China has renewed construction projects under its Belt and Road Initiative, which is building ports, rail lines, and other infrastructure to connect its trading partners more firmly and easily to the Asian giant.
During the first 11 months of 2019, China signed contracts worth $128 billion as part of the plan.
Most of the money is targeted to Chinese firms, but the projects also create jobs and infrastructure in partner countries, building China’s political as well as economic influence.
China also continues to press its advantages in other ways.
Last week, the U.S., EU, and Japan issued a joint statement calling for more stringent rules under World Trade Organization (WTO) agreements to keep China from funneling money into marginal or failing companies to give them a competitive advantage.
Proposed new rules would require governments to notify the WTO of subsidies or other aid given to businesses and to prove that the aid doesn’t give those businesses an unearned or unfair advantage.
The WTO has documented evidence of China propping up companies that would have failed under free-market conditions. The WTO also has told the Chinese government that continuing to exploit loopholes in trade rules risks the collapse of the entire trading structure, which has helped China become a global economic power.
But that power is built on an increasingly shaky foundation of debt, much of which has gone to finance public infrastructure and a blossoming, affluent middle class.
In 2019, three large Chinese banks would have failed without government intervention. The shock prompted the government to subject all of the country’s 4,300 banks to a stress test. The result: 13 percent were flirting with collapse. If China’s growth rate drops to 5.3 percent, nine of 30 medium and large banks would fail, regulators concluded.
Bailing out more than 500 banks would not be practical or possible, analysts say.
But China has lowered by 50 basis points the amount of reserve cash its banks must have on hand.
David Stockman, the director of the U.S. Office of Management and Budget in the Reagan administration, said in a recent interview, “The whole global economy is dependent on China piling even more debt onto the $40 trillion pile they already have.”
TREND FORECAST: As we have forecast, with more nations having little room to further lower interest rates or inject more monetary methadone to prop up equity markets and economies, more countries will use fiscal stimulus to generate growth.
Such measures will sink nations deeper into debt, push downward pressure on their currencies, and only temporarily boost growth.
