Several financial holding companies last week held earnings conferences in which they tried to assure investors that they have been slashing their exposure to China in the past few years and would continue to adjust their overseas operations to diversify away from the world’s second-largest economy. They also told investors that China is facing multiple economic challenges and would no longer enjoy the prosperity it once had. An executive at E.Sun Financial Holding Co summed it up, saying that China is like an elephant that has fallen and must get up by itself, as the little animals nearby cannot help it.
Another executive said that if China cannot cure its economic woes and fails to develop a new engine, its rapid-growth economy would run out of steam and the country would become stuck in the “middle-income trap.” This is when an emerging economy cannot transition into a high-income economy due to rising costs, declining competitiveness, poor administration efficiency and a lack of high-end talent, among other factors.
Obviously China’s rapid GDP growth would slow over time as its economy matures. A few countries in Asia have managed to free themselves from the middle-income trap such as Taiwan, South Korea, Hong Kong and Singapore, which they achieved through their own efforts and with help from globalization. The question is whether China can benefit from a changing global economic landscape as the rule book is rewritten amid trade tensions in the past few years? Can China become rich before it gets old?
Some economists expect China to move forward with modest annual growth in the medium to long term, but many say that the country might never overcome its structural weaknesses and lack of reform plans, economic as well as political. Issues include the real-estate bubble, the imbalance between investment and consumption, the rising debt accrued by local governments, the Chinese Communist Party’s strict control of private businesses, the shrinking workforce and the expanding cohort of retirees.
This long-term, unbalanced development has led to China’s economic woes, with more economists believing the country is facing a scenario of “balance sheet recession,” as consumers and businesses stop borrowing and investing even though interest rates continue to fall. Instead, they focus on paying down debt first as economic growth faces a bottleneck, asset prices plunge and cash flows dwindle.
This is what happened in Japan during the “lost decade” of the 1990s, when its real-estate bubble burst. It took Japan about 20 years to emerge from a balance sheet recession, and it appears much more difficult for China to solve this problem in the short term. Beijing would need to loosen the grip it has had on private businesses, political power and Chinese society over the past few years. This would not change any time soon under Chinese President Xi Jinping (習近平).
China should address the balance sheet recession by repairing the imbalance in its economic balance sheet over a long period of weak demand. China’s economic downturn is likely to continue, and the phenomenon of deflation is reflected in the slump in demand.
Another solution to the balance sheet recession is to transfer private debt to the government, and then monetize the debt by printing a large amount of money. The price of that process is a sharp depreciation of the yuan, which is another unlikely scenario in the foreseeable future.
Concerns that the US might abandon Taiwan are often overstated. While US President Donald Trump’s handling of Ukraine raised unease in Taiwan, it is crucial to recognize that Taiwan is not Ukraine. Under Trump, the US views Ukraine largely as a European problem, whereas the Indo-Pacific region remains its primary geopolitical focus. Taipei holds immense strategic value for Washington and is unlikely to be treated as a bargaining chip in US-China relations. Trump’s vision of “making America great again” would be directly undermined by any move to abandon Taiwan. Despite the rhetoric of “America First,” the Trump administration understands the necessity of
In an article published on this page on Tuesday, Kaohsiung-based journalist Julien Oeuillet wrote that “legions of people worldwide would care if a disaster occurred in South Korea or Japan, but the same people would not bat an eyelid if Taiwan disappeared.” That is quite a statement. We are constantly reading about the importance of Taiwan Semiconductor Manufacturing Co (TSMC), hailed in Taiwan as the nation’s “silicon shield” protecting it from hostile foreign forces such as the Chinese Communist Party (CCP), and so crucial to the global supply chain for semiconductors that its loss would cost the global economy US$1
US President Donald Trump’s challenge to domestic American economic-political priorities, and abroad to the global balance of power, are not a threat to the security of Taiwan. Trump’s success can go far to contain the real threat — the Chinese Communist Party’s (CCP) surge to hegemony — while offering expanded defensive opportunities for Taiwan. In a stunning affirmation of the CCP policy of “forceful reunification,” an obscene euphemism for the invasion of Taiwan and the destruction of its democracy, on March 13, 2024, the People’s Liberation Army’s (PLA) used Chinese social media platforms to show the first-time linkage of three new
Sasha B. Chhabra’s column (“Michelle Yeoh should no longer be welcome,” March 26, page 8) lamented an Instagram post by renowned actress Michelle Yeoh (楊紫瓊) about her recent visit to “Taipei, China.” It is Chhabra’s opinion that, in response to parroting Beijing’s propaganda about the status of Taiwan, Yeoh should be banned from entering this nation and her films cut off from funding by government-backed agencies, as well as disqualified from competing in the Golden Horse Awards. She and other celebrities, he wrote, must be made to understand “that there are consequences for their actions if they become political pawns of