As the economy continues to implode, capital flight rises.
As the saying goes, if you want to know what’s really going on, follow the money. That catchphrase doesn’t just apply to foreign companies and investors backing out of China. It also applies to the Chinese economy.
A No-Confidence Vote
In the midst of widespread economic duress and growing social disruption, following the money trail shows how Chinese investors are voting with their wallets. Consumer spending is down, and the savings rate is up. Capital is flowing out of China any way it can, and it all amounts to a definite no-confidence vote for Xi Jinping and the Chinese Communist Party (CCP).
The CCP Tries to Hide the Facts
In true CCP fashion, the state puts the blame for its failed policies on those who point them out. Anyone who mentions the crumbling economy, for example, is guilty of endangering financial stability. Even though the CCP would consider prosecuting journalists and economists who report accurately about the falling employment numbers and the high debt levels that plague local governments, China’s worsening economic conditions are too dramatic and widespread to hide.
Of course, financial stability isn’t threatened by people talking about it. It’s the CCP that’s destroying the economy. Even recent history shows that the less involved the Party is in the economy, the better it performs.
The property market and the development sector are perfect examples, although not the only ones. Both continue to be heavily manipulated by the CCP, and both are hemorrhaging value, as financial ruin in flagship companies such as Evergrande and Country Garden contribute to deteriorating conditions in the wider economy. Completed projects that remain unsold are being demolished, work on existing projects is being halted, and other development plans are being canceled, even as the development companies owe billions to creditors.
More Than a Cyclical Downturn
The reality of what’s happening is starting to dawn on the Chinese. Many understand that the current trend is much more than a cyclical downturn, which is typical of capitalist economies. Growth in the second quarter of 2023 was reported to be only 0.8 percent. Still, that statistic is hardly trustworthy in a country that runs on graft and political favors and routinely fudges the numbers. The reported third-quarter gain of 4.9 percent is touted but not believable, given the real estate collapse, falling consumer spending, and lower exports.
Going forward, as the CCP takes more control, a stagnant economy may be the best-case scenario. Jobs in property development, related industries, and manufacturing sectors are all struggling as foreign companies leave China’s shores.
By James Gorrie
