Economics Foreign Affairs

Is the Chinese Economy a “House of Cards”?

As we all know, the Chinese economy has been a hybrid form of planned-capitalism in order to prop up the Chinese economy, which has been booming. Things have been so good that The Economist added a section to their weekly newspaper just for China (the first time since the United States was added in the mid-20th century). However, despite their success, the Chinese seem to be living in a house of cards.

The Chinese economy has been experiencing a period of exponential growth, which if they were a free nation would definitely be a good thing, but China is not free, and we all know how well an oppressive government works. Another thing to consider is the secrecy displayed by the Chinese government. Nobody outside the highest authorities knows anything about the true state of the Chinese economy.

There are several points that need to be analyzed in order to reach a somewhat accurate conclusion.

ChinaFirst off, let’s take a look at the numbers that are disclosed by the government. In 2014, the Chinese economy has taken several massive blows. They stumbled out of the gate, and they appeared to get back on their feet in the second Quarter, but in July, it was revealed that the economy had not recovered. Imports were down 1.6, meaning their personal purchasing power had fallen. Also, foreign direct investment (FDI) had fallen by 17%, in other words Chinese businesses had lost foreign investors and foreign owners. China has relied heavily on FDIs, and it seems likely that foreign entities are losing interest in the oppressive Chinese system. Lastly, China’s most lenient credit measure ranked the nation at it’s lowest since October of 2008.

The housing market has also been sending distress signals. As of August 2014, Chinese housing prices had fallen for three consecutive months, resulting in a month-on-month fall of .9%, exceeding the .5 drop in June and .2 drop in May. Prices were down in 91.4% of cities. This is certainly reminiscent of the 2008 housing crash in the States, and there is certainly reason to be alarmed, not just in China but also worldwide because of the heavy reliance the global economy has on China.

The Chinese government has been reading the warning signs.

In 2008 and again in 2014, the Chinese government pumped tons of money into the economy in order to avoid the worst of the downturn. However, signaling insecurity in the market, businesses have not been taking advantage of the influx and have taken lesser amounts of credit this quarter than in Q3 of last year. Interest Rates were also lower in the shadow banking, which caters to small businesses, than in the state bank sector which signifies a fall in demand for loans. This most likely means that there is an unprecedented weakness in both capital expenditure and loan demand.

All the evidence points to a slowing Chinese economy, and the only thing that the world can do is sit and watch while we wait to see how Beijing handles the economic slowdown, which could turn into a collapse. Could it be that the Chinese economy is really just a house of cards masquerading as a superpower?

The views expressed in this opinion article are solely those of their author and are not necessarily either shared or endorsed by EagleRising.com


About the author

Young Publius

See what Young Publius has to say on his YouTube page. https://www.youtube.com/channel/UCbRzII9cu0PKSpSJNSC4Vgw

Don't Miss Out!!

Get your daily dose of Eagle Rising by entering your email address below.

STAY IN THE LOOP
Don't miss a thing. Sign up for our email newsletter to become an insider.

Send this to friend