H/T to commentator Trev’s_Elbow for the following video, which makes very powerful arguments about China’s economic problems. I’ve started the video at 10m 43s which covers the following four segments:

  • China’s economy has peaked (it’s following the same productivity vs development path as South Korea, Japan and others so not an exception and the investment-led path no longer works)
  • The constraints on China’s financial system (it can’t do that investment-led even it wanted to)
  • Alternative Growth models (export v consumption)
  • The comparison with Japan post 1990

That last was something I wondered about twenty years ago as I watched China’s export-led boom. Back in the late 1980’s the same question was asked of Japan, even as various figures in the West (including Trump) freaked out about the Japanese buying up American companies. The export-led growth model could not last forever because of natural limits set by consuming nations; sooner or later Japan would have to move to a more balanced economy of internal consumption plus export. Could it do that?

By the mid-1990’s the answer was no, so in the mid-2000’s I wondered whether China could beat the trap and make the transition. The answer on that is perhaps still not settled, but so far they look no more successful than Japan did three decades ago.

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Because the regime is captive to its own lies, it must falsify everything. It falsifies the past. It falsifies the present, and it falsifies the future. It falsifies statistics … It pretends to fear nothing. It pretends to pretend nothing. – Vaclav Havel

If you’ve been wondering why the Chinese are suddenly negotiating with Trump about his tariffs on them, after making a big, public deal about how they’re not intimidated by “bullies” and “must win the China-US trade war!” (plus other classroom propaganda) you need wonder no more:

Protests from furious factory workers in China demanding back pay are spreading across the country after President Trump’s tariffs on Chinese imports began impacting the communist nation’s economy. Unrest has been reported across the country as workers have taken to the streets protesting unpaid wages and challenging unfair dismissals following the closures of factories squeezed by US tariffs, according to Radio Free Asia.
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“It’s not easy at the moment,” a 26-year-old toy factory worker told the FT. His employer, in the Chinese city of Zhejiang, mostly sells to the US, and management recently forced workers to take two weeks off unpaid in the face of the tariffs.

Anywhere from 10 to 16 million workers could be hit by this, with deserted factory floors and secondary businesses like noodle stands and convenience stores also seeing business dry up. The irony is that in this communist nation really doesn’t have the sort of social safety nets that we have here in the West; losing your job could mean you losing everything.

Which is why you’re seeing headlines like this:

According to Free Trade Theorists that should not be a problem; in fact it’s supposed to be a boon for the Europeans, saving them huge amounts of money, correct?

Another sign of China’s problems is – to paraphrase Bastiat – that which is not seen, which, to be accurate, has been something vanishing for a while now:

Not long ago, anyone could comb through a wide range of official data from China. Then it started to disappear.

Land sales measures, foreign investment data and unemployment indicators have gone dark in recent years. Data on cremations and a business confidence index have been cut off. Even official soy sauce production reports are gone.

In all, Chinese officials have stopped publishing hundreds of data points once used by researchers and investors, according to a Wall Street Journal analysis. In most cases, Chinese authorities haven’t given any reason for ending or withholding data. But the missing numbers have come as the world’s second biggest economy has stumbled under the weight of excessive debt, a crumbling real-estate market and other troubles—spurring heavy-handed efforts by authorities to control the narrative.

As the WSJ points out things like the Chinese real estate market, plus banking, plus demographics, plus other internal problems are driving this retraction of normal statistics. But there is an even bigger problem and it’s one that Trump’s tariff war is making worse, rather than starting; other nations were already moving out of China:

Companies that once had all their factories in China have now opened plants in Vietnam, India, Turkey, Mexico, and other locations that are closer to the markets where the products are sold and that offer other competitive advantages, including lower labor costs, market access, and infrastructure.

This “de-coupling” was accelerated by The Great Chinese Lungrot Pandemic, as American and European companies suddenly discovered that their modern Just-In-Time supply chains didn’t react well to lockdowns, which the CCP pushed harder than almost anybody else:

(Forbes) With its comprehensive and extended lockdown period, thousands, if not millions, of China’s manufacturing customers saw extended disruptions in their businesses and suffered significant losses. The pandemic revealed to countries worldwide the folly of relying solely on China for all of their manufacturing needs. As a result, supply chain diversification suddenly became a very important business consideration.
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European companies are at least as pessimistic as U.S. ones, if not more so. In a 2024 survey, nearly half (44 percent) of European Union Chamber of Commerce members said they saw the future of business in China as bleak in terms of profitability. They raised concerns similar to those of their U.S. counterparts and noted that Beijing had restricted access to China’s market.

Forbes points out that It’s not easy to de-couple from China, especially as their quality continues to improve, but Covid-19 lockdowns were a powerful lesson about everyday cost savings vs event costs:

Most [EU companies] are sourcing goods in South Asia, which saw a 34% annualized increase in inspection and audit demand in the first half of the year, meaning there are more factories there than there were a year ago.

Some European companies are also bringing their supply chains closer to home. Turkey and some African countries recorded growth above 40% in inspection and audit demand. QIMA noted that EU textile and apparel makers have increased their sourcing from Romania and Portugal this year.

These mixed signals from China may indicate something else:

“[Jinping] has configured the Chinese political system so that it is hostile. And also, because he’s been making the claim that China has surpassed the U.S., he can’t look dependent on trade with the U.S.,” Chang explained. “And he certainly can’t look like he’s talking to the U.S. under pressure.”

“At a time when China needs friends because it’s not selling goods to the U.S., it is going out of its way to antagonize not just the Philippines, not just Taiwan, but also South Korea and Australia….This is really very perplexing behavior, and it shows that something is very, very wrong in Beijing right now.”

True, but whenever Gordon Chang is introduced I’m reminded that there are some negative projections of the nation that have not aged well, of which my well-thumbed copy of Chang’s, The Coming Collapse of China, published in 2001, is one.

I’ve long argued that although there are still communist aspects to the Chinese government – especially the OTT visual survelliance and their Social Credit system – they actually fit in well with China’s 3000 year history of massively centralised, technocratic government. This system has arisen time and again – after it falls, which is the subject of this article compared to alternative scenarios like reaching agreement on tariffs with Trump or thermonuclear war:

The stresses will likely show between regions, just as in days of old. Already, we see regional parties challenge Xi and then be purged and suppressed in return. Does the region around Shanghai, which is highly dependent on foreign trade, accommodate Xi’s likely losing response to Trump? Does Wuhan see Beijing in the same light as Hong Kong or Hebei?
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How would the world deal with another, contemporary “Period of Warring States” within China?

Whatever the outcome, Xi Jinping is not in a good spot right now.