China Now Has Much Bigger Problems Than Just Trump
- Global supply chain shifting
- Higher wages demanded by Chinese workers
- Surprise results of German industry
- Massive US dollar denominated debt
While the US/China trade war has taken all of the headlines, and it is generally accepted that the Chinese economy will suffer a bit, the reality is that China has a whole host of other issues working against it. Donald Trump isn’t necessarily China’s biggest problem, but he is somebody that seems to be very aware of the screws which he’s turning, causing extreme amounts of pain for the Chinese Communist Party.
Capacity leaving China
The annual Business Confidence survey published by the German Chamber of Commerce in China finds that 23% of member companies are planning on moving their factories outside of China or are at least in the process of exploring other alternatives.
33% of survey respondents suggested that unfavorable policies levied by the Chinese Communist Party ]were a reason for leaving the mainland, while 25% suggested that the US/China trade war has greatly influenced their decision as well. Another 22% said that market access barriers continue to be an issue. At this point, this could be a major blow to the Chinese economy as things like this tend to catch on. There are plenty of other countries in the region that would be more than willing to facilitate manufacturing, with Vietnam being a main potential target.
Chinese debt
Ironically, when people talk about the overreaching amount of debt by a government, you tend to think of the United States. However, China’s debt tops 300% of GDP, equaling 15% of total debt on the planet, according to the Institute of International Finance. The biggest problems with the debt are that most of it is denominated in the US dollar, which has been gaining against the Chinese yuan for quite some time. In other words, the debt is getting worse, not better.
After the financial crisis in 2008, the Chinese lifted the world’s economy by easing its monetary policy by leaps and bounds, juicing the markets. At this point, the market is starting to pay attention to these debts, and now it’s likely that the market will continue to punish China. At this point in time, it’s a scenario that is the “elephant in the room”, as the world tries to pretend like this debt isn’t going to be an issue. This could be the source of another great financial crisis, which could cause untold issues with the Chinese mainland, perhaps even marking the end of the Chinese Communist Party.
While that does seem a bit far-fetched at this moment, it wasn’t that long ago that the same could have been said about East Germany, Poland, Czechoslovakia, and of course the Soviet Union. If the Germans start to behave like Americans, it would be fair to assume that others will fall in line and China may find itself in serious trouble. Granted, there’s a long way to go but it certainly looks as if those dominoes are starting to fall.