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

1. 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 apartments.
   
   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 apartments.
   
   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.
   
   
2. 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 bankruptcy.
   
   
3. 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 growing. 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.
   
   
4. 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.
   
   
5. 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 people.
   
   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.
   
   
6. 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.
   
   
7. 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 imposed.

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 controlled.

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 China-Russia alliance.

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.

1. 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 challenges.
   
   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.
   
   
2. 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 opportunities.
   
   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.
   
   
3. Sanctions, Decoupling, Tariffs, Foreign manufacturers moving out of the country forced China to move up the food chain as quickly as possible.
   
   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 recreational yachts.
   
   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 passengers.
   
   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 competitive.
   
   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.
   
   
4. 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 a balance.
   
   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 education.
   
   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 disasters.
   
   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 medical insurance.
   
   
5. 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.
   
   
6. 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.
   
   
7. 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 bubble.
   
   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 financial market. 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 long time.
   
   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.
   
   
8. 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.
   
   
9. 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 sanctions.
   
   
10. 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.

Conclusion

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 rich.

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 lying ahead.

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 that happen.

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 for everything.

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.

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