China’s Economy is Not in Good Shape
China’s economy is not in good shape and others are finally starting to take notice.
We reported that China’s economy was not doing well right before COVID-19 was released in China on the world population.
The coronavirus sabotaged economies around the world but China wasn’t immune. Its economy too was negatively impacted. Now China is facing a severe economic downturn related to its property overdevelopment. The world’s largest debtor, Evergrande, is unable to pay its debt. Again, today this made the news.
China Evergrande Group passed another debt deadline with no sign of payment, after coupons came due Tuesday on two dollar notes, both with a 30-day grace period before a default can be declared.
We reported in September that Evergrande is the beginning of the collapse of the Chinese economy.
Now others are beginning to see the signs as well. Antonio Graceffo at War on the Rocks write earlier this month:
China might be the creditor to the world, but it is also riddled with debt. Between public and corporate debt, China is one of the most indebted large economies in the world. Even worse, its state-owned banks are sitting on mountains of bad debts and non-performing loans, particularly in the real-estate sector. And this is just on the surface. Underneath lies a staggering quantity of murky debt, off-balance-sheet lending, wealth management products, and local government funding vehicles. All told, China’s debt is considerably larger than it appears at first glance, and so high that some analysts feel it is at dangerous levels and could spill over, doing severe damage to the world economy. What does this say about the stability of the global economy and Western anxieties about China’s rise to a preeminent place in world affairs?
It seems that China’s meteoric economic rise may be grinding to a halt. The developing world could suffer most, particularly those countries dependent on selling natural resources to China or on Chinese aid. In developed countries, such as the United States, the main casualties will be people and companies heavily invested in Chinese companies and stocks. In the long term, there may be some positive outcomes. An economic collapse in China, or a severe economic downturn, may accelerate the general exodus of foreign companies from China, and a rebalancing of global supply chains. This would decrease the world’s dependence on China and could lead to a boom for nations such as Vietnam, India, or Indonesia, who are all too happy to host foreign factories that have left China. The benefits will take time, however. Negative effects will be felt immediately.
