Has anyone been following events in China recently?

In My Humble Opinion
1

Just curious if anyone else has been following events in China over the last year or so and is starting to worry about it (or has another take on things). Here is what I’ve seen.

Recently, China has had another season of heavy rains and flooding. This is actually still going on, especially in the North. Last year was another unusual year for heavy rains and flooding. They have had a number of small dams collapse, though that in and of itself isn’t that unusual (China has, IIRC, the most dams of any nation on Earth…something like 90,000…and a lot of them are older construction). Currently, they are also having issues in their real estate sector which is seriously worrying, as this has been a known bubble/issue for a long time now. Predictions of this bubble bursting have been being touted in some circles for decades, certainly in the last decade. The first dominos of that might have fallen with Evergrande, as this could have a cascading effect on the whole sector. You also have the recent uptick in aggressive behavior in the South China Sea, East China Sea, and of course the Straight of Taiwan. Plus, there is a little-reported but potentially scary continuing confrontation on the border with India. This was supposed to have been or was being resolved peacefully, but China seems to keep upping the ante on this by moving more troops in (when they say and were supposed to be moving troops out to de-escalate the situation). India is also moving troops in, so it’s a tit for tat response. Then there is the series of crackdowns going on. Crackdowns in their tech sector, crackdowns on their rich business personalities, crackdowns in their entertainment sector, social media personalities crackdowns, etc etc.

Then there is what’s worrying me most right now. China is going through a major power crisis. Now, a lot of this is self-inflicted (as are seemingly most problems in China these days). The CCP is in a spat with Australia, one of their major suppliers of coal. With the trade tariffs and other measures the CCP has put in place, Australia has rightfully found new markets for its goods. The trouble is China is having a lot of issues finding other suppliers. And they have drawn down their own coal reserves to dangerous levels. They tried to kick start their own coal production into high gear, but they ran into that rain issue mentioned above. Long story short, they have had major power outages in some regions, including power outages or rationing of power in some of their industrial areas. This has meant they have shut down or slowed down a lot of their manufacturing and factories. I understand they are back to trying to buy Australian coal again, though it’s going to be at a substantially higher price than they were paying before…and you don’t just go out and buy coal and expect it to arrive tomorrow, especially after the disruption in supply that had happened. This is the most worrying to me for a few reasons. Mainly, it’s going to cause yet more disruptions to the global supply chain with unpredictable results. We have no idea what downstream products or businesses might or will be affected. Secondly, winter is coming (and the white walkers are on the prowl…) and China is having a lot of issues getting power to large numbers of people. That could be a humanitarian crisis right there. Oh, and due to those rains mentioned earlier, there has been an impact on their crop production (though, as with last year, the CCP says it’s another bumper year for crops, so nothing to worry about)…which probably means that prices are going up for the average Chinese household on not only power but food as well. Perhaps substantially.

All of this has me a bit concerned. Does anyone else watching this stuff have another take on it, or thinking about it? IMHO it’s something to keep an eye on and it will have a direct impact on the US and pretty much around the world, depending on if there is anything here, or if I’m just worrying about nothing.

2

There are pundits all around, and they all disagree with each other on the details, and on what should be done. The Xi government can’t admit failure on any front, and some sort of regional war is an obvious tool it could use to make its self-made energy and economic crises more palatable. This recent article in The Atlantic sums it up nicely :

Fearing his country will be weaker in the future than in the present, and needing a new source of legitimacy to replace economic performance, Xi might turn to nationalist causes and become more aggressive, perhaps making a grab for Taiwan. In this scenario, a China that is more like Evergrande—bloated and flailing—is scarier than a China that isn’t like Evergrande at all.

3

The power crisis is a big problem, and it is also a huge problem in Europe. Wind power in the North Sea has gone way down, causing a spike in demand for natural gas and probably coal. That has driven up gas prices around the world, making China’s problems worse as well, no doubt.

Supply chain issues are getting worse, and I’m not seeing an end in sight. We just need to hope we don’t see a cascading collapse of supply and markets.

China no doubt sees a window of opportunity here, and they are in desperate need of a distraction. This is probably the most dangerous time in world affairs since the fall of the Soviet Union.

4

The Sino-Indian border disputes have been going on for decades, literally going back to a 1962 conflict (more of a series of skirmishes rather than a war). China’s aggressive territorialism in the South and East China Sea has more to do with maintaining economic dominance in the region; they are of course putting Hong Kong under the thumb of authoritarianism despite promises for the handover to hold off doing so until 2047.

The agricultural and power generation issues are genuine problems, although the biggest threat is to the citizens and residents that the PRC government and the Communist Party of China will subject to privations and repression as necessary to maintain control. The oft-voiced fears that China is going to invade India or Australia for their resources are just paranoid fantasies, whereas Viet Nam and Mongolia, nations which could and historically have been invaded and dominated by Chinese regimes seem far less concerned. The more realistic threat is that China uses its cloud and Road and Belt Initiative to stranglehold trade and access to resources at the expense of other nations in the region. China appears to be taking at least a much longer view with respect to transitioning to sustainable and renewable power than most Western hemisphere nations and especially the United States, although given the sheer scale of the problem and still developing economic strength competing with increasing expectations of standards of living, they’ve going to be burning coal and competing for hydrocarbon energy resources for the foreseeable future.

In short, China is not going to intentionally start a global war over resources. They are, however, in direct competition with both Europe and the United States, as well as neighbors in the region, and they’ve taken a far longer view and have greater willingness to sacrifice their own population in furtherance of strategic goals. If they are backed up against a wall by increasing pressure from opposing alliances (i.e. AUKUS, which may be the most unintentionally hilarious self-parody name ever) then who can say what will come. The US and USSR narrowly avoided nuclear armageddon on several occasions over misunderstandings and errors, and the PRC is certainly building up their strategic nuclear arsenal as well as failing to use their influence over the North Korean client state to restrict their own nuclear prevarications. Not a good time to be Japanese, for sure.

Stranger

5

Isn’t Evergrand also imploding and the Alibaba guy was made to disappear. Something brewing in the financial markets?

I don’t really research this stuff so it may be click bate headlines.

6

The CPC is an authoritarian regime and doesn’t like people who are powerfully or feel free enough to speak out against it. Movie at 11.

Stranger

7

The foreign policy press has been ramping up articles about “dangers of a Chinese decline” for 3-4 months. I don’t think issues with India or Taiwan are too worrying, I think Xi wants to saber rattle to shore up nationalist support and keep attention off of other things, but at present any major escalation militarily on either front would be disastrous for China in many ways.

Fears about China’s economy are pretty serious, as some people are starting to realize 25 straight years of analysis and reporting about China as an unstoppable economic juggernaut might have made many analysts a little ignorant of the fact that China wasn’t actually running a magic economy that’s immune to the same kinds of problems all large, complex economies are vulnerable to at any given time.

A big asset bubble in China could result in serious problems just like it could in any other country. People have been aware of some of the asset bubbles in China for years, but have been somewhat numb to them with an attitude best summed up as “China will keep growing, it’ll all work out.” Sometimes that’s even true, but there’s definitely reasons to be concerned.

By itself the Evergrande situation could be a serious economic issue, but even larger are some of the systemic issues hitting at the same time. Chief among them is Xi’s crackdown on free enterprise and many accumulated Chinese personal freedoms from the past 20 years. Something probably not well understood is such crackdowns do more than restrict people’s freedom, they can scare off investors–especially when the economic crackdowns are nationalist in nature and send signals that China isn’t nearly as “open to business” as it was a few years ago. It’s been estimated that the net effects of China’s “tech crackdowns” over the past year, has been around a $1 trillion valuation hit to Chinese companies.

China has rapidly increasing healthcare costs, poor population growth, a huge generation of bachelors with no easy path to finding partners due to decades of a male-selective one child policy, and a host of other economic issues that have frankly been ignored for decades.

A situation where many of the structural weaknesses in the Chinese economy, ignored by most Western analysts, policymakers and opinion-drivers due to rosy Chinese top-line growth come to roost, combined with Lehman style financial collapses (Evergrande, maybe others), combined with an energy crisis…all at the same time?

Yeah, there’s some serious reason to be concerned. A China in some sort of serious decline or catastrophe is likely much more dangerous in many respects than one enjoying stable and prosperous times. Xi is a power-hungry tyrant, and if conditions in China conspired to undermine his position, I don’t think any option is off the table for him if the other option would be him having to resign power.

8

Xi might just invade Taiwan, to shore up his power base.
Vietnam is another possible target (China did this once before).

The future looks tough for Asia.

9

The issue with Xi invading Taiwan to shore up his powerbase is it’s probably one of the few things that might see active rebellion against him in the upper ranks of the Chinese Communist Party.

Also invading Vietnam would be hilariously stupid.

10

Invading Taiwan is guaranteed to cause a severe economic recession in China, whether the war is won or lost.

11

I don’t think anyone ever intentionally starts a global war. The real danger comes when and if China determines that it can expand its territory or capture resources without triggering a global war. God help us if they make a category error in that assessment like Germany and Japan did, and Saddam Hussein did with Kuwait when he misread April Glaspie and thought the U.S. would look the other way.

WWII happened not because Germany wanted to go to war with France and Britain and ultimately the US. Japan didn’t attack America at Pearl Harbor hoping to kick off a war. In both cases the initial aggression was undertaken because Germany and Japan were convinced they could do it without triggering a global war, and they persisted in their aggression because the responses to the initial aggression seemed to prove their judgement correct.

The nothingburger response to China violating its aggreement with Hong Kong gave them some evidence. The lack of response to their building islands in the South China Sea might confirm their suspicions. Then they look at America and see, like Hitler did in the 1930’s, that America is turning isolationist and Americans are fighting amongst themselves. The botched pullout from Afghanistan is another data point telling them that America and its military are in disarray. And they might just judge that they have a very small window of opportunity to do something big and get away with it.

The Chinese Communist Party has a problem in that it gets its legitimacy and popularity from telling the people that it is heavenly inspired, and that the CCP IS China, and there are no other alternatives because they alone know how to run the country.

The problem with that is fragility: Such a stance works fine when the economy is booming and everyone is getting wealthier. However, if China faces crises that look like the result of failure by the CCP, their legitimacy will be cast into question and either the house of cards comes down or a brutal suppression of dissent will follow. That may be part of the reason Xi is cracking down right now - eliminating other power centers like billionaires and celebrities who might offer alternatives should the CCPs stock fall with the people.

I’ve never been one to think that China was going to ‘eat our lunch’. I never thought a centrally-planned economy could come close to competing with free market capitalism. China began competing well when it liberalized its markets and allowed some freedom to innovate and profit.

Now that the CCP is reasserting control, and the extent of CCP mismanagement and misallocation of resources becomes evident, I expect things to get worse there. And I think we still do not know the extent of the subterfuge going on in Chinese markets and finances, by both the CCP and people gaming the system like Evergrande. And China seems to be prepping for a huge COVID wave. None of this is comforting.

12

Thank you all for the answers…and all good answers too! I’m doing this from my phone, so if this comes across as a stream of conscious mess my apologies. I’m going to give random thoughts from what I’ve read here, and perhaps do a better post when I have a chance to get to a computer.

On the Taiwan issue, I think people are underestimating how much importance the CCP puts on this issue, mainly for internal reasons. Certainly, from a rational perspective, it makes very little sense to push things to war, especially considering the ramifications. But the other side of this is the CCP, and especially Xi’s faction for the last decade has been really ramping up the nationalistic rhetoric about this, and I think the expectation of the people of China is this is going to happen and needs to happen.

On the India border issue, again, from a strictly rational perspective, this makes little sense, especially since China already has pretty much won this battle. Pushing the Indians on this at this stage is counterproductive. And, as noted, this has been ongoing literally for decades. But it’s evident by the fact that China is continuing to push on this, as well as the massive amount of infrastructure and salami-slicing strategy that they are doing this regardless, despite there seemingly being no point (they control Tibet and aren’t giving that up, they control the water and are slowly…or not so slowly…strangling downstream nations and have India by the H20 throat if they just continue as they have been, etc etc).

As far as the South China Sea goes, again, the other powers in the region as well as the US are fighting a rear guard action at this point…China has already essentially taken control of the region, and the only power able to really challenge that is the US, who regularly does freedom of navigation exercises in the region (and US allies, who do so because the US is there to back them up).

The trouble with all of the above is a miscalculation by someone. Any one of these, despite the fact that rationally China shouldn’t do anything, could spark a confrontation or war. There could be an exchange of fire over the Taiwan straights for instance, just because of the heightened tension or a screw-up…or just someone being pissed off and doing something stupid. There has already been bloodshed on the Indian border with China, and both sides are pushing here…a miscalculation could happen and spark a shooting war very, very easily, despite the fact it’s been ongoing for a long time. Probably because of that in fact, and the fact that the Indians, rightfully, see this as a very real threat, especially to their western province that could easily be cut off by China. In the South China Sea there are just myriad ways for stuff to go sideways quickly.

But all of this is and has been ongoing for a while. I brought them up merely to illustrate how many flashpoints there are wrt China. The real problem right now, at least IMHO, is this energy crisis, coupled with a possible financial meltdown importantly in their real estate sector. I’m not sure if people realize what a powder keg this is. In China, the people don’t have many investment opportunities that are solid. Their stock market, for instance, is extremely volatile and just isn’t trusted…it’s on par, basically, with gambling. Bonds aren’t something the Chinese people have faith in. Real estate though…that’s huge in China. You want to get married? Better have a house. Want healthcare? Well, if you were born in a rural province you much have a house or apartment in one of the better cities or you aren’t going to get any care and your kids aren’t going to be able to be with you because they can’t go to school. China has the largest number of people with 2nd and 3rd houses/apartments in the world because that’s what the Chinese people invest in. Think about that. Then think about what happens if that collapses wrt the Chinese people. It’s a major issue that I can’t underscore enough how severe this is. Now, at the same time this is happening there is an energy crisis where the power is out with winter coming. And your job is either gone or on hold because the factory doesn’t have power either. You aren’t going to get benefits from the government…the CCP doesn’t have these sorts of social safety nets. Plus, there is the non-event of a Covid outbreak as well as food security issues because of heavy rains in the food-producing regions and your government is fighting with a major food supplier (Australia) which has made imports more difficult and more expensive.

To me, this combination (and we won’t even get into the US/China trade war squabble or a bunch of other similar issues in their own region or the fact that their big Belt and Road initiative doesn’t seem to be going very well) is, to me…troubling. There is a lot to unpack with China, and a ton of balls spinning in the air that the CCP is trying to juggle all at once…and they just aren’t very good or competent at even keeping a few up without someone in their system trying to either steal the ball or throw it at another player.

13

I read a few comments that the CCP feel threatened by a dissatisfied populace. This seems odd to me. The idea that if the economy tanks and many lose their life saving there will be pitchforks and flaming torches in the streets working to overthrow the CCP seems naive. Sure, I would imagine there would be lot of unhappiness, quite a bit of protesting, but then a grim realisation that there is not much that can be done, and the good times have passed. This isn’t oppressed workers throwing off their chains and seizing the means of production. It is the middle classes seeing their better than hoped for lifestyle and future vanish. The worst outcome possible for these people would be triggering repressive crackdowns. China’s government might suppress mention of Tienanmen, but it does them no harm that memories will be long and the stories will be retold anyway. Mao is living memory for many. That vicious reprisal is quite possible won’t be far from people’s minds.

IMHO, the only person to be really worried would be Xi (and by association his close power block.) The simple face saving action for the CCP is to cut a deal with the PLA, march into his office, arrest him and his retinue, and announce to the world that there will be a short interruption before normal service is resumed. A few show trials, maybe an execution or two for corruption, and install a less power hungry despot for the next five years. It isn’t as if they don’t know how to do this.

None of the above will solve the economic crisis, but it provides a circuit breaker with internal politics, allows blame to be laid, and everyone feels better. Then they get back to trying to rebuild and maybe learn from their experience.

14

I think this is…complicated. The people, as weird as it seems, actually do like the CCP. Even is proud of it in some ways. But, historically, when regimes fall in China it’s nearly always due to internal division or internal rebellion, usually because the people feel the government has lost the mandate of heaven. I think that’s what the CCP actually fears most. So far, they haven’t, so people saying there is a large ‘dissatisfied populace’ are just not correct. But…in China, this can change suddenly and violently. The Chinese are really oriented towards the collective, and this is in all periods, not just modern times. But if a specific switch is flipped, well…it can be flipped really, really quickly, and the people could turn on the CCP.

As to being worried about only Xi, I think that’s again a western fallacy. It’s not just ‘Xi’. What is happening in China isn’t because of him, and if he wasn’t there it would be better. It’s not just (or only) Xi and his faction. They are the ones in power today, to be sure, but other factions are equally at fault, though other factions would, of course, emphasize other things. But the core issues would still be there…the issues that are in my most concerned category. That’s not Xi or his faction, that’s the CCP as a whole, through multiple regimes and factional control. And if Xi et al get the ax (which, admittedly could happen), it won’t really change much. Oh, you might get a softening of things towards the west, or less rhetoric towards Taiwan or India, but at the core nothing would really change.

15

Agree. What I meant was that being at the pointy end he is the easy scapegoat. He needs things to go well more than anyone, as failure, even if he had no control over it, vests back with him, and its repercussions.

16

As I explained in another thread, it’s not logical for China to engage in warfare for the ff. reasons:

It’s been winning through soft power across two decades. Back in the early 1980s, the U.S. was the major trading partner of most countries. Now, it’s China, and it didn’t need its military or onerous foreign policies to achieve that but bilateral relations.

Taiwan has little by way of resources or anything that China needs. On the other hand, Taiwan is heavily reliant on China as a trading partner, and the same goes for the U.S., which together with most countries don’t even recognize Taiwan as a sovereign state.

Chinese expansion in the SCS mirrors that of Taiwan, which also claims much of it, as wel as that of Vietnam, Malaysia, and the Philippines, which also have installations in the region. What’s also ironic is that it’s Malaysia that has the most installations.

If any, the goal is not so much expansionism but to counter a U.S. grand chessboard strategy of using over 800 military bases and installations to coerce weak nations and to encircle both Russia and China.

China has many economic problems, but not as bad as those of the U.S., which has something like $70 trillion in total debts, up to $200 trillion in unfunded liabilities, and four decades of heavy borrowing and spending that can only be maintained through warfare (some argue almost all of its 240+ years). That’s why it has to maintain the constant attacks against China, Russia, and other countries that attempts to defy it, including the Philippines, Iran, and so on.

The latter point should also be considered in terms of China, which has not been at war since 1979. That means even its most senior military commanders have no combat experience. In contrast, some argue that one reason the U.S. goes to war besides justifying high military costs is to exercise its troops, with the results in the case of Afghanistan has led to trillions of dollars and up to a million lives lost, and mostly unarmed civilians. Would China dare fight against a battle-hardened warmonger and its subalterns?

Finally, in terms of economics, from what I gathered the CPP continues to follow a similar model as those found in Asian countries, which include heavy regulation, centralized economic planning, and nationalism backed by authoritarianism. But like some of the same, it has also been liberalizing:

17

It’s not just Evergrande; it’s probably a substantial chunk of the property development business in China, which is probably about a third of its GDP. We’re not even talking about the ripple effects. And then you throw in the impact of their energy crisis and China’s now staring down the barrel of not only less capital inflows but also capital outflows, which their economy isn’t really built to handle. A lot of Chinese - a lot - have a lot of their household wealth tied up in property, and now those property values are tanking in some cases, or they’re tied up in development that will never happen. China’s in a precarious place. I think they will eventually recover but the next few years could be rocky.

18

I have to point out this marvelous phone induced typo. This should become part of the language.
There was an interesting article in the Times about the outflow of people from Hong Kong, especially those with money, helped in part by the British visas for residents. Schools are now under capacity and some of the better ones, which used to have waiting lists, are desperately recruiting.

19

Predicting rare events is impossible, and China launching a substantial war is rare. Last time they did it was 1979 against Vietnam, and Wikipedia, or at least the Western estimate they cite, says China lost 26,000 dead to accomplish basically nothing.

But it seems in the nature of superpowers that they eventually will launch a war.

20

One important fact is that 70% of household wealth in China is tied to real estate.

It appears that people are - quite reasonably - scared of buying now, and if real estate values plummet so does wealth. The government, which encouraged this bubble, is in a dilemma since if they bail Evergrande out they will encourage even more such behavior, but if they let them fail it could lead to a real estate collapse.