I’m not sure there’s a direct connection between Tesla stock and China’s economy.
Tesla’s high valuation was just a “car bubble”–i.e a re-run of the dot-com bubble of 1995-1999. Over-excited tech geeks exalted this new thing called the internet and convinced people that tech stocks would go up forever. Then the bubble burst.
Overexcited car enthusiasts did the same for Tesla, and now the bubble has burst.
China still remains dangerous.
They may be having an economic slowdown, but their fanatic obsession with conquering Taiwan remains a deep, core basis of their psyche.
The only connection was my personal failure in forecasting. Or maybe being right too early.
My predictions about China were always about internal factors like their economy. I agree that Taiwan drives them, much like Ukraine must have driven Putin. China could devolve into a similar failed nation-state war machine, and be even more dangerous than Russia since it’s coming from a higher plain.
Agreed.
As I’ve been saying I think a lot of the fundamentals are pretty good. Good infrastructure, high education standards, commitment to R&D.
The housing collapse could be huge, sure, but I’d expect them to bounce back from it. The West did.
“Perhaps a long slowdown, but not a collapse” isn’t very exciting but it’s a lot more realistic.
China in 2022 had a per capita GDP above $20,000, and has some advantages when it comes to purchasing power parity, because some things are inexpensive there. Yes, the real estate industry and associated concerns seem to have been mismanaged. There are current big losses which have badly affected many people. However, in the bigger scheme of things China can absorb this and the per capita losses are dwarfed by recent increases in income.
The bigger issues are whether China wishes to emphasize trade and prosperity over pride and sabre-rattling. They have the ingenuity, the emphasis on education, the ability to get big things done. But do they have the will to improve the lives of their citizens? Who knows. Even expert sinologists struggle to read the tea leaves.
Great post. I’ll quibble with this bit (italics mine):
The word in italics should be “Xi”, not “China”. As long as he’s in the top spot it’s his personal goals & decisions that will decide China’s course. The other billion Chinese, even the elites, have little to no meaningful input into the decision process.
The problem with China trying to achieve that, and much like the old Soviet Union, is that it’s all stick and no carrot. The US, while it has its sins (Iran, a whole bunch of Central & S. America) had lots of willing (what’s the word for a country subject to another’s hegemony?).
There’s a reason half the Warsaw pact already had their EU and NATO memberships filled out and waiting in 1991.
China is pouring tens of millions of US dollars into African and South Asian countries. They are building the infrastructure that the West either thought was impractical, unworthy, or too expensive. Their Silk Road initiative runs through a number of countries and is intended to create a trading route that rivals anything in the world.
These are not unalloyed gifts. Much of the money was in the form of loans, which African countries especially are now finding they can’t pay back. China is also building bases in these countries, a luxury the Russians never had outside of eastern Europe.
The West has learned hard lessons that pouring tens of billions of dollars into countries doesn’t guarantee western-style democracy or even loyalty. Whether the Chinese come to regret this money - spent during the boom years - when times get tough is an interesting question. But there are certainly more carrots being offered today than sticks, and many more hands willing to take them from China than the U.S.
Many of those countries that are now struggling to replay the Chinese loans are now coming to the IMF for bailouts. An IMF the Chinese do not contribute to.
If the IMF does bail out the countries, the Chinese will find their loans repaid using western taxpayer dollars. Which would make them cry very most sincerely crocodile tears all the way to their bank with our money.
If the IMF does not bail out those countries, they will economically implode into failed states al la Somalia, Libya, and Syria. Those placed got failed by different means, but all failed states are similar: lawless places where international terrorism has a sanctuary, and the most nihilist and anti-status quo powers (e.g. Iran, NK, Russia) have a free hand to fund who they want and stir the pot as they wish.
There are no good answers here. Something the Chinese probably had planned from the git-go.
The Chinese planned country-level failures? I’m as cynical as anyone who has read a newspaper - and old enough to use newspaper as a reference - but I don’t see why they would do this. What would they get out of it?
The Chinese want to build a network of interests binding the various parties to China. They need the participants in the network to be healthy, to have money, to encourage trade, to grow populations, to have stable governments, to be safe to travel in, to modernize their technology, to teach their children… To become eastern equivalents to western countries, with all the essential qualities that the Chinese themselves have been working toward and aspiring to for the last several decades. “Lawless places where international terrorism has a sanctuary” do not have have any these qualities. They are sinkholes for money and they waste the investments made in them.
I’m ambivalent about whether I want the Chinese to successfully grow this network. OTOH, that would make for a safer, wealthier, healthier, and more appealing environment in half the world, an outcome far better than the current “lawless places where international terrorism has a sanctuary.” OTOH, Chinese hegemony over half the world has the same potential for hubris than has marked American hegemony since WWII.
On alternate Tuesdays, I do hope than China pours trillions of dollars into these sinkholes. Take over from our failures. Let them battle with corrupt dictators and sector wars and inhospitable climates that kick any positive outcomes into the dust. They have too many internal needs to keep up with the incredible, bottomless wealth of the U.S.
But does the world need any more gigantic failures on top of those already plaguing billions? And speaking of billions, India has passed China in population and is growing similarly desperate to force the rest of the world to recognize them.
Planning failure for the world you have to live in is a grossly self-defeating strategy. I don’t believe China made that mistake. Inadvertent, unexpected failure, certainly. Planned? No.
Sorry to be unclear. I’m not suggesting the Chinese planned to trigger country-level failures in their debtor countries as a primary goal.
But kind of like people who happily put their money in shaky banks knowing the FDIC has their back, the Chinese did notice that the IMF was de facto backing the repayment of the loans made by China. Or at least IMF was probably doing so, given IMF’s Hobson’s choice of outcomes. Which in turn let the Chinese get bolder on the national equivalent of “loan to book” or “loan to income” ratios.
The Chinese also have demonstrated an internal control problem. A lot of commercial entities or regional governments got behind the origination of a lot of loans before the central authorities realized quite how deeply into debt all these subsidiary actors were driving some of the weaker economies out there.
Lastly, they also made some expensive amateur mistakes early. They’ve learned since, but loans that got stolen, loans for bridges to nowhere, etc., unrealistic expectations about the economic leverage when hooking a shiny modern port to a all-dirt-road country where almost nobody can read, etc. They’re smarter now. But there’s umpteen trillion of bad debt out there that will crush somebody somehow when the payments don’t happen.