PUBLISHER’S NOTE: As we have noted, China’s current economic decline is mostly self-inflicted. 

The nation’s economy boomed at the greatest level in modern history when the U.S. allowed it to join the World Trade Organization some two decades ago. Their economy boomed as western companies gave the cheap labor communist nation all the high-tech intelligence and heavy industry manufacturing skills they never had… to make what they were selling.

Like all nations whose economies soared, money junkies addicted to gambling, overbuilt them and over invested in them. 

Making a bad situation worse, when China launched the COVID War in January 2020 on its Lunar New Year, “The Year of the Rat,” it not only destroyed the lives and livelihoods of billions across the globe, after three years of zero-COVID policy, Beijing destroyed its own economy.

The Chinese socioeconomic future is bleak, as is the global economy. It’s in the numbers.


After months of decline, China’s economy sank into deflation in July, a condition in which sellers have to cut prices to entice shoppers to buy their goods.

For the first time since February 2021, prices are falling in everything from steel to vegetables, The Wall Street Journal reported. In July, consumer prices edged down 0.3 percent, government data showed.

The “darkening picture” shows the nation’s economy entering a “potentially dangerous phase,” the WSJ noted.

Exports have shrunk month after month, consumers have not sustained a post-COVID spending recovery, the housing market is locked in a crisis, and youth unemployment lingers at record levels.

If buyers expect prices to fall further, they likely will delay discretionary purchases, slowing the economy even more.

Deflation can be especially dangerous for countries carrying high debt, such as China; its national debt load has grown to three times its 2022 GDP, according to the Bank for International Settlements. 

“The reality looks increasingly grim,” Eswar Prasad, a Cornell University economist and China specialist, told the WSJ. “The government’s approach of downplaying the risks of deflation and stalling growth could backfire and make it even harder to pull the economy out of its downward spiral.”

China’s leaders have pledged bold stimulus measures but have implemented few so far. The central bank has cut a variety of interest rates but other officials have done little, in part because of China’s already-high national debt; more deficit spending carries dangers of its own.

Unlike Western nations during the COVID crisis, China has offered no direct support to households that might stimulate consumer spending.

The dangers attached to China’s deflation extend beyond its borders. The condition makes Chinese exports cheaper, possibly threatening jobs in other countries where the same items might be more costly. 

Deflation is partly a result of food prices returning to normal levels after they leaped higher last year due to bad weather and poor harvests. The price of pork plummeted 26 percent last month, year over year.

However, core inflation—which ignores food and fuel costs—actually edged up 0.8 percent for the month.

That does not presage a quick end to deflation, analysts said, given the economy’s structural ills that have caused the problem in the first place. “Uncertainty” seems to define consumers’ outlook.

TREND FORECAST: Please see our ECONOMIC UPDATE in this issue and in last week’s Trends Journal. And, we have detailed China’s crisis in a series of special sections, including:


In July, China’s exports declined for a third consecutive month while imports dropped for a fifth month in a row, according to Chinese government figures released 8 August.

Exports last month fell 14.5 percent, year on year, the worst monthly plunge since February 2020 when the global COVID panic began. Imports were off by 12.3 percent.

During the first seven months of this year, China’s exports to Russia soared 70 percent as much of the rest of the world cut off trade with Ukraine’s invader. However, that was not enough to offset an 18.6-percent reduction in shipments to the U.S. or a 5-percent cut by the European Union.

Factors bogging down China’s trade include a slowing world economy, still-weak domestic demand due in part to the country’s unresolved real estate crisis, and Russia’s war in Ukraine, The Wall Street Journal said.

Also, Western consumers who spent the COVID era buying merchandise have switched their spending to services since they have been freed to leave home and take airline flights, fitness classes, and dine out.

Canada and Mexico, not China, are now the U.S.’s main trading partners as companies have sought to bring supply lines closer to home in the wake of the COVID and Ukraine wars, which taught the importance of having supply lines geographically close or centered in friendly countries.

Many analysts expected Chinese consumers to flood the stores and pleasure venues when three years of anti-COVID lockdowns and other measures ended late last year. After a brief spurt, consumers hunkered down over their wallets again.

Beijing’s vision of a “dual circulation economy” counted on a thriving export industry complementing a robust consumer economy. The vision saw one arm of the economy supporting the other during economic hard times. That vision has been shelved indefinitely.


Through four decades of relentless growth, China became central to the global economy and bound more and more nations to it by supplying them with cheap manufactured goods, signing contracts for raw materials, partnering with foreign businesses desperate for access to its billion consumers, and making generous loans.

Now, in the span of barely a year, much of that has reversed.

In September 2021, the country’s overborrowed property development industry collapsed and remains in crisis. After a brief post-COVID buying spree, China’s consumers have returned to their habit of saving instead of spending, largely because the government offers little in the way of a social safety net.

Chinese households piled up the equivalent of $1.7 trillion in savings during the first six months of this year. 

New orders for factory exports have been shrinking for months amid a slowing global economy and as foreign companies “reshore” or “friendshore” their supply lines. As exports have dropped, so have imports, cutting incomes for a number of emerging nations that supply China with commodities.

After months of decay, the Chinese economy is deflating, as we report in “Finally: China’s Economy Sinks Into Deflation” in this issue.

What does it mean that China’s once-endless appetite for the world’s goods has now been sated?

Soybean farmers in Brazil need to cultivate new markets. U.S. beef ranchers have lost a key customer. Infrastructure projects in Asia and Africa could go unfinished.

“Because China is the Number One commodity consumer in the world, the impact” of its economic implosion “is going to be pretty, pretty big,” Larry Hu, Macquarie bank’s chief China economist, told the WSJ.

Since 2012, China has contributed 40 percent of the world economy’s growth, compared to 22 percent for the U.S. and 9 percent for the Eurozone, data service BCA Research said.

Much of China’s growth in recent decades has been government-funded. Beijing ordered ports, highways, rail systems, and other infrastructure to be built on the public tab. Local governments also spent heavily on public works, funding the projects by steadily selling off public land.

Now “the old model has run its course,” the WSJ said. State-owned factories are idle or working partial shifts. Youth unemployment remains at a record 20-plus percent.

China is unlikely to bounce back any time soon. The global economy remains sluggish and China’s national debt already is 282 percent of GDP, leaving the government leery of spending heavily on vast stimulus programs.

China also has cities of apartment buildings standing empty, a remnant of the home-buying frenzy that gripped the country’s blossoming middle class earlier this century. Now that the bubble has burst, those empty flats have driven down property values and left families with “the widespread recognition that real estate is a story full of unhappy endings,” the WSJ wrote.

With long-term demand for its exports remaining low and government stimulus absent, “there’s no way it’s a happy story,” Yasheng Huang, MIT economics professor, told a May conference on China’s future.

TRENDPOST: The world’s economy has operated in China’s shadow for more than a decade. Now China must depend on foreign nations for the economic infusion it needs to begin recovering.

Highly-placed officials inside its government are warning president Xi Jinping about the dangers of adding to the already-huge national debt. As a result, payments from Beijing to households are unlikely; so is another round of the massive, government-funded infrastructure projects that have driven much of China’s growth for 20 years or more. 

Government attempts to revive the real estate market have so far failed. Consumer confidence has tanked.

Short of a major policy change in Beijing, China’s best hope for a revival of its economy is a stronger round of export orders for manufacturing. However, as we have noted in this article and others in the past, countries are reorienting their supply lines toward physically or politically closer nations.

China’s strength in exports is in green manufacturing: solar panels, alternative energy tech, and especially in electric vehicles. It leads the world in this area. Therefore, China will focus on this sector as an export engine, cutting retail prices to the bone and pushing hard around the world to get its EVs into more showrooms.


Country Garden has been the last major property developer in China to remain financially stable while its competitors defaulted on loans or went belly up.

It is stable no longer.

On 10 August, Country Garden announced it expects to report a loss of $7.6 billion for this year’s first half. Following the news, the company’s share price fell to 13 cents.

China’s real estate developers borrowed to the hilt for years, building millions of apartments and following expanding factories and transport systems that were expanding metro areas and creating entire new ones.

Then in September 2021, Evergrande, perhaps the most flamboyant company in the sector, failed to meet bond payments, exposing a sea of flimsy finances underlying the real estate market and driving a series of companies to default. Country Garden had managed to avoid the fallout until now.

In China, home buyers typically begin making mortgage payments while their homes are being built and before they can move in. The collapse of many developers left hundreds of thousands of buyers with mortgages but no homes to show for them. Protesters spilled into the streets last year.

The government had pledged to ensure the property industry’s stability, but Country Garden’s wobble indicates that Beijing’s measures have been too little.

“The severe winter of the real estate industry has come,” one observer wrote in a social media post reported by the WSJ. “Let’s see who can survive.”

TRENDPOST: We have detailed China’s real estate mess in articles such as:


Shades of Chairman Mao’s little red book from the 1970s: white-collar workers in China’s financial industry are now required to attend lectures and read books extolling the ideas of Chinese president Xi Jinping.  

Party officials and members have long been expected to pore over the philosophies of the country’s strongman leaders. However, during the “cultural revolution” of the 1970s, everyone was required to carry Chairman Mao Tse Tung’s “little red book” of slogans and instructions.

Now, mandating ideological study for business executives has returned after 50 years, signaling the new importance of ideological correctness in commerce.

Even Blackrock and other firms headquartered elsewhere have seen their staff in China corralled for lectures, readings, and other forms of political instruction.

The finance industry has been a particular target of state control following an anti-corruption campaign that decried high salaries and ended the careers of scores of high-ranking government and financial executives in the past 18 months. 

“While few would dispute the importance of becoming familiar with the world view of the country’s most powerful leader since Mao Zedong, skeptics privately question the usefulness of spending hours each week poring over often-arcane sayings by the Chinese president,” news service Bloomberg said.

The fact that workers in a slumping economy are required to take time away from work to absorb Xi’s musings is “symptomatic of the government’s elevation of politics above everything else,” Bloomberg noted.

“Every hour workers spend doing something else is an hour they aren’t doing their jobs,” Victor Shih, an associate professor at University of California San Diego who studies China’s banking system, said in a Bloomberg interview.

China International Capital Corp., a leading investment bank, was told its employees had to study “XI Thought” more assiduously after they performed below expectations on quizzes. The government-owned Bank of Communications Co. has been holding monthly company-wide study sessions since late last year, a person familiar told Bloomberg. Each person attending is asked to expound on Xi’s insights and relate how they could bear on the financial industry. 

China Petroleum & Chemical Corp. cautioned its workers about obstacles facing its efforts to stamp out corruption and urged employees to study Xi’s guidance on the subject. Executives pledged to cling more tightly to party doctrine in leading the enterprise.

More than 3,000 workers from Blackrock, Franklin Templeton, and more than 70 other foreign-based asset managers were summoned to a lecture in June about the importance of hewing to Communist Party doctrine, according to a press release from the Shanghai Asset Management Association, which organized the event. 

Studying XI Thought can take as much as a third of working hours, some bank and other industry executives told Bloomberg. The assignments can include reading four books a month, attending classes, and taking part in activities, they said. Some companies have formed book groups.

The executives also have experienced a key aspect of Xi’s ideas: cuts to salaries and other perks in support of the principle of “common prosperity,” the idea that wealth must not be concentrated among elites. 

Xi’s key concern is “to make sure that no one is going to threaten the regime and the Communist Party’s leadership,” Chenggang Xu, a researcher at the Stanford Center on China’s Economy and Institutions, said to Bloomberg. “Only under that condition is economic growth important.”

“Wall Street people always think every country should put their financial sector ahead of everything else,” finance professor Zhiwu Chen at the University of Hong Kong’s business school, said to Bloomberg. 

“They don’t realize that over the last 10 years, the Chinese Communist Party has been saying politics should be first and foremost on everybody’s mind, not economic benefits, not economic profits,” he added.

TRENDPOST: Last fall, China’s elite installed Xi Jinping as ruler for life after he consolidated power ruthlessly. Now the country is stuck with him.

Xi has shown no awareness of economic realities or the mechanisms of private-sector growth. Instead, he has focused his efforts on regulating and controlling industries and the population and enforcing ideological rigor.

At a time when China needs economic creativity and flexibility, it has saddled itself with an ideologue intent on enforcing orthodoxy… as evidenced by its three years of zero-COVID policy which destroyed its economy… and much of the world’s. 


In a move likely to worsen U.S.-China relations, on 9 August President Joe Biden signed an executive order banning U.S. private equity and venture capital firms from putting money into Chinese enterprises working in advanced computer chips, quantum computing, some kinds of artificial intelligence, and certain other strategic technologies.

The ban is designed to slow the development of Chinese expertise in key competitive areas that bear on U.S. national security and to hobble advances in China’s military and surveillance capacities.

U.S. investment in a broad array of technologies is still allowed, but investors must report the transactions involving artificial intelligence and other kinds of chips to the U.S. government so officials can track the volume of American money flowing into specific sectors in China.

“There is mounting evidence that U.S. capital is being used to advance Chinese military capabilities and that the U.S. lacks sufficient means of combating this activity,” Emily Benson, director of projects on trade and technology at the private Center for Strategic and International Studies, said in comments quoted by The New York Times.

China’s government issued a statement expressing disappointment in the “U.S. overuse of national security to politicize and weaponize trade, scientific, and technological issues.” 

The strictures are part of the broader move to “de-risk” the U.S. relationship with China while still remaining engaged in less sensitive areas of trade and investment. 

The new ban expands restrictions previously imposed, such as selling cutting-edge semiconductors to China.

The strictures come soon after recent visits to China by secretary of state Anthony Blinken and treasury secretary Janet Yellen. They were there to thaw relations between the two countries, an effort that will not be helped by the new embargoes.

Investment between the two countries has fallen off in recent years as relations have soured but venture capital and private equity remained on the prowl in China for lucrative opportunities, especially in China’s tech sector, which is blossoming.

However, U.S. venture capital investments in China already have slackened, dropping from $43.8 billion in 2021’s final quarter to $10.5 billion in this year’s second quarter, data service Pitchbook said.

China’s own aggressive restrictions on foreign activity have chilled outside investment and raised fears that ordinary business activities could be interpreted by officials there as spying, the NYT noted.

Republicans in Congress criticized Biden’s new bans for not being broad or harsh enough, while other critics point out that China is not short of funds and is likely to get the same technologies through other nations.

“Unless other major investors in China adopt similar restrictions, this is a waste of time,” Nicholas Lardy, a senior fellow at the Peterson Institute for International Economics, told the NYT.

The Biden administration has urged allies to impose similar bans. U.S. intelligence agencies have shared reviews with their Western counterparts indicating that capital and expertise from Western countries has accelerated China’s development in strategic technologies.

European Commission (EC) president Ursula von der Leyen has pushed the European Union (EU) to enact a measure to parallel the new U.S. ban. 

However, Germany, France, and other European countries have slowed the discussion, arguing that Europe’s economy is more closely linked to China’s than the U.S.’s is and that bans could damage the continent’s already-fragile economy.

The EC will undertake a “proper assessment” of the risks and benefits of cutting off sensitive technology exports to China and will put forward its own proposal before 2024, the EC said in a statement.

TREND FORECAST: China, as with Russia, will get advanced tech by other means. 

For Europe, the security issue is economic, not military. The region depends on China more than ever now that Ukraine is no longer supplying the range of electronic components and machine parts its factories used to turn out. Europe wants to “de-risk” from China, officials have said, but European nations cannot afford to risk alienating China.

Delaying a policy to the end of this year gives Europe time to see how China reacts to the new U.S. sanctions.

And as for China needing foreign products… and markets, they will become more self-sufficient. See:

Skip to content