Dragon Has No Teeth

IT’S NOT LIVEABLE:

China Is Pressing Women to Have More Babies. Many Are Saying No. (Liyan Qi and Shen Lu, Jan. 2, 2024, WSJ)

Fed up with government harassment and wary of the sacrifices of child-rearing, many young women are putting themselves ahead of what Beijing and their families want. Their refusal has set off a crisis for the Communist Party, which desperately needs more babies to rejuvenate China’s aging population.

With the number of babies in free fall—fewer than 10 million were born in 2022, compared with around 16 million in 2012—China is headed toward a demographic collapse. China’s population, now around 1.4 billion, is likely to drop to just around half a billion by 2100, according to some projections.

TAIWAN SHOULD TAKE THE MAINLAND:

Chinese military purge exposes weakness, could widen (Yew Lun Tian and Laurie Chen, December 31, 2023, Reuters)

Beijing did not explain why the generals were removed. Some analysts say the evidence points towards corruption over equipment procurement by the PLA Rocket Force.

“More heads will roll. The purge that centred around the Rocket Force is not over,” said Alfred Wu, associate professor, Lee Kuan Yew School of Public Policy in Singapore.

Wei Fenghe, a former defence minister who used to head the Rocket Force, has also vanished. When asked about his whereabouts, a defence ministry spokesman said in August that the military has zero tolerance for corruption.

His successor, Li Shangfu, was abruptly removed as defence minister in October without explanation after also disappearing for months. He had previously headed the equipment department. One of his then deputies was removed from parliament on Friday.

On the same day, Dong Jun, a Chinese ex-Navy chief, with a South China Sea background, was named Li’s replacement as defence minister.

Analysts say that while the Chinese military has long been known for corruption, the extent of the latest crackdown and the involvement of the PLA’s Rocket Force is shocking.

“This part of the PLA would have the most rigorous vetting process for senior officers, given the importance of having highly trusted men in charge of China’s nuclear weapons,” said Dennis Wilder, senior fellow for the Initiative for U.S.-China Dialogue on Global Issues at Georgetown University.

“Moreover, it seems to have involved several senior men rather than one ‘bad apple’.”

AND RUNNING OUT OF PEOPLE:

China’s Economic Engine Is Running Out of Fuel (YI FUXIAN, 12/22/23, Project Syndicate)

[H]owever appealing to China’s leaders Lin’s economic forecasts may be, they have proved wildly wrong, not least because they fail to account for China’s bleak demographic outlook. Both a higher median age and a higher proportion of people over 64 are negatively correlated with growth, and on both points, China is doing far worse than the three countries to which Lin compares it.

When Germany’s GDP per capita was equivalent to 22.6% that of the US, its median age was 34. In Japan and South Korea, the median age was just 24. After those 16 subsequent years of strong growth, the median age in the three countries stood at 35, 30, and 32, respectively. Contrast that with China, where the median age was 41 in 2019, and will reach 49 in 2035.

Likewise, at the beginning of the 16-year period to which Lin refers, the proportion of people over 64 in Germany, Japan, and South Korea was 8%, 5%, and 4%, respectively; at the end, it stood at 12%, 7%, and 7%. In China, that proportion was 13% in 2019 and will be 25% in 2035. In the 16 years after the proportion of people over 64 reached 13% in Germany (in 1966) and Japan (in 1991), these economies’ average annual growth was only 2.9% and 1.1%, respectively.

Moreover, in Germany, Japan, and South Korea, the labor force (aged 15-59) began to decline in the 12th, 38th, and 31st years after their per capita GDP equaled 22.6% that of the US. China’s began to decline in 2012.

If one imagines China’s economy as an airplane, the 1978 launch of the policy of reform and opening up would have been what ignited the fuel – the young workers – that enabled the economy to take off and fly at high speeds for three decades. But, in 2012, the fuel began to run low, causing the plane to decelerate.

Instead of adjusting to their new reality, the Chinese authorities – heeding the advice of economists like Lin – continued to lean on the throttle by investing heavily in real estate, thereby creating a massive property bubble.

YOU WOULD BE TOO IF AMERICA WERE ILLIBERAL:

Why are so many young Chinese depressed? (Nancy Qian, 12/21/23, the Strategist)

China’s high youth unemployment rate and increasingly disillusioned young people—many of whom are ‘giving up’ on work—have attracted much attention from global media outlets and Chinese policymakers. The standard narrative is to associate the problem with the country’s recent growth slowdown. In fact, the issue goes much deeper.

The rise of youth depression has been decades in the making, and owes much to China’s rigid education system, past fertility policies and tight migration restrictions.

XI IN THE BOX:

Japan cuts big deals with ASEAN — with one eye on Beijing (Matthew Kendrick, 12/17/23, GZero)

Tokyo committed to an implementation plan for over 130 projects with ASEAN, covering everything from the green economy transformation to cybersecurity to arms technology and equipment transfers.

The joint leaders statement also contained language regarding “respect for sovereignty and territorial integrity” and the “renunciation of the threat or use of force” — clear references to China’s activities in the South China Sea.

In a separate bilateral deal, Indonesia will get $63.7 million to bolster its maritime security and a Japanese-built patrol boat to boot.

Similarly, Malaysia will get $2.8 million for “warning and surveillance” gear as part of a Japanese program to bolster law enforcement and security in friendly countries.

The Philippines’ coast guard agreed to cooperate more closely with Japan’s. Manila also received advanced Japanese radars last month and is in talks with Tokyo over a formal military pact that could allow mutual troop deployments and training.

Also last month, Japan and Vietnam elevated their mutual relationship to a “comprehensive strategic partnership” and are discussing a potential military deal.

FEAR OF CHINA IS JUST RESIDUAL YELLOW MENACE HYSTERIA:

The country should stimulate consumption with spending on education, healthcare and public housing (CHETAN AHYA, 12/11/23, Financial Times)

Its gross domestic product deflator — the broadest measure of prices, taking in all goods and services of a country — is at minus 1.4 per cent and has contracted for two consecutive quarters. Consequently, China’s nominal GDP growth was just 3.5 per cent in the third quarter, much lower than the 6.4 per cent of the US.

A deflationary backdrop poses a few challenges. First, real rates after taking into account deflation will rise, increasing the burden on debtors. Second, even as debt growth slows, it will probably remain higher than nominal GDP growth. And so debt-to-GDP ratios will continue to climb. More crucially, a weaker GDP deflator negatively affects the trends in corporate revenues and profits. If deflation continues to eat into these, companies will cut wage growth, creating a vicious “loop” of even weaker aggregate demand and deflationary pressures.

These issues are particularly challenging in China’s context, considering that it is also facing elevated debt ratios and weakening demographic trends. Along with deflation, these factors combine to present a challenge to China we term the “3 Ds”.

The deflationary pressures in China stem from the deleveraging of the balance sheets of the property sector and local governments. When you consider that the combined debt on these balance sheets accounts for about 100 per cent of GDP, it is hardly a surprise that demand and price pressures are as weak as they have been.

THE eND OF hISTORY ALWAYS WINS:

It’s starting to look like China regrets its private-enterprise crackdown (Huileng Tan, Dec 14, 2023, Business Insider)

A document released after the conference set the agenda for China’s economy — the second-largest economy in the world — for the next year. Strikingly, this year’s readout acknowledged that China needed to prioritize economic development.

“Next year, we must persist in seeking progress while maintaining stability, promote stability through growth, and establish the new before breaking the old,” the meeting’s official readout said.

Rory Green, the chief China economist at GlobalData.TS Lombard, wrote in a note on Wednesday that the wording in this document suggested “hints of remorse at overzealous growth-negative policy implementation.”

“The emphasis on the economy was followed by ‘prioritizing development before addressing problems,’ alongside rhetoric that linked national security to maintaining a stable growth rate,” Green wrote. He added that this suggested official recognition of the difficulties facing the country.

hISTORY eNDS EVERYWHERE:

The Billion-Dollar Question: When Will China’s Local Debt Explode?: Unless the CCP embraces capitalist innovation and public accountability, which is unlikely, China’s local debt could cause the central bank to collapse by 2030. (Jennifer Zeng, 12/13/23, Japan Now)

The only feasible solution to China’s financial trouble seems to be the central bank’s printing money. Suppose China’s central bank prints ¥10 trillion CNY ($1.41 trillion USD) of base money annually to assist local governments with debt repayment. With only a 4× money multiplier, this would result in over ¥40 trillion CNY ($5.63 trillion USD) of circulating money.

As of the end of September 2023, China’s total money supply, M2, stood at only ¥290 trillion CNY ($40.75 trillion USD). Injecting more than ¥40 trillion CNY into this money pool within a year would have big consequences. Within less than two years, the renminbi could face destruction by the central bank itself due to rampant inflation caused by reckless money-printing.

Through meticulous calculations by Lao Man, the conclusion is that without urban investment bonds, China might struggle through the next three years. It would be a bare survival level, though, with China limping along on money printed from thin air. This situation could potentially last until 2030, which is viewed as the ultimate deadline for collapse.

‘No Hope of Rescue’ However, the dilemma posed by urban investment bonds is like a noose around the Chinese economy’s neck, capable of asphyxiating the system at any moment. No matter what the central bank does, 2024 looms as the most probable year for collapse.

Lao Man suggests some solutions.

Elevating private enterprises to the same status as state-owned enterprises is one. He also suggests empowering the public to participate in and oversee government actions. But neither of these scenarios is likely to occur. If the Chinese Communist Party were to open the door to either capitalist innovation or public accountability, its very reason for existence would evaporate. All that remains, it would seem, therefore, is to quietly await the inevitable.

Lao Man’s final conclusion was stark: “Fortunately, the wait won’t be long. Local government debt will definitely explode within the next year, with no hope of rescue.”