Seriously, isn’t it hard to live with an attention span shorter than the lifespan of a mayfly? You didn’t make it all the way through that sentence, did you?
Sigh.
Okay, so for those who can watch all the way through a sitcom, let’s get on with this.
Nation-states, including overhyped authoritarian ones, are resilient as all get out. Nation-states can do all sorts of weird and often unwise things that normal people can’t and shouldn’t. Being able to print your own money is great for as long as your economy survives it.
Being able to send your military to steal all your neighbor’s stuff is somewhat more complicated by that annoying Boy Scout of a nation with the Red, White and Blue flag but variations of the theme are possible. At least until the Boy Scout notices.
But that’s only the tip of the iceberg of ‘things nation-states can try to save their backsides’. Heck, some of them even work, especially if used wisely and sooner rather than later.
China has done none of this. China’s current solutions are ‘build more infrastructure to nowhere’ and ‘reopen the economy and just pretend there are no consequences for having locked down in the first place’. These are going about as expected – they aren’t.
I’m of the opinion that China’s economic stats have always been more fiction than fact. That said, there was a ton of money dumped on China for the last three decades. And a big part of that went to protecting the CCP and making the coastlines rich.
Then there were the malinvestments. IMF is no one’s favorite organization but there is a method to their hardline tactics. Giving a debtor more credit with no changes to his behavior has the same effectiveness as giving a drunk more alcohol trying to sober him up. No one likes belt tightening but nation-states find it particularly scary.
The time of government isn’t particularly relevant. No government can survive a revolutionary or a recalcitrant population. Tighten that belt enough and you’re out of a job because it’s extremely difficult to get the regular folks to understand why you get to live in a mansion and they have to eat less because you spent all that money you borrowed in their name for a port that no one needs but that had your name on it.
The reality is a lot of Belt and Road money went to pork projects that the IMF would not have tolerated or funded. They produced jobs for Chinese workers who have gone home now. The locals didn’t get jobs or new skills, just mostly useless infrastructure that they have to pay China ridiculous sums under secret agreements.
It might have worked had China not PO’d the US. The US is China’s largest customer. That matters to a nation-state that makes its money on exporting cheap manufactured goods. The US just cut the knees out from under any aspirations China had of the higher end e-market. China is also having to meet all those pesky regulations like normal nation-states trading with the US.
US companies are moving out of China. They aren’t alone. The US is still the world’s largest consumer market. If you want to sell consumer goods, you want to sell them to the US. But the jobs that come with that manufacturing are moving to Viet Nam, India, and anywhere else.
Suddenly, China can’t actually afford all those write offs from the Belt and Road Initiative. The plan to squeeze debtor nation-states into concessions and more favorable trading and political relationships is about to take a backseat to a new plan of getting some of that money back. Without the US markets buying their consumer goods, China is rapidly facing the prospect of budget constraints right on top of both the real estate collapse and a looming recession.
Any of that sound fine to y’all? No? Good, ’cause it’s not.
They’ll get some new investment – there’s always some speculator with more money than brains. The real estate market will ease up a bit as the three red lines get tossed out the window – but the underlying debt problem will only get bigger. Some of that infrastructure will end up paying off – heck, some of it might even stay standing but most will just be a bigger money pit.
Nation-states can kick the can down the road like nothing else. But even the strongest can’t kick that can far enough. Eventually, they hit the dead end.
I still think China is in for a political collapse probably sooner rather than later. But sooner is a relative term. Could be tomorrow but probably not. Could be next year but doesn’t seem likely. Could be by the end of the decade but it might not. Nation-states are resilient. It’s very hard to predict when exactly they will reach the point of no return.
Sadly, when they do, the results are usually spectacularly bad. I wouldn’t be speculating in China if I were you.
But I hear India is open for business. Or you could just get investment advice from someone else who actually knows about investing.
Or Tik-tok – owned by China and all the mayflies get their investing tips from Tik-Tok!
