As relations with the West continue to cool, China is facing economic challenges reminiscent of the Irish economy in 2008, writes Cormac Lucey
Tensions are growing between the China and the US as the latter leads the West in a sharp reversal of a policy of openness and commercial integration, which continued despite concerns about military espionage and intellectual property theft.
Now, the US is reducing its interactions with China, and a wave of reshoring/friendshoring is underway in the West.
Under current President Xi Jinping, China has been picking territorial fights with its neighbours and Xi has reportedly asked his military to complete preparations by 2027 to seize Taiwan by force.
Meanwhile, senior Chinese political and business leaders are disappearing suddenly with alarming frequency and non-Han ethnic minority groups, such as the Uyghurs and Tibetans, have been subject to terrible oppression.
The Chinese economy is not faring much better. When I look at China’s economic position, I think we may now be witnessing ‘peak China’.
First, the country’s enormous property/debt bubbles are beginning to deflate. Coming into 2024, China is in a similar position to Ireland circa 2008.
Its economic underpinnings are dangerously fragile, the first tremors of deflation are being felt and the authorities are insisting that everything is okay.
Over the past 15 years, China’s total debt levels (public plus private) have doubled relative to economic output (GDP).
According to Numbeo, a website that analyses the cost of living across different countries, rent yields in Beijing range from 1.45 percent (city centre) to 1.69 percent (suburbs). These yields are way below the lowest levels witnessed in Ireland at the peak of our property bubble.
They are lower than Chinese interest rates, meaning that buy-to-let landlords using debt to fund their purchases will face interest charges that exceed their rental income (negative carry).
Thanks to its now defunct ‘one child per family’ policy, which ran from 1979 to 2015, China faces a demographic implosion over the coming decades. The UN forecasts that its population will decline from 1.4 billion this year to 1.3 billion by 2050 – and below 800 million by 2100.
Today, China faces the same demographic and debt-deflation challenges that confronted Japan three decades ago.
For all the messiness and dysfunction of the West, democracy does force a society’s problems onto the political agenda rather than allow them to be suppressed, and it facilitates innovation over stagnation.
Cormac Lucey is an economic commentator and lecturer at Chartered Accountants Ireland
LOADING...