This article was published by The McAlvany Intelligence Advisor on Wednesday, March 6, 2019:
For years China has been bailing out Venezuela’s failed socialist experiment. At last count, Venezuela is into China for more than $70 billion. What an irony it would be if the roles were reversed!
With Maduro’s regime on the ropes, and a new president taking the reins upon his departure, Venezuela’s vast proven crude oil reserves could easily put the country back where it was just a few years ago: one of the most prosperous in South America.
The process of China becoming Venezuela is well under way, to the point where wealthy Chinese entrepreneurs are looking for a way out. That would include Chen Tianyong, a Chinese real estate developer in Shanghai, who has already left.
He explained his reasons in a 28-page article on the internet that he titled “Why I Left China – an Entrepreneur’s Farewell Admonition.” He wrote:
China’s economy is like a giant ship heading to the precipice. Without fundamental changes, it’s inevitable that the ship will be wrecked and the passengers will die.
My friends, if you can leave, please make arrangements as early as possible.
As the New York Times noted, “it is unclear how many saw the article before it disappeared from China’s heavily-censored internet” but some no doubt are doing what Tianyong did: he moved to the island of Malta.
At least top communists running China acknowledge the trouble they are in. In his speech that opened the annual session of China’s rubber-stamp parliament on Tuesday, China’s Number Two communist, Li Kegiang, was surprisingly forthright: “In pursuing development this year we will face a graver and more complicated environment as well as risks and challenges … that are greater in number and size. We must be fully prepared for a tough struggle.”
The primary challenge is that China’s economy is run by American-trained Keynesians who think an economy can be massaged into good health with borrowed or created money. Twenty years ago, following its acceptance into the World Trade Organization (WTO), China’s leaders saw their opportunity and they took it. With cheap labor and cheap money, jobs poured out of the United States and into China, resulting in astounding economic growth. While the numbers issued by the state-controlled media are always suspect, there is no denying that the former third-world China now boasts the world’s second-largest economy.
It also boasts a national debt that is more than three times the country’s entire annual economic output. When Chinese leader Xi Jinping took over the communist apparatus in 2012, he began to implement harsher controls over the runaway economy. Three years later he installed still more in the banking system in an attempt to rein in the runaway debt that had financed it.
According to a paper published in January by Hurun Report, a Shanghai-based research firm, barely one-third of the superrich Chinese it surveyed said they were “very confident” about China’s economic future. Two years ago, that same survey showed that two-thirds of that wealthy cohort was “very confident.” Put another way, those holding sanguine views of China’s economy have fallen by half in just two years.
Those having “no confidence at all” in China’s economic future doubled, from seven percent to 14 percent. And nearly half said they were considering doing what Tianyong did, or had already started the process.
Today China is faced not only with a diminishing demand for its goods, but also Mr. Trump. While the trade deal remains under negotiation, China’s economy continues to falter. According to “official” government figures, last year the economy grew by 6.6 percent, the lowest in three decades. For 2019, official forecasts are coming in at “between 6 and 6.5 percent.”
Anecdotal evidence of China’s slowdown is showing up in declines in big-ticket investments, in real estate sales, and in industrial output.
So Xi is caught in the middle: he wants to restart the economy to keep his 800 million workers employed and away from protests, but he fears adding to his government’s enormous debt load. He has begun the process heralded by Keynesians the world over: higher spending on infrastructure projects like highways and bridges, looser monetary policy by reducing reserve requirements on the banking system, and tax cuts.
These policies of government intervention in the market economy won’t work any better in China than they did in Venezuela. Barring a miracle, China will descend past Venezuela on its way to destruction, just as Venezuela might be ascending from that same dark pit on its way back to freedom and a free economy.
What an irony that would be!
The New York Times: China’s Entrepreneurs Are Wary of Its Future
The Wall Street Journal: China Expects 2019 Economic Growth of 6% to 6.5%
The Wall Street Journal: China’s Annual Economic Growth Rate Is Slowest Since 1990