PUBLISHER’S NOTE: Tracking trends is the understanding of where we are and how we got here to see where we are going. As the cover of this week’s Trends Journal illustrates, America is moving towards war with China. Currently it is an economic one that we forecast the Chinese will win. Here are some of the current events forming future trends:
- China’s Exports Jump Almost 15 Percent in March
- China’s Not-So-Little Secret: Government Debt Exceeds GDP
CHINA’S EXPORTS JUMP ALMOST 15 PERCENT IN MARCH
China’s export economy expanded by 14.8 percent last month, overcoming a sluggish world economy by increasing sales of electric vehicles (EVs) and related items, and also by expanding its trade with Russia, the Financial Times reported.
China also shipped more goods to Malaysia, Singapore, and Vietnam, as well as other southeast Asian countries.
In addition to boosting shipments of EVs, lithium, and solar batteries, China’s factories also sent more steel and clothing abroad.
Exports of integrated circuits, mobile phones, and personal computers declined.
The import economy also improved, declining just 1.4 percent year on year, compared to a 10.2-percent deficit earlier this year. Analysts had predicted March would show a 5-percent fall.
The annual rate of increase reversed a 6.8-percent slump through January and February and marked the first growth in exports since September.
The surge renewed hopes among analysts and Chinese government officials that the country will meet its 5-percent growth target this year.
The target is the lowest in decades and follows a year in which China’s GDP expanded by only 3 percent, due to president Xi Jinping’s insistence of extended, widespread anti-COVID lockdowns.
The endless lockdowns sparked rare street protests. The government began relaxing COVID-related restrictions last fall.
TREND FORECAST: China’s exports to Russia have surged because of the Ukraine war and resulting Western sanctions.
That new, higher level of trade with Russia will endure even after the war: Russia and China are developing new cooperation agreements and the West is likely to sanction Russia for some time after the shooting ends in Ukraine.
Also, despite a new push by European and U.S. auto companies, China will own the EV market for years to come, making electric mobility a mainstay of their manufacturing and export economies.
China will protect the dominance fiercely, tying up mineral rights in other countries and pouring additional money into EV-related R&D.
CHINA’S NOT-SO-LITTLE SECRET: GOVERNMENT DEBT EXCEEDS GDP
The Chinese government’s debt has reached 126 percent of the country’s economic output, according to a new estimate by Goldman Sachs.
The subject is rarely discussed in public but has become a topic of heated debate in China’s policy circles.
Goldman’s analysis added up debts owed by the national government debt as well as money borrowed by local governments’ development agencies and government-owned banks.
The total debt load has grown tenfold over the past ten years, Goldman calculated, and last year reached 156 trillion yuan, the equivalent of about $23 trillion.
Local governments, typically the source of funding for many of the infrastructure projects that have fueled China’s economic engine in recent years, owe more than 61 trillion yuan, roughly the same as $9 trillion.
Local governments’ funding vehicles are due to repay the equivalent of $790 billion in domestic loans this year.
By mid-2022, China’s total debt overburden as a percentage of GDP exceeded that of the U.S. by 40 percent, according to Forbes magazine.
Adding private debt to the public list of IOUs, the total climbs to more than 356 trillion yuan, roughly $51.9 trillion and about three times the size of China’s economy.
“This is the highest level recorded in the 27 years since Beijing first began to track such statistics,” Forbes noted.
The debate among Chinese officials and economists has grown more and more intense, drawing comparisons to opium addiction and inspiring predictions of cataclysmic collapse.
Officials have focused on ending the real estate crisis sparked in fall 2021 when major developers defaulted on bonds, which we detailed in “China’s Real Estate Market Teeters on Evergrande’s Debt” (21 Sep 2021), “China’s Real Estate Crisis Grows” (9 Nov 2021) and “Evergrande in Default, Fitch Says” (14 Dec 2021), among other articles.
At its peak, the apartment-building frenzy—pushed by Beijing—accounted for as much as 30 percent of GDP.
China’s government has authorized a nationwide property tax to help local agencies pay off their debts and rescue the real estate industry; in the past, local governments have relied for income on selling land.
“Property tax is the most suitable to be a local tax,” ex-finance minister Lou Jiwei wrote in a March essay for a domestic policy journal. “The trial should be conducted as soon as possible after economic growth normalizes.”
Beijing also can sell assets and use the revenue to pay down debt, Li Yang, chair of the National Institution for Finance and Development, said at a March meeting of the China Development Forum.
“The share of government assets in the economy is rising,” he said. “We will be able to solve the debt problem if we can do some work in swapping the assets for debt.”
TREND FORECAST: China’s debt load will limit the amount governments at all levels, as well as state- and privately-owned businesses, from overly spending on economic expansion.
That impediment, coupled with the slowdown in export orders from the rest of the world, will limit China’s economic growth levels this year.
More broadly, China is being forced to rethink its policy of central planning that forces local governments to take on debt.
This will force Beijing to begin to decentralize some functions, a process that will likely take decades but will gather momentum after the country gains some experience in diversifying its power structure. And while there will be modest growth in the near future, as we forecast, China will be the dominant economic and geopolitical force of the 21st century.