OPINION:
China’s economy is moving toward a rapid tailspin.
The real estate sector is approaching a housing bubble of proportions akin to the subprime mortgage crisis of 2008 or worse. Major investment banks have cut China’s growth potential for the current fiscal year to 5%, starkly lower than China’s historically dubious official statistics of double-digit growth year-on-year.
As of June, the National Bureau of Statistics reported that youth unemployment — unemployment among people between the ages of 16 and 24 — had reached 21.3%. This data point, however, accounts only for young people in major population centers, and given the vastness of China’s rural population and underground economy, the true number is undoubtedly much higher.
In mid-August, China’s yuan fell to the lowest recorded levels in more than 16 years, and Hong Kong’s Hang Seng index was down more than 20%.
The embattled property giant Evergrande has filed for bankruptcy, and the developer Country Garden has failed to extol two-dollar bonds that were due in early August.
Clearly, the misguided policies of China’s central planners are coming to a head, and the false notion of the superiority of the China model is on full display.
Several scholars and China-watchers have exclaimed that a further collapse of the Chinese economy would adversely affect the U.S. economy, and the Biden administration appears to be flirting with the idea of granting China some concessions.
This strategy would be a monumental mistake, not only because it would run antithetical to securing U.S. interests and in contrast to our own National Security Strategy, but also considering the relative strengths of our economic system and its immunities from Chinese consumer fallout.
The prior administration overhauled U.S. policy toward China to place American interests at the heart of every decision the United States had to make concerning its security and economic relationship with China.
This entailed showcasing the opacity of China’s predatory intellectual property environment, its unstable markets, and the risks of continued offshoring to an unfriendly authoritarian government bent on displacing the United States as the global superpower.
Although more could have been done to restrict U.S. dependency on an adversarial regime, the gears of unrestricted globalism had been reversed, and the world began to take note that the concept of free markets could not be applied to a regime that deemed private enterprise a threat to its power.
Ideologically, this should have been the single largest red flag for investors, yet China’s powerful United Front lobbying efforts have forestalled a complete de-risking or decoupling strategy — whatever you like to call it — from coming to fruition.
This remaining psychological leverage on the U.S. economy has worried policymakers and even persuaded our Commerce Department to lift restrictions on 27 Chinese companies before a planned visit to Beijing this month.
Yet we are in a far stronger position vis-a-vis our Chinese counterparts, and this should encourage the United States to double down in its struggle against the Chinese Communist Party.
U.S. investment in China is approximately $515 billion at the moment, with $200 billion in direct investments and $300 billion in portfolio investment. These numbers should still be drastically reduced given the recent crackdowns on U.S. firms such as the Mintz Group, but they pale in comparison with the relative size of our economy.
U.S. gross domestic product stood at $25.46 trillion for 2022. Even more reassuring, China purchased only $150 billion from the United States in the same year. Exposure is not as great as some talking heads are claiming.
China’s crisis is also different from that of the many African and South American nations it does business with, as it is primarily domestically driven debt. Ironically, as the regime is having trouble securing interest payments abroad from its Belt and Road Initiative investments, it is overleveraged in almost every domestic sector.
Sure, U.S. pension funds are still active in China’s capital markets and continue to risk funding People’s Liberation Army-affiliated entities responsible for China’s military expansion.
But the House of Representatives’ Select Committee on the CCP has catalyzed forward momentum in persuading the U.S. public and pension funds to reconsider portfolios with ties to Chinese entities writ large.
The United States must do more to ensure that the outbound investment scheme, or “reverse CFIUS,” and other bodies have the adequate tools and resources they need to hold to account for risky U.S. capital flight to China.
A greater Chinese economic downturn may have increasingly negative effects on our Asian and European partners that still have modest to high trade with China, but even hesitant partners in the European Union have publicly committed to a plan to reduce their dependence on China.
Ultimately, it will up to them to secure their own economic freedom, and the United States will remain concerned with its own geoeconomic strategy first and foremost.
What’s more, many pundits were screaming from the rooftops in 2017 that further supply chain shifts from China would dramatically hurt U.S. businesses and the average consumer.
Again, they were wrong. The economy was booming, partly as a result of U.S. manufacturing being once again encouraged to invest in friendlier Asian nations and in North America, and because multinational corporations were forced to rethink their investments within a regime that does not believe in property rights.
Vietnam, Malaysia, Taiwan, India and even Mexico were the big winners of this “smarter” supply chain pivot. This made America stronger by increasing consumer confidence in the quality of goods received, and it emboldened private enterprises to operate in environments free of human rights abuses.
To be blunt, if we are in competition with China, then we should act accordingly. Now is the time to double down.
We should never forget the CCP’s actions in its handling of COVID-19 and the impact their policies had on the world. We survived that economic and health disaster, and we can survive this.
• Brian W. Cag is a national security analyst focused primarily on East Asian affairs for the U.S. government. The opinions of the author are his own and do not reflect any opinions or views of the government.
Please read our comment policy before commenting.