As we have forecast, the 20th century was the American century – the 21st century will be the Chinese century. The business of China is business; the business of America is war.
While America spent countless trillions waging and losing endless wars and enriching its military industrial complex, China has spent its trillions advancing the nation’s businesses and building its 21st-century infrastructure.
And while America and Europe have outsourced their manufacturing to China and developing nations to increase profit margins, China’s dual circulation/self-sustaining economic model is directed toward keeping jobs and trade and profits within the nation, thus relying less on global trade.
While the rest of the Western world is re-locking down its economies, China, where the virus first broke out, is completely reopened. Check out the dead New Year’s Eves in the western world, while Wuhan, China, where the virus first hit, had wild celebrations.
The following overview of the current economic trends further paints the ups and downs of China’s economic future.
CHINA STRONGER AS WORLD SHUTS DOWN. China’s economy grew an estimated 1.9 percent last year, according to the International Monetary Fund (IMF), making it the world’s only major economy not to shrink during the worldwide economic lockdown.
In contrast, the U.S. economy probably contracted 4.3 percent, and Europe’s 8.3, the IMF predicted.
“China enters this period” during which global economic power balances are shifting “with some strong economic cards in its hand,” wrote Wall Street Journal economic analyst Gerald Seib on 29 December.
For example, China offers higher interest rates on bonds than western countries, which has drawn a flood of foreign investment to fuel economic recovery and expansion.
Also, because China was able to dispatch the COVID virus quickly and restart its economy as other nations were still struggling, it has gained market share in several industries and geographical regions and has now signed a wide-ranging trade deal with Europe, snubbing the U.S.
The pact gives E.U. member states greater access to Chinese markets in air transport, construction, environmental and financial services, manufacturing, real estate, and shipping. The deal also guarantees China’s existing rights to European markets and offers new possibilities to invest in renewable energy.
The deal, in development since 2014, may not be ratified by the E.U.’s parliament until 2022.
The agreement is a signal that Europe is more interested in linking itself to China than to the U.S., according to David Dollar, former U.S. treasury attaché in Beijing. “If our allies remain engaged with China, then our decoupling” from China through tariffs, trade wars, and tough talk “would isolate us and strengthen China’s relative position,” he told the Journal.
Congress and president-elect Joe Biden share a bipartisan impulse to toughen the U.S stance against China on a range of economic issues.
However, this “escalating power struggle could tear apart the rules and institutions underpinning the global trade and governance systems,” warned Cornell University economist Eswar Prasad. “This will have deleterious effects on multilateralism, giving way to warring coalitions on a range of key issues relevant to consumers, businesses, and investors.”
CHINESE STOCKS SOAR IN 2020. Chinese stocks listed on exchanges around the world added 41 percent to their value in 2020, reaching a total market cap of $16.7 trillion, S&P Global Market Intelligence reported.
The figure is almost double the 21 percent U.S. stocks rose in value last year.
China’s quick recovery from the virus, its strong currency, and world-leading economy drew $404 billion from foreign investors into yuan-denominated shares, a rise of 30 percent from 2019.
Worldwide, stocks added 16 percent in total value in 2020, with China’s gains making up about a third of the growth.
As of 1 December, Chinese stocks held 41 percent of the value in MSCI’s Emerging Markets stock index and 45 percent of the FTSE Russell’s list of developing economies, compared to less than 30 percent of each at the end of 2015.
At the time, Alibaba, China’s tech and online retail giant, contributed about 7 percent of the value of the MSCI, which tracks 26 countries – more than the entire nation of Brazil added to the mix.
Other online heavyweights such as Tencent, Pinduoduo, and Meituan have seen their stock prices rocket up as consumers transferred more shopping online and investors sought stocks that would perform well during the economic shutdown.
Even Chinese companies going public for the first time flourished, banking $1.3 trillion from stock buyers.
The value of stocks listed on exchanges in Shanghai and Shenzhen is nearing $11 trillion, making China’s stock market second only to the U.S.’s in value.
PUBLISHER’S NOTE: Many analysts group China among emerging markets. All data indicates China is no longer an emerging market. It has emerged.
CHINA DIGITAL CURRENCY LEADER. On 27 December, China completed the second test of its digital currency, planned for national release ahead of next year’s February Olympics in Beijing.
Earlier in the month, the People’s Bank of China gave 100,000 residents in the eastern city of Suzhou the equivalent of $30 each to spend at selected merchants in the city of ten million.
In this test, consumers also could spend the digits online or use them in retailers’ electronic pay systems unconnected to the Internet, which opens digital payment options to regions of the country with poor or no Internet access.
As an enticement to merchants to take part in the test, transactions in the electronic currency carried no processing fees, giving retailers a 0.3- or 0.4-percent spiff on each transaction.
Digital money, in development since 2014, is designed to be used as easily and widely as coins and paper money. The government also is hoping its electronic cash will overshadow private currencies such as Bitcoin, as well as private payment systems operated by domestic retail giants Alibaba and Tencent.
The government has said that eventually physical money will no longer be needed in the country, which already is among the most cashless economies on the planet.
CHINA’S MANUFACTURING OUTPUT SOFTENS. China’s Purchasing Managers Index (PMI) in manufacturing edged down to 51.9 in December from November’s 52.1 mark, indicating a slight slowing of activity.
Analysts had expected a softer number, predicting 52.0 for the month.
The sub-index for export orders dropped from 51.5 in November to 51.3 last month.
PMI ratings above 50 indicate growth, below 50 contraction.
Uncontrolled COVID outbreaks among China’s trading partners and new infections at home led to the slowdown, analysts said.
The employment sub-index rose in December from 49.5 to 49.6, indicating that companies expect demand for their products to grow in 2021.
CHINESE REAL ESTATE BUBBLE READY TO BURST? Forty years ago, the concept of private property was anathema to the Chinese government. Today, real estate is the country’s favorite new investment and now accounts for 7 percent of GDP.
As the country has embraced property ownership since the 1990s’ wave of privatization, commodity prices have soared, the construction industry has boomed, and leading developers have become among the world’s biggest building companies.
The Chinese economy’s stunning expansion is largely built, literally, on government-funded construction projects of factories making goods for exports as well as to serve the ever-expanding domestic market.
Also, individuals have rushed into the housing market. In China, the stock market is widely viewed as risky; few companies offer pension plans, and the social safety net is small. A home is seen as a key storehouse of value and asset that will appreciate.
The banking industry has boomed as well. Real estate loans now make up 37.8 percent of the Industrial and Commercial Bank of China’s portfolio, compared to less than 20 percent in 2004.
But the banking boom reveals the dark side of China’s real estate craze: debt.
Developers borrow so they can bid aggressively for available land, then borrow even more to build at a breakneck pace to meet demand. Homebuyers, eager to lock in prices as well as houses, often buy units before they can be built; pre-building sales now account for about 90 percent of new home sales.
As a result, China’s household debt stood at an official 57.2 percent of GDP as of March 2020; in 2009, it was less than 20 percent.
Because of factors not counted in the official tally, the nation’s actual household debt may be as much as 128 percent of GDP, according to calculations by the research firm Rhodium Group.
That leaves families, builders, and the national GDP vulnerable to leaks in China’s real estate bubble, which may be appearing under the pressure from the global economic crisis.
Last October, Beijing’s average home price fell 15 percent, according to JRJ Research. Prices of homes in a Hefei complex fell by half.
Across the country, housing prices in October had dropped an average of $85 per square foot from 2019, according to the 10 October edition of the Asia Times financial newspaper.
At the same time, the market may be saturated.
The housing vacancy rate across urban China is hovering around 20 percent and the population is aging, reducing the number of persons available to buy homes.
CHINA TECH STOCKS DRUBBED AS INVESTIGATION SHARPENS. China’s tech giants Alibaba, Tencent, Meituan, and JD.com have collectively shed about $200 billion in stock-market value in recent trading sessions as the Chinese government continues its open-ended investigation into Alibaba’s business practices and readies new rules controlling online companies’ practices.
On 24 December, the government announced an antitrust investigation into Alibaba Group Holdings, the parent company of Amazon’s Chinese rival Alibaba. The holding company has used its wealth to branch into education, insurance, and other sectors.
Four days later, the government ordered the firm’s online payment platform Ant Group to hew more closely to its original business of processing digital transactions and to present specific steps it will take and a timeline for reconfiguring its ventures in financial management and other areas.
The government’s mandate sparked fears of an eventually forced breakup and set off a panic among tech stock owners that regulators also will move against other online heavyweights, driving investors to dump other companies’ shares.
Last November, the government rejected Ant’s proposal for a $35-billion stock offering and instead drafted rules giving officials vast powers to clamp down on anti-competitive practices among online businesses.
China’s antitrust law gives the government the power to fine violators up to 10 percent of their revenues, which could cost Alibaba as much as $7.8 billion.
It remains unclear how much power the new rules, still being finalized, will give regulators to control on-line businesses.
So far, the new regulations seem to be targeted to online marketplaces, curbing the practice of forcing sellers into exclusive arrangements, using algorithms to set prices favorable to new users, and predatory pricing.
Making an example of Alibaba will “send a message to the rest of the industry that the authority is determined to address” these issues, analysts at Nomura wrote in a 28 December note to investors.
