China’s Real Economic Crisis
Moreover, as factories are forced to close and industries consolidate, the firms left standing are not necessarily the most efficient or most profitable. Rather, the survivors tend to be those with the best access to government subsidies and cheap financing.
Zongyuan Zoe Liu • China’s Real Economic Crisis
Xi’s growing emphasis on making China economically self-sufficient—a strategy that is itself a response to perceived efforts by the West to isolate the country economically—has increased, rather than decreased, the pressures leading to overproduction. Moreover, efforts by Washington to prevent Beijing from flooding the United States with cheap good
... See moreZongyuan Zoe Liu • China’s Real Economic Crisis
China's leader, Xi, is focusing more and more on making sure China can take care of its own economy. This change is happening because he feels that other countries, especially in the West, are trying to cut China off economically. As a result, China is producing too much stuff, more than it can sell. Meanwhile, the U.S. government is trying to stop China from sending a lot of cheap products to America, but this might just create new problems for the U.S. economy. Instead of solving China's problem of making too many goods, it could make that problem move to other countries around the world.
China’s economic planners have failed to recognize that the real driving force of innovation is disruption. To truly foster this kind of creativity, entrepreneurs would need unfettered access to domestic capital markets and private capital, a situation that would undermine Beijing’s control of China’s business elites. Without the possibility of mar
... See moreZongyuan Zoe Liu • China’s Real Economic Crisis
Ever since China’s 1994 fiscal reform, which allowed local governments to retain a share of the tax revenue they collected but reduced the fiscal transfers they received from Beijing, local governments have been under chronic financial strain. They have struggled to meet their dual mandate of promoting local GDP growth and providing public services
... See moreZongyuan Zoe Liu • China’s Real Economic Crisis
China is now second only to the United States in AI investment. But the quality of actual AI research, especially in the field of generative AI, has been hindered by government censorship and a lack of indigenous intellectual property. In fact, many of the Chinese AI startups that have taken advantage of the strong government support are producing
... See moreZongyuan Zoe Liu • China’s Real Economic Crisis
For years, Beijing’s industrial policies have led to overinvestment in production facilities in sectors from raw materials to emerging technologies such as batteries and robots, often saddling Chinese cities and firms with huge debt burdens in the process.
Zongyuan Zoe Liu • China’s Real Economic Crisis
According to a March 2024 action plan, the Ministry of Commerce, together with other Chinese government agencies, has offered subsidies to consumers who trade in old automobiles, home appliances, and fixtures for new models. On paper, the plan loosely resembles the “cash for clunkers” program that Washington introduced during the 2008 recession to
... See moreZongyuan Zoe Liu • China’s Real Economic Crisis
According to government statistics, 27 percent of Chinese automobile manufacturers were unprofitable in May; at one point last year, the figure reached 32 percent. Overproduction throughout the economy has also depressed prices generally, causing inflation to hover near zero and the debt service ratio for the private nonfinancial sector—the ratio o
... See moreZongyuan Zoe Liu • China’s Real Economic Crisis
China's Rising Debt Service Ratio and Its Implications for Economic Stability: China's debt service ratio, which measures the proportion of income that households and businesses use to service their debt, has been increasing in recent years. This rise raises concerns about economic stability, as higher debt burdens can lead to reduced consumer spending and increased default risks. Consequently, policymakers are under pressure to implement measures that balance economic growth with sustainable debt levels to avoid potential financial crises.
Beijing often does not provide financing: instead, it gives local officials broad discretion to arrange off-balance-sheet investment vehicles with the help of regional banks to fund projects in priority sectors, with the national government limiting itself to specifying which types of local financing options are prohibited. About 30 percent of Chin
... See more