Inflation rates are one important indicator of the general health and condition of a country’s economy. Here in the U.S. there’s plenty of complaints about our current inflation but compared with other countries, remarkably, we are in a better place than most at 3.2%. Others?
Argentina 113%, Australia 6%, Canada 3.3%, European Union 6.1%, Israel 3.3%, Japan 3.3%, South Korea 3.4%, Mexico 4.6%, New Zealand 6%, Russia 4.3%, Sweden 9.3%, Turkey 59%, United Kingdom 6.8%, and then there’s China -0.3%, and that’s called deflation, a sign of a weakening economy and slackening consumer demand.
The Financial Times reported that “The Chinese currency has fallen almost 6% against the dollar this year as disappointing economic data and a strengthening U.S. dollar piled pressure on the exchange rate, despite a number of direct and indirect measures by Chinese authorities to discourage bets against the currency.”
When I first traveled to China in February of 1977, $1 would buy about 1.5 Chinese yuan. Today, $1 buys about 7.3 yuan.
China has achieved its tremendous growth in modern times through cheap labor manufacturing and export sales, always with a balance of trade in its favor, but things are changing. London-based Reuters News recently forecast that China’s exports had fallen 9.2% in August and imports 9% while experiencing a year over year drop in exports of 14.5% from last July. The COVID supply chain problems caused countries dependent on China to on-shore more of their critical inventory affecting China’s export revenues.
Add to these problems China’s real estate crisis. Cheap interest rates encouraged massive overbuilding in housing, but the COVID crisis exposed a housing bubble which the government has tried to forestall with higher interest rates causing many defaults on mortgages.
The New York Times recently reported that, “More than 50 Chinese developers have defaulted or failed to make debt payments in the last three years, according to the credit ratings agency Standard & Poor’s. The defaults exposed a reality of China’s real estate boom: the borrow-to-build model works only as long as prices keep going up.”
China Evergrande, one of China’s biggest developers, defaulted on $300 billion in debt in 2021. Home prices are falling. The China Real Estate Information Corp. reported that of the country’s 100 biggest developers, new home sales plunged 33% from a year earlier and 28% just since last June.
Equally troubling is the unemployment rate for young people in China. For 16- to 24-year-old Chinese in urban areas the unemployment rate was 21.3% and expected to go higher. The government announced recently it would no longer publish these statistics as these rates have gone up every month so far this year. Xi Jinping has encouraged these young people with college degrees to go to the country to work, reminiscent of Mao Zedong’s 1960-70s charge to people to “eat the bitterness” of joblessness and go work on the farms. To put it mildly, that didn’t go over well back then and isn’t going over well now. High tech industries in China are shedding workers.
The unemployment rate among 16- to 24-year-olds in urban areas hit 21.3 percent, a record, in June and has risen every month this year. If not corrected, that’s a problem for China’s elderly.
Xi Jinping’s efforts to bend China’s economy to a more domestically-oriented, state-run, consumer-oriented, and less market-oriented economy may put a drag on China’s attempts at economic recovery. Tensions and trade wars with the United States and Europe won’t help and trying to figure out how to manage its relationship with Russia and Vladimir Putin, who has an International Criminal Court arrest warrant out for crimes against humanity, won’t help either.
Xi Jinping clearly wants to reorder global governing structures. His decision to not attend the G-20 Summit in New Delhi is his way of telling top international leaders that his patience is running thin for organizations that attend too much to free markets, democratic values, and humanitarian issues. He wants his own initiatives like China’s “Belts and Roads” initiative to the developing world and the BRIC organization of southern states to be more central to global planning and relationships. Yet the over $1 trillion dollars in loans (Belts and Roads) to developing nations is experiencing some backlash, especially among African nations where many are complaining that these loan initiatives are turning out to be “debt traps.”
Finally, China’s increasing centralization of power and industry, its malicious use of artificial intelligence to influence American voters, its extraterritorial police networks around the world threatening Chinese students and expatriates, its banning of Apple iPhones and use of surveillance balloons only serve to increase the growing economic cold war between the world’s two biggest economies.
Is there a possibility of reconciliation, a rapprochement between China and the U.S? Of course, but if Xi Jinping continues with his inward-looking governance, and his “Middle Kingdom” mentality when it comes to China’s approach to domestic economics and diplomatic behaviors, then the outlook becomes increasingly troublesome.
Bill Sims is a Hillsboro resident, retired president of the Denver Council on Foreign Relations, an author and runs a small farm in Berrysville with his wife. He is a former educator, executive and foundation president.