It turns out that unleashing a deadly engineered plague on the world, bellicose posturing, currency manipulation, intellectual property theft, treaty breaking, and genocidal actions against ethnic minorities isn’t a recipe for winning friends and influencing people.
Who knew?
Evidently not Xi Jingping, as under his leadership, it looks like some 90% of Chinese factories will close due to lack of business.
“My factory closed down, ended up losing over 10 million.” I’m assuming that’s Yuan.
“China continues to face a harsh winter, with reportedly 90% of factories either closing down or falling into difficulties.”
Factories that has been in business and profitable for 15 years got walloped by Flu Manchu in 2020. “After the outbreak, the factory started and stopped production intermittently, basically losing money for a year. Unexpectedly, the following three years were worse.”
“At the start of the year, there were almost no new orders. The old customers who used to order every month also significantly reduced their orders. The entire industry had fewer orders than during the 3 years of the epidemic.”
This lead to “severe competition within the industry this year to get orders. Besides low profits, customers also demanded goods to be made before payment.”
“In the second half of 2023, he was basically just chasing payments. Many customers were withholding final payments, and his factory had long run out of operational funds. During this period, he had already mortgaged his house in Shinjin for business loans. For these three years, his factory had been barely surviving on loans, and he didn’t know when it would all end. Recently he’s been exhausted, so he decided to shut” everything down.
“Bosses like us in small manufacturing factories will soon become the bottom of society. Becoming a bad debtor is only a matter of time, My factory in Guangdong is quite typical of those in the industry. Most of my customers products are for export.”
Factory workers, of course, are losing jobs and hours left and right due to the shutdowns. Plus those few factories still hiring can afford to be picky. “Those over 33 can go back! Those under 33 stay! Not accepting anyone over 33!”
“China’s products such as petrochemical raw materials, fuel and electric vehicle power batteries and non-core chips are all facing overcapacity.”
“After the pandemic, China’s economic recovery has been weak. Traditional export orders are insufficient, and products manufactured by Chinese factories exceed the domestic markets absorption capacity causing almost every industry to face overcapacity as other countries strive to curb inflation.”
“China is experiencing rare deflation.”
China’s plan to combat this is exporting high tech goods to the rest of the world. The rest of the world doesn’t seem enthused.
I’m skipping over some Q1 growth statistics for China I don’t believe.
“Due to overcapacity in China, companies are squeezing each other’s profits by lowering export prices.”
“In the first quarter, China’s manufacturing capacity utilization rate plummeted to 73.8%, the weakest level since 2015.”
“The utilization rate of the automotive manufacturing industry has now dropped to below 65%.”
And the electric car bubble bursting has hit China hard. “For years the CCP has spared no effort, using high subsidies and various preferential policies to fully support the development of new energy vehicles.”
“It is estimated that from 2010 to the present, over 200 billion yuan, about $28 billion US, has been directly subsidized to new energy vehicle companies by the CCP.”
“The CCP’s irrational economic measures not only harmed the global economy, but also damaged China’s own economy. The subsidy policy has not only led to the emergence of numerous purported new players in the automotive manufacturing sector, but has also notably spawned a significant number of counterfeit car companies that rely solely on deceiving subsidies through presentations and mockup models.” In other words, the same smoke and mirrors companies seen throughout the rest of China economy.
“The Wall Street Journal reported that in 2018 there were already more than 487 Chinese electric car manufacturers, but now there are only over 40 remaining.” (Previously.)
Is the 90% factory closure estimate way too high? Probably. But if it’s even of factories, imagine the devastating economic and social dislocation effects this will have on China’s aging economy.
Much of China’s economic miracle was built on smoke and mirrors, and by one estimate China GDP was overstated by 60%. And thanks to Xi Jinping’s gross mismanagement of just about everything, the bill for all those illusions is now coming due.
I have a whole host of “China is Screwed” videos I’ve gathered to post, but haven’t had the time to properly queue them up. So here’s a big picture piece from Peter Zeihan on China’s immediate economic foe: deflation.
“They never really recovered from Covid.” Aw. My heart bleeds.
“Growth is actually lower now than it was over the course of the last two years when they were supposedly under complete lockdown.”
“Consumption is down. Imports and exports both dropped in July compared to a year earlier by double digits of percentages. Normally the sort of stuff you only see out of a country like, say, Ukraine or Russia when a war starts.”
“We saw a demographic bomb go off in China before Covid. going back to as early as 2017, the demographics really turned negative from 2017 to 2021. The birth rate dropped by about 40%.”
“We’ve had all of these trends with four, five, six, years behind them, and as they’re manifesting in a more normal environment, the numbers are really, really, really bad.”
A whole lot of that is due to the One Child Policy.
Problem two: Deflation. The rest of the world suffered inflation when the lockdowns ended.
“The consumption boom never happened, so supply chains never had to adjust. What has happened is people are less confident in their future, so they’re consuming less.”
“We’re seeing mounting trade wars out of Europe, Japan, the United States, and increasingly secondary states like the Koreans are joining in. And that means the Chinese have fewer places to send stuff.”
“Product that was normally produced for export from China is now being locked up within the Chinese system at the same time that the population is purchasing less. You have an oversupply of goods and an under demand, both at home and abroad. With all those extra goods prices go down, and you get deflation.”
“This is what you would expect when you’re at the beginning of a deflationary spiral that’s caused by a fundamental mismatch between supply and demand, which is where we are going with deglobalization and the Chinese demographic. Trends which are now well past the point of no return.”
Japan’s deflationary spiral lasted 20-25 years.
Deflationary spirals are very hard to pull out of.
“The Chinese economic system isn’t really based on exports or consumption, it’s based on investment, the idea that the state fosters mass borrowing in order to build industrial plant infrastructure. Based on whose numbers you’re using, those are somewhere between 40-70% of the entirety of the Chinese economy, and has generated the vast majority of economic growth.”
“You can only do that for so long. Eventually you don’t need any more bridges, or any more factories, and I would argue the Chinese reached that point before Covid. Again, there’s been this three, four year lag between reality and the data finally manifesting.”
More spending won’t help.
“The amount of growth they get for every Yuan spent has been dropping steadily for 40 years, and now it’s in far less than one to one. So it really doesn’t matter how much more fuel and how much cheap capital the Chinese pump into the system, it’s never going to generate more economic activity than what it costs to put it in the first place.”