Delusions about China’s economy only harm the US-led West.
[The article can be watched as a video here]
In their reporting on China, the Western mainstream media conjure up a massive real estate crisis, enormous youth unemployment and a severe economic crisis.
“China is in the midst of a profound economic crisis,” the Time Magazine starts its most recent report on China.
Insights from TIME magazine’s crystal ball: “China’s economic slump is here to stay.” © TIME magazine
Bad China news from Western media is nothing new. Last year and in the years before, there was a lot of bad news in the American media about the supposedly critical state of the Chinese economy.
CNN claimed 2023 was “a miserable year” for China and predicted an even lousier 2024. CNN headline
It is not surprising that Washington’s European media partners are imitating the American doomsday scenarios about China.
The British neoconservative, anti-China mouthpiece The Economist has been announcing one Chinese failure after another on its front page for more than a decade.
The Economist’s scathing coverage of China: Everything is always going haywire in the Middle Kingdom. © The Economist
Now the clamor about China’s alleged economic crisis has reached new heights in the Western media.
“Restaurants and stores are closing in China!”
Against their better judgment, even Western correspondents based in China are spreading reports about China’s alleged major crisis. German journalist Matthias Kamp, Beijing correspondent for the leading Swiss newspaper NZZ, for example, reported that “restaurants and stores in Beijing are closing by the dozen”, using this example, which he did not substantiate, to illustrate the allegedly catastrophic state of the Chinese economy. The title of his alarmist article was “China’s rulers are on high alert due to the economic crisis”.
But when I looked around Shanghai recently, I found full restaurants and busy shops.
Restaurant in Shanghai: Every seat is taken. © Felix Abt
Busy shoppers in Shanghai © Felix Abt
Contrary to the media, however, we should not take this as a sign of the health of the Chinese economy.
Are lower growth rates than the spectacularly high growth rates of recent decades a sign of an economic crisis?
The situation in China is much more nuanced than the Western media portray it. Many Chinese are certainly disillusioned and disappointed that the partially saturated economy will have to make do with lower growth rates from now on. Chinese business people I have spoken to believe that citizens have become accustomed to very high annual growth rates over many years. However, it is completely absurd to talk about a general crisis, because the economy is growing overall, with individual sectors growing very strongly and others, such as the real estate sector, stagnating or shrinking.
Is this what an economic crisis looks like? The Chinese economy has slowed down compared to the double-digit growth rates of previous decades, but its growth is still close to five percent despite the severe impact of the real estate crash. Source: National Bureau of Statistics, Beijing
The facts speak a different language than the claims of the anti-China Western mainstream media. Source: fxempire.com
Reallocation of resources from the zombie-like real estate sector to promising industrial growth sectors
There is no doubt that the property sector, which was a driver of the economic boom for years, is in crisis. Since 2021, it no longer contributes anything to growth. This is shown in the following chart:
Property sector in China: negative growth since 2021 © Bloomberg
However, what the Western media deliberately overlook is that the real estate sector no longer plays a decisive role in the Chinese economy and no longer has the potential to drag the economy into the abyss. Nevertheless, it still influences consumer sentiment.
The industrial sector is booming all the more!
Various industrial sectors are showing high growth rates both domestically and in exports. Source: IBIS World
The five strongest sectors that are currently satisfying both rising domestic demand and foreign demand are 1. solar module manufacturing, 2. car manufacturing, 3. aircraft manufacturing, 4. boat building and 5. the construction of alternative fuel vehicles. These five sectors have also increased their exports by 20 to 28 per cent this year.
What you could not learn from the Western mainstream media is that Chinese banks’ lending for real estate peaked in 2018 and has been systematically reduced since then. In contrast, loans for productive sectors and industries of the future have been significantly expanded since 2019. This means that the economy has been steered away from the property zombie industry and towards growth industries via lending for the past five years.
Growth rates in industry, the property sector and services © People’s Bank of China
Artificial intelligence is currently the fastest growing industry of the future: more than 237,000 AI companies were founded in China in the first six months of this year.
Artificial Intelligence (AI) has become one of the most important drivers of the Chinese economy. Headline South China Morning Post
The real reason for the economic stimulus packages
The government’s new stimulus packages are not an act of desperation, as the Western mainstream media would have us believe. In view of the intensified trade war that the US and its allies want to wage with all their might against China, this is a necessary stimulus for domestic consumption.
‘Desperate China’ or rather desperate Western media making up stupid doomsday stories? Headline news.com.au
My interlocutors among Chinese business people are convinced that this “transition phase”, in which dependence on Western markets will inevitably be reduced, will initially cost China a few painful percent of growth. Especially if domestic demand is not strong enough to compensate for the losses on the export side.
China is focusing on its strategic strengths and growth sectors of the future by building on critical technologies
In contrast to the West, where there is a lot of talk about an alleged economic crisis in China, China’s government does not think in terms of short-term economic cycles. Nor do companies think in terms of quarters and quarterly financial statements. An economy ‘with Chinese characteristics’ means focussing on strategic strengths that will pay off in the long term. These will determine what China’s economic future will look like.
It is assumed that 64 critical technologies will determine the future of the world. China dominates 90 per cent of them. Twenty years ago, the USA still dominated 60 of these 64 technologies. This is according to a report by the China-critical Australian Strategic Policy Institute, a think tank financially supported by the US State Department and the US military-industrial complex.
The results of the ASPI study: China dominates 58 out of 64 critical future technologies. © ASPI
In recent decades, China has flooded almost the entire world with cheap industrial products. To achieve this success, Chinese companies initially copied Western technologies and applied them to mass production.
But what many overlook: China has now mutated into the world’s leading research centre. This is the only reason why China has been able to dominate the global economy in the fields of artificial intelligence, renewable energies, biotechnology, space technology and quantum computing.
Even the Economist now recognises that China is a ‘scientific superpower’.
The Economist sounds the alarm: ‘From plant biology to superconductor phusics the country (China) is at the cutting edge.’ © Economist
The US-based Information Technology and Innovation Foundation (ITIF), which describes itself as “the world’s leading think tank for science and technology policy”, asks the question “How innovative is China in nuclear power?” and gives its answer: “Overall, analysts assess that China likely stands 10 to 15 years ahead of the United States in its ability to deploy fourth-generation nuclear reactors at scale.”
Significant breakthrough: China is the first country to build meltdown-proof nuclear power plants (Source: New Scientist)
Supposedly ‘incapable of innovation’
Just ten years ago, the Harvard Business Review published a study claiming that China was incapable of innovation. Harvard researchers, looking at China through a clouded ideological lens, emphasized that
“China is largely a land of rule-bound rote learners — a place where R&D is diligently pursued but breakthroughs are rare.”
In March 2014, the Harvard Business Review set out to prove that China cannot be innovative © HBR
They failed to recognise the Confucian character of the ruling party, which is more communist in name than in reality.
Only a decade after this damning finding, China achieved five times as many top research results as the USA.
While the U.S. was financing and waging overt and covert wars and overthrowing governments around the world, China was working behind the scenes and outperforming the U.S. in many areas.
China has built a unique, highly developed innovation ecosystem
To our great astonishment, however, the same Harvard Business Review recently concluded that China has created a sophisticated innovation ecosystem that ‘uniquely combines top-down government–industry coordination with the bottom-up drive of Chinese entrepreneurs.’
In August 2024, the Harvard Business Review explains the strengths of the Chinese economy, including its unrivaled capacity for innovation.
The authors point to the high economies of scale thanks to the huge consumer market as well as China’s investments in the countries of the global South, which represent the growth markets of the future. However, it is also crucial that the toughest competition in the world prevails within China. Companies that survive this competition will be so strong that they will become global players and champions. The authors explain literally:
“Companies that survive the life-and-death struggles of China’s markets — often described as a ‘Gladiators Arena’ — often emerge as global champions. Think of CATL (batteries), BYD (batteries and electric vehicles), Tongwei (solar), Goldwind (wind), or Huawei (information and communications technology).”
More coercion and aggression by rival USA to compensate for loss of competitiveness
And how is the United States responding? The U.S. elite’s response to a highly innovative and superior competitor is to abolish the free market, which they championed as long as they dominated it, and resort to protectionism and coercive measures against China.
The supposedly strongest economy in the world relies on protectionism to shield itself from smarter competitors. As a result, American consumers have to pay higher prices. While wages have stagnated for many years, prices in the USA have risen noticeably. They will rise even further if President Trump imposes high import tariffs on Chinese goods. Source: MBN Business News
Projection: Western opponents accuse China of unfair practices that they themselves are practicing. Gina Raimondo, US Secretary of Commerce, calls on Europe to join Washington’s coercive measures to prevent China from innovating and prospering © CNBC
At the same time, Washington is intensifying its military encirclement of the country.
While China does not have a single military base near the US, the US has dozens of bases around China and is in the process of building more. Source: MarketOracle.co.uk
In addition, billions of US taxpayer dollars are being spent on fear campaigns against the so-called “Chinese threat”, when in reality China is threatened by the United States.
Washington undermines, corrupts and instrumentalizes the media for its information war against China with massive amounts of money. Headline by Responsible Statecraft. © Responsible Statecraft
Fifteen years ago, Chinese consumers were still queuing up to pay cash for a Buick, Toyota, BMW, Audi or Mercedes. Today, most Chinese have switched to electric cars, especially Chinese cars, because they are now the market leaders. In addition to more advanced technology at lower prices, the US economic war against China is also influencing Chinese buying behaviour. (Watch my video: “Economic War Against China: Chinese Turn Nationalistic and Reject Foreign Brands” that explains why.)
What does it say when Elon Musk, the richest man in the world, and his company lose out to much smaller Chinese competitors? Financial Times headline © FT
Tesla, once the undisputed market leader in electric cars, which was able to charge premium prices, also felt the effects of the relentless Chinese competition. Despite four price cuts in China in 2023, the company was outperformed by the competition.
Will Chinese car manufacturers save their German competitors?
Declining German car companies are seeking rescue from Chinese car manufacturers. © Audi Media Center
German car manufacturers were the first to teach the Chinese how to build cars with combustion engines. Now German engineers are learning how to build electric vehicles from Chinese manufacturers.
For example, Audi and the Chinese company FAW are working together on a 4.87 billion dollar production plant for electric vehicles in China.
Innovation is expensive: China and the USA finance it very differently
Last year, China had a trade surplus of 823 billion dollars, exporting far more than it imported. The country is using its surplus income for research and development and to build critical industries, especially the key growth industries of the future. China promotes these through various incentives, regulations and centralized investment in scientific research.
The development of China’s trade surplus in billions of dollars © Statista 2024
While companies in the US recognize that certain industries are the future, they are much slower to invest in them as they focus on maximizing immediate profits and are much less willing to invest for the long term.
In addition, the US government plays a much smaller role in new industries than the Chinese government. And the priorities of US governments can always change due to changing parties and budgets.
While China has a considerable trade surplus, the United States has a large trade deficit:
The development of the US trade deficit in billions of dollars © Statista 2024
Due to the large US trade deficit, any government funding must be raised by the Federal Reserve printing money, further driving up the debt of over 31 trillion dollars, increasing interest rates, fueling inflation and pushing the world further towards de-dollarization.
Development of the US national debt in trillions of dollars (1 trillion = 1000 billion) © Statista
The large trade surplus and China’s “whole of nation” approach to innovation allows the country to mobilize almost unlimited government funds in addition to the enormous resources invested by private companies. From 1995 to 2021, China’s total spending on research and development rose from 18.2 billion dollars to 620.1 billion dollars, an increase of over 3000 percent! In the same period, spending on research and development in the USA rose by 277 percent.
In recent years, corporate profits and subsidies received in the USA — and in Europe too — have often been used to buy back shares and pay the salaries of top managers rather than for investment.
In the meantime, China has become a leading center for cutting-edge scientific research. The Economist admits that Chinese scientists are world leaders in high-profile publications and contributions to prestigious scientific journals, “selected through rigorous peer-review” processes.
A striking example of socialism for the rich and capitalism for the poor: Money from generally poorer taxpayers to much richer top executives and shareholders who pay relatively little or no tax. New York Times headline. © NYT
No area illustrates China’s technological lead better than “Clean Tech”. Today, China accounts for more than 80 percent of global production capacity in eleven key clean energy technologies. China dominates the rare earth supply chain. It produces 70 percent of the world’s rare earths and processes 90 percent of all rare earths.
Western companies are finding it difficult to compete in the solar industry despite high customs barriers. Thanks to China’s enormous investments and the large domestic market, large solar panels cost barely 15 percent as much as they did in 2010.
It all began with bartering markets for know-how
After China opened up its economy in the 1970s, many Western companies moved to the country to take advantage of the huge market and cheap labor. In return for market access, Chinese companies benefited from decades of Western investment in traditional industries such as cars and chemicals.
This bartering, that is know-how in exchange for huge sales opportunities and profits, led to China’s reputation for “stealing technology.”
Ironically, it is now the West that is asking Chinese companies to come to their countries and share their expertise in critical technologies such as clean energy. One example is Invenergy, one of the largest US renewable energy companies. As part of a 51/49 partnership with leading Chinese solar company LONGi, Invenergy opened the largest solar panel factory in the US this year.
The Chinese LONGi Group supports an American renewable energy company and is building a large factory in Ohio for it © Caixin
As part of this joint venture, Invenergy acquired LONGi’s advanced solar technology. The plant in Ohio is expected to produce 5 GW of solar modules annually and create more than a thousand new jobs.
Another example is the car company Ford, which recently announced a joint venture with CATL, China’s leading manufacturer of batteries for electric vehicles. The Americans are investing 3.5 billion dollars in a new factory for electric car batteries in Michigan, which will use CATL technology for the cost-effective production of lithium-ion batteries for the Ford F-150 Lightning Truck and other electric cars.
China’s leading manufacturer of batteries for electric vehicles is supporting an American car company and helping it to build a battery factory in the USA. © Reuters
The West neglected the developing countries and used them primarily as cheap suppliers of raw materials; China sees them as an opportunity and treats them differently.
In the past, Western countries have often ignored emerging countries with weaker economies in order to export their goods mainly to other rich countries. As part of a larger pattern of resource extraction that began during the colonial era and continues now as neo-colonialism, Western countries have snatched cheap commodities from developing countries at prices below market value.
The Global South or the Global Majority is home to 6.8 billion people, over 85% of the world’s population. And as their economies grow, so does their demand for goods and new technologies. China’s Belt and Road Initiative (BRI), for which China has invested over a trillion dollars in over 150 countries, has led to the construction of major infrastructure such as ports, railroads and airports. Unlike the USA and its Western allies, China does not interfere in the internal affairs of other countries. It is therefore not surprising that the supportive, non-patronizing China is much more popular there than the West. This helped, for example, that the majority of the smartphone market in Africa is dominated by Chinese companies or that Huawei supplies 70% of the 4G network infrastructure in Africa.
In the USA’s backyard: Chinese companies are taking market share away from American competitors. © The Diplomat
In Latin America, the Chinese have a market share of 86% for electric vehicles and 40% of total car sales.
Standing up to the competition in the Chinese meritocracy or laying down your arms
Under the subtitle “The dangers of not being in China”, the Harvard Business Review now warns global companies not to make the mistake of not competing in China. Those who are not active in China risk “losing global revenues and strategic opportunities to their Chinese competitors”.
China’s success is linked to its Confucian meritocracy
Little known in the West is the significant fact that the Tang Dynasty (618–907) introduced meritocracy, China’s revolutionary model of success that has endured to this day, as I explained in this article:
Title of Substack article on Chinese meritocracy, which cannot be separated from China’s economic success
In contrast to the Chinese meritocracy, Western plutocracies leave the majority of citizens in the lurch
The economic disparity between the affluent Americans and the remainder of the populace has significantly increased and continues in its expansion. The income of the richest 1% of earners has more than quadrupled since 1980, whilst the remaining half has had little or no growth.
While the middle class in Western countries is shrinking and impoverishing, China has the world’s largest middle class, which has grown significantly in recent decades. Chinese households also generally enjoy considerable savings. In 2018, more than half of the Chinese population belonged to the middle class, or almost 707 million people. This rapid growth has been driven by economic development and rising incomes.
Per Capita Disposable Income and Its Growth of Urban and Rural Residents in 2023. Source: National Bureau of Statistics of China
In the United States wealthy individuals and corporations wield enormous influence via campaign donations, lobbying, and political action committees (PACs). The Supreme Court’s 2010 “Citizens United” ruling permitted unrestricted financial contributions to political campaigns by corporations, further amplifying the power of money in politics.
In the U.S. (and other Western nations), policy choices often represent the interests of the rich rather than the majority of voters, according to studies. This leads to a society where wealthy people influence laws and regulations that serve their own interests. As the rich have considerable and growing influence over economic resources, which translates into political power, while the majority lose their voice, Western societies have become plutocracies that can no longer be called democracies. A study by researchers at Princeton University concluded 10 years ago that the “USA is an oligarchy, not a democracy”.
So should we still believe Western politicians (representing their oligarch patrons) and their media partners when they say the Chinese economy is doomed? Well, only if we want to distract from the fact that the economy of the United States and its allies is in a shitty state.
“Forget China — it’s America’s own economic system that’s broken,” says Robert Reich, professor of public policy at the University of California’s Goldman School of Public Policy and former US Secretary of Labor (Source: The Guardian)
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