“Never give a sword to a man who can’t dance.” – Confucius
Intervention from Beijing
Have Chinese stocks, supported by fresh government intervention, reached their bottom?
This week, from Monday through Thursday, the Shanghai Composite Index is up 5.52 percent. Similarly, over this time, Hong Kong’s Hang Seng Index is up 3.53 percent.
Still, these indexes have a lot of ground to make up. The Shanghai Composite Index is down 22.61 percent since September 2021. Meanwhile, the Hang Seng Index is down over 50 percent in the last six years.
Chinese stocks have lost a combined $7 trillion since 2021. The poor stock market performance has become an embarrassment for President Xi Jinping.
Several years ago, he was relishing in his nifty slogan: “The East is rising, the West is declining.” Now, he’s compelling regulators to devise a rescue.
In late-January, Beijing announced several interventions to, hopefully, stimulate the Chinese economy and revive the stock market. This week, on February 5, bank reserve ratio requirements were cut by 50 basis points. This is expected to free up about one trillion yuan ($139.04) worth of long term funds.
Beijing also relaxed rules to allow property developers to dip into commercial property loans to repay other outstanding borrowings.
Chinese officials have also intervened to stem the stock-market decline directly. Sovereign fund Central Huijin has vowed to buy more ETFs. China’s cabinet, known as the State Council, has called for forceful action to stabilize falling stock prices. Officials have quietly been prodding state-linked financial companies to buy A-share holdings to help limit the selloff.
Some economists anticipate more government spending on infrastructure. Though it is widely recognized that the days of multitrillion-yuan cash injections, like what rescued the economy after the financial crisis and a slowdown that followed a stock-market crash in 2015, are over.
Massive infrastructure spending may provide a short-term boost. But, as has been shown by the recent property market bubble and bust, this only further distorts the economy and pushes it towards ultimate collapse.
Thus, what will Xi Jinping and the Chinese Communist Party (CCP) do to maintain their power in the face of a failing economy? What does the Chinese New Year – the Year of the Dragon – and restless youth have to do with it?
Today, we scratch for an answer. Where to begin…
Paper Lanterns
Paper lanterns have been used in China since the early days of the Han Dynasty. That dates to roughly a century and a half before Jesus of Nazareth turned water into wine.
Yet no one really knows the history or origin of paper lanterns. What is their purpose? What do they represent? Are they aesthetically pleasing?
No one knows. And no one cares.
Day after day, millennia after millennia, people hang their paper lanterns all the same. They drape them across outdoor markets and alleyways for no apparent reason. Why? Why not?
Such vagaries have been interwoven into the fabric of Chinese culture for several millennia or more. These vagaries are implicit to the impulses of Paramount Leader Xi Jinping. These impulses are directed towards making the Chinese populace believe the world is as he says.
This is one of Xi’s primary tasks. As a communist dictator, it’s serious business. And when the Ponzi finance structure underlying the country’s second largest property developer cascades down it’s no laughing matter. Xi, as a result, has a mega disaster on his hands.
As you likely know, China’s miracle economy, which boomed from roughly 1990 to the onset of the COVID-19 fiasco, has gone bust. The epicenter of the bust has been in real estate.
Specifically, China’s real estate bubble popped about two years ago, when real estate developer Evergrande Group declared insolvency. This set off a chain reaction of defaults and business losses that have dragged down the Chinese economy.
One of the gravest moments for any communist dictator is when his nation’s fortunes deviate from the course of the five-year plans put in place to rule over it.
Playing God to 1.4 billion people only halfway works, so long as the people’s reality somewhat parallels the official communist party line.
Otherwise, force and fear are required to maintain the lies.
Tang Ping
The unintended consequences of China’s one-child policy, which was in place from 1980 to 2016, has birthed an unfavorable demographic destiny. The country’s fertility rate is just 1.2. This is among the lowest in the world and well below the 2.1 replacement rate.
In addition, China has a rapidly aging society and is quickly transforming into the world’s largest nursing home. What’s more, immigration won’t likely deliver the much-needed demographic bailout; China has traditionally remained an insular country.
Deflation of the mega Chinese property bubble, unserviceable levels of local government debt, declining foreign investment, falling stock market, a softening currency, and an aging population. These factors are all coalescing at the worst possible time. And the younger generation is simply ‘not into it.’
There’s a popular movement among Chinese millennials called tang ping, which translates to ‘lying flat.’ This is a rejection of societal expectations to follow the 996-work system – that is, 9 am to 9 pm, 6 days a week.
The younger generation sees this as a rat race with shrinking returns. Tang ping means choosing to “lie down flat and get over the beatings” via a low-desire and a more indifferent approach to life. This is their moment to ‘turn on, tune in, drop out.’
Naturally, the CCP has rejected tang ping. Something called the Cyberspace Administration of China has ordered online platforms to “strictly restrict” posts on tang ping. Selling tang ping-branded merchandise online is forbidden.
The lying flat movement may be a bit amusing, for now. However, it is very possible that this youthful apathy could quickly turn to angst and then rage.
Blame Shifting
When a government runs everything, it is at fault for everything that goes wrong. To this end, China has a long history of internal rebellion.
The 19th century Taiping Rebellion, for example, resulted in the early deaths of more than 20 million rebels, officials, troops, and others. The 1989 Tiananmen Square rebellion is a not-too-distant reminder to China’s rulers of how quickly simmering strife can boil over.
Thousands of years of human history has shown that when the rulers are blamed for social ails, they stir up an external war to shift the blame. Xi and his cohorts in the CCP are no different.
The escalation of conflict with Washington over Taiwan is the perfect domestic diversion. Similarly, Washington is all too happy to oblige. Biden, like Xi, needs a distraction from his failed policies at home.
In this regard, prior presidents were vague with respect to U.S. protection of Taiwan. That changed in September of 2022 when Biden made a full commitment to Taiwan. It doesn’t take much imagination to see where this is heading.
According to the CCP, Taiwan unification is “a natural requirement for realizing the rejuvenation of the Chinese nation.”
In fact, Xi and the CCP view Taiwan as Mao’s unfinished business. Taking Taiwan – by force, if needed – has been an objective for over 70 years.
Considering the onset of China’s demographic decline, if the CCP is going to take care of this unfinished business, and take Taiwan by force, it will need to do so sooner rather than later.
Tang Ping in the Year of the Dragon
With Washington distracted by the Russo-Ukrainian War, the Israel-Hamas War, drone strikes on container ships in the Red Sea, a burgeoning war with Iran, bedlam at the borders, and a presidential election, this year would be as good as any for Beijing to seize the opportunity to attack Taiwan.
The Chinese New Year begins on Saturday, February 10. According to the Chinese horoscope 2024 is the year of the dragon. Specifically, the wood dragon.
In Chinese mythology, the dragon represents authority, prosperity, and good fortune. When combined with the nourishing wood element, the Wood Dragon year 2024 is expected to bring evolution, improvement, and abundance.
The dragon is considered one of the luckiest and most powerful animals in the Chinese zodiac. Perhaps the stars have aligned for China to take Taiwan in 2024.
In this regard, as practitioners of tang ping grow increasingly restless, they’re keen to latch on to a greater purpose in life. The Year of the Dragon could stimulate their calling.
Obviously, the geopolitical implications of an attack on Taiwan by China are enormous. In addition to the massive cost to lives and resources, there would be the complete devastation of a global financial system that is already near the point of failure.
Yet the power mad in Washington are without a clue or don’t seem to care. They stand ready and eager to print up a mega pile of new bucks to finance any additional war or further war escalation.
And even if cooler heads prevail in Beijing, the global implications of the deteriorating economic conditions in China will be a drag on all economies. China, for its part, has been the largest driver of growth over the last 30 years.
How will the U.S. economy react to sustained economic weakness in China? Will contagion from the Shanghai and Hong Kong stock markets spread to Wall Street?
The answers to these questions will be known soon enough. Though, deep down, with some honest contemplation, it is already evident that it won’t be pretty for most people.
Sincerely,
MN Gordon
for Economic Prism
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