to make money by
financial transactions and speculation.
It is a seismic paradigm shift for Chinese companies from being a total
net importer to being more of an international trading player.
China is expanding its presence in the global LNG trading world, with
Chinese traders setting up new or expanding their trading desks in
Singapore and London, in direct competition with LNG trade leaders such
as Shell, BP, TotalEnergies, and Equinor.
This comes as China secured more long-term supply of the super-chilled
fuel from Qatar and ironically also from the United States.
Chinese EVs arriving in Europe have made a promising start and the
market share there is rising steadily. After overcoming logistics cost,
sales taxes, import duty and meeting European certification, Chinese EVs
are still much cheaper than the other EVs currently in the market. Now
with the depreciation of the RMB, it only makes the products more
In the past, Chinese products have a perception problem, which is
gradually changing. Chinese EV brands are building consumer trust.
Several Chinese carmakers have secured five-star safety ratings under
Europe's safety standards. When European shoppers test drove the new
Chinese EVs, they were surprised by the quality, specs and price when
matching them to comparable European products.
Once Chinese EVs gained consumer trust, other household appliances will
soon get acceptance, similar to what happened with Korean and Japanese
products several decades ago.
As a matter of fact, many Chinese manufacturers had already successfully
built their own brands and have their own outlet channels. They are not
as dependent on owners of famous foreign brands. This helps to mitigate
many of the problems resulting from decoupling. DJI's innovative
commercial and recreational drones are just one example.
Besides the above, Chinese space launch rockets and jet engines are only
slightly behind the world leaders. The weakest link is in the
semiconductor sector, which has a long way to go before it can catch up.
That will continue to cause headaches for the Chinese administration.
Declining Population and Improving Quality of Life.
While the decline in population may be an economic problem in the short
term, it will be a positive for the country and the planet in the long
run. When everything is based on more consumption, the planet
can surely not keep up.
In the 1950's the Malthusian Principle of Population was the rule of the
day. It predicted that, due to the lack of limited resources, the world
will engage in wars to effect the thinning of population and to maintain
He predicted that population growth will always tend to outrun food
supply, and that betterment of humankind is impossible without stern
limits on reproduction.
That's why China initiated the one child policy. China as a single
country is overpopulated. The optimal population size for China is about
900 million. Currently, it is standing at 1.4 billion. So some decline
in population will benefit the country economically.
Nowadays, the hot theme is more people will result in economic growth
and expansion. It encourages unlimited consumption and an insatiable
throwaway culture. It is like fashion and will swing back later. It all
depends on the propaganda machine and those who control it. The mindset
that declining populations are seen as negative was caused by the
capitalists' focus on non-stop GDP growth. Perhaps GDP per capita may
paint a different picture.
Shifting to a feverish consumption economy only suits Western nations,
which are already wealthy and affluent after benefiting from their
colonies in the last century. This doesn't match the conditions in
China. It is still a rather backward and poor country. Per capita GDP is
quite low compare to the rest of developed nations.
No matter how one looks at it, the planet's resources are limited and
will run out eventually. The earth is massively overpopulated. Cutting
population growth is a good thing. It will cause some short term
economic pain, but will pay off in the long run.
In the past, China was blamed and loathed for "threatening the world" by
consuming too much food with its huge population. Now the same
propaganda machine is cursing China for reducing its population.
Nowadays, the Chinese people were much better off with cleaner rivers,
water and air. People have better health care and more nutritious food.
Granted that there is still a lot of room for improvement, the quality
of the population has improved faster. The average number of years of
education for the working-age population has reached nearly 11 years,
and over 1/5 of the masses in the country have received higher
People stay healthier and can be profitably employed for longer.
Contracting workforce will eventually be overcome by automation, robots
and people remaining healthier and stay working longer. Nowadays, it is
not uncommon to see people in their 70s minding their daily chores
efficiently and continue to hold jobs.
If you want to achieve an affluent lifestyle, you cannot have a huge
population. Only poor countries will continue to reproduce, as Malthus
suggested, as an insurance against the effects of famines and natural
It will probably take China several decades to achieve an
equitable, educated and highly civilized society.
China will ensure that more and more people are covered by guaranteed
basic pension, unemployment, work-related-injury, maternity and basic
China is becoming more energy self-sufficient.
With solar, wind, nuclear and new oil and gas discovery, China is
becoming more energy self-sufficient. The real solution would of course
be fusion power, but that may not happen within our lifetime.
Shadow Banking and Capital Outflow.
Chinese people tended to be more conscious about saving for the future
and possible bad times, and have some of the highest savings rates in
the world. There is over $2 trillion savings that the Chinese have in
their coffers, and they are not willing to do 'revenge spending' like
citizens in other countries. People have been buying a fair amount of
gold. This gives China a safety cushion in dealing with hard times.
After the 2008 crisis, China implemented prudent reforms to strengthen
bank oversight, instilled discipline and expanded capital buffers. Steps
like raising bank capital requirements and introducing deposit insurance
to helped insulate financial institutions.
Today, China's major state-owned banks rank among the world's safest
financial institutions based on capital strength. Their average Tier-1
capital ratio stood at 14% in 2022, well above international standards.
Chinese savers kept deposits flowing into banks, unlike Western people
who hurried to pulled cash from banks on the skimpiest of rumours.
Throughout 2023, the U.S. Federal Reserve continued its aggressive
interest rate hikes. China decided to cut rates to support economic
growth despite risks of cross-border capital outflows.
This demonstrated China's ability to decouple from the U.S. monetary
policy and focus on domestic conditions.
China's capital outflow will continue to be a thorny issue that needs to
be fixed. This is going to be an ongoing problem China has to address.
Recent crackdowns on the financial sector is a sign that the leadership
is serious about tackling the problem.
It has resulted in many fund managers, swindlers detained. At least 100
financial officials and executives have been investigated. China's
anti-corruption drive has over the years brought down more than 1.5
million government officials. It is a positive and healthy development
in the right direction.
Tackling the LGFV Debt and Real Estate Bubble Collapse.
The LGFV and shadow banking problems are 2 facets of the same issue.
While real estate developers depended on the sale of new units to
maintain the bubble, local governments depended on land sales to keep
the bond payments. But the fundamental culprit is the real estate
LGFV debt itself as a share of GDP is manageable at this stage. The
central government is likely to allow a default to trigger financial
discipline, despite a certain amount of possible panic in the market.
The local governments that are heavily in debt would have to cut back on
services and other spending to make the payments. But if they are
allowed to default, instead of continuing to struggle with the payments,
they can have a clean slate and start over again. That will in fact
cause less inconvenience and impact to the local communities. The
negative result is they can no longer borrow money for any
infrastructure projects, which by itself may be a good thing because
that will force the local government officials to be more prudent with
their finances. In the future, if there are real worthy projects that
requires financing, the central government could always make special
arrangements together with strict oversight.
Chinese policymakers have decided to let the real estates bubble
collapse and run its course, besides moderately relaxing mortgage
requirements and cutting interest rates. Policymakers have tolerated the
fallout of the real estate crackdown because even the companies that are
not able to pay all their bills are ordered to finish and deliver
apartments as a part of the government's clawback measures.
A former deputy head of the statistics bureau of China has
concluded that the volume of vacant houses is enough for more than 1.4
billion people. It might even have the capacity to accommodate up to 3
billion. It is unwise to vigorously develop real estate further.
No housing sector recovery means the speculators are not interested
in it because no easy money could be made. Lowering house prices
means more people can afford to have their own living quarters. There
were reports that some developers in 2nd and 3rd tier cities were
trying to sell new units at 50% discount.
The housing bubble collapse caused a slow-down in China's GDP growth
and that's about it. So far, it has not resulted in any contagion or
domino effect that hurt the real economy.
China's strategy is to not bail out those who get hurt. China is
happy to see it shrank and resources shifted from the
speculative housing sectors to the real productive industries. The
reorientation of the economy towards manufacturing and high-tech
sectors is progressing smoothly.
The bondholders took a haircut, everybody lost some money. Some
local and foreign lenders will get squeezed. But they will get over
it. The unfinished apartment units sold will eventually be completed
as part of the government clawback measure. The lesson to the wider
public and society is invaluable.
Chinese people never (traditionally) count on the government to
support or bail them out. Their attitude towards authority has been
'respect and distant from it'.
The founding family of Country Garden had to loan back to his
property developer company CN¥300 million interest free, and the family
had already sold a new jet and was trying to sell another.
The chairman of China Evergrande Group was formally arrested,
together with many of the core members of his group. He had
previously paid more than CN¥90bn in dividends to some
offshore companies in the Cayman Islands controlled by his now
technically divorced wife.
For a country like China, the most important job is to feed the people
and keep them warm. Clawing back money and auditing the fat cats and
corrupt officials will help people feel that justice is served.
Allowing the LGFV, the shadow banks, and the real estate sector to work
out the problems by themselves will finally solve the three
big monster issues that have been haunting the Chinese financial system
once and for all. The important thing is that the state-owned banks are
protected and as long as their depositors' funds are guaranteed, the
contagion effect of the fallout could be contained and limited.
So far, China's decision to stay put and risk a little social
instability seemed to be well tolerated. And there is no panic in the
If China attempted to bail out the trust firms, which might be difficult
to do anyway, the risky behaviour will continue and people will not
learn anything from it and the problem will continue and drag on for a
Every Ponzi scheme has to burst eventually. It is better sooner rather
than later. The longer one waits, the bigger the bubble becomes and the
worse the consequences will be. If this happened during the highly
expected coming full-blown economic war, the results would be
disastrous. In the final analysis, letting it burst now is a discreet
and judicious decision.
The Chinese government is structurally different from that of the West.
The government can start a propaganda campaign for an austerity movement
relatively easily, which is very much different from the West.
Pivoting to the Global South to reduce dependence on the U.S.
China's economic prosperity largely depended on the U.S. That's the
basic problem that subjected China to threats and blackmails. China
needs to adjust as quickly as possible in view of the looming threat.
The Golbal South (mostly commodity rich nations) have trade surpluses
with China and will want to buy finished goods from Chinese
manufacturers. The decision to switch attention to the Global South
is just logical and obvious to any Chinese policymaker.
Pivoting to the Global South, including "Russia, Middle East, Africa,
South East Asia, and South America" is bearing fruit and will soon
allow China to stand its ground in its negotiations with the West
in the battle of sanctions and tariffs.
Despite sanctions and tariffs on this and that, China's trade
promotions efforts are generating results. Take, for example, the
free-trade hub in the Xinjiang Uygur autonomous region. It is
thriving and rapidly becoming an export gateway to Central Asia,
South Asia and Europe. Xinjiang has a unique advantage because it
shared borders with eight countries, including Russia, Mongolia,
Kazakhstan, Kyrgyzstan, Tajikistan, Afghanistan, Pakistan and India.
Recently, Xinjiang's exports and imports expanded by leaps and
bounds. Besides cotton farming, manufacturing of electric vehicles,
lithium batteries and solar cells have replaced apparel, shoes and
hats as Xinjiang's main exports.
Mexico became the largest trading partner of the U.S. But Chinese
products and EVs are selling well there. And China also set up many
factories in Mexico to facilitate production, sales and delivery in that
parts of the world.
Is the Belt and Road projects crumbling?
The Belt and Road Project was just a PR campaign to give a name to
what China have been doing for decades in Africa. Perhaps making a
big deal out of it is one of the biggest blunders. In fact, China can
continue to do what they have been doing for decades without so much
fanfare. All they need to do is stick to premier Deng's teaching.
If too many of the Belt and Road Initiative loans go unpaid, China
can extend terms, forgive some debt, reduce rates, etc. in return for
favors. After all, it is better to put the money in the Global South
than keeping it in U.S. treasuries, which are unavoidably
depreciating with each passing day. Besides, anyone holding U.S.
treasuries is always under the nightmare specter of freezing and
Thriving in a Multipolar World.
China never said it wanted to become the dominant power on the planet.
It wanted a multipolar world, where no one country can call the shots,
and everyone will be treated equally.
With the expansion of BRICS to BRICS-11 and before the eventual advent
of a gold backed trading currency, bilateral trading using national
currency is the way to go and is proceeding well. That will help
China survive the potential total economic lockout.
China has a lot of problems, and they knew it. The government is working
to address them. Some of the problems will be resolved soon and some
will take more time, but overall, progress is being made.
China has been the world's top manufacturing house, with extensive
infrastructure built over time. This will help it maintain that
position despite the negative effects of decoupling.
In recent years, however, China seems to have abandoned Deng
Xiaoping's famous dictum: "Hide your strength, bide your time".
This is perhaps the biggest mistake they have committed.
They have to go back to that principle until they are really strong and
The West have been conducting wars in Korea, Vietnam, Afghanistan. When
they finally realized that those wars are unwinnable, they gave up.
This is an economic war against China, without doubt. Until the West
finally realizes that it is futile to try to hold China back and
accepts it as equal, China has to be vigilant about the dangers
The biggest threat, however, is that some warmongers may want to incite
a real hot war to stop China's progress.
A four-star general in charge of the U.S. Air Force's Air Mobility Command
has predicted the U.S. would be at war with China in 2025 over Taiwan.
But Taiwanese leaders are unlikely to be irresponsible enough to let
There is no need for China to invade Taiwan, and China will never invade
the island unless either Taiwan declares independence or foreign troops
start to station there. When that happens, all hell will break loose.
China is very patient and there is no need to "fight over a dawn and
dusk matter". The real prospects of conflict appeared to be around the
contested South China Sea islands.
This current setback is a good time for China to learn and practice the
Deng Xiaoping principle "Hide your strength, bide your time" again.
Chinese people always rely on their own and don't put much faith in
government handouts. Western people probably have that same tradition
too. Only recently, after they became accustomed to their governments'
welfare state promises, that they started to be reliant on the government
There is a danger that Chinese people, especially the younger ones, may
move in that same direction too. This current setback is a reminder and
a wake-up call. In a way, this is a blessing in disguise for China.
China will survive the challenge. But the real danger is a hot military
exchange that the warmongers are trying to incite. For the time being,
as long as the West is still occupied by the Russia-Ukraine war, that
threat is not imminent. But China has to be vigilant and use their
greatest wisdom to manipulate itself out of a potential trap.