You wouldn’t know it if you read the mainstream business news, but the Chinese economy is in real trouble.
Goldman Sachs recently reported that capital flight from the Middle Kingdom is ramping up once again, at a 10-month high in June with $20 billion in outflows as Chinese savers move assets in earnest (mainly using cryptocurrencies) away from Beijing’s control.
The phenomenon is similar to executives of a troubled company selling stock before the public grasps a negative business trend. It’s the canary in the coal mine of bad things to come.
Chinese manufacturing has dipped sharply in recent months. The Trump tariffs are hurting. For instance, Apple announced recently it is moving a large percentage of production out of China to elsewhere in Southeast Asia — to such jurisdictions as Vietnam because the risk of price increases in the Chinese market has become just too great to not diversify.
It’s not just Apple by the way. Dell, HP and Amazon are moving production facilities offshore from China as well.
The “Chinese Miracle” has peaked. All it took was a few months of tough leadership from an American president who actually cared about the people of his country, and was not bought and paid for by globalist elites.
The manufacturing losses being incurred by China may very well not come back to Beijing anytime soon, if at all. It looks more and more likely that President Xi Jinping has decided to try and wait out the Trump administration, in hopes of getting a more compliant White House after 2020. That decision is a miscalculation on China’s part.
Just as in the U.S. with the #NeverTrump movement and the resistance of the left, China has underestimated and misunderstood the Trump phenomenon from the beginning.
The current sea change comes after years of massive misallocation of capital in China. The famous “ghost cities” are a shining example of the need to keep the population working to avoid civil unrest, what the Chinese Communist Party fears the most.
In addition, China is about ready to walk off a demographic cliff, as the population ages and the consequences of the “one-child policy” that Beijing has foisted upon its people for decades come home to roost.
It is well-known that the Chinese economy cannot innovate. Chinese companies have to steal new ideas and technologies. This is the fatal flaw of a managed economy.
In addition to the tariffs, the White House is clamping down on forced technology transfers and intellectual property theft. This does not bode well for China’s GDP growth in future years.
I believe the Chinese economy could already be in recession. Beijing is famous for cooking the books and reporting economic data that are always just where they should be, with slight variances.
The pressure on Chinese unicorn Huawei is enormous, as Mr. Trump has barred the import of the bug-riddled equipment into the U.S. over national security concerns. Halting the purchase of American parts to assemble Huawei’s products could be a death knell for Mr. Xi’s vaunted “Made In China 2025” plan to dominate global industry — something the Western globalists have shown themselves perfectly ready to accept.
On top of all of this, Mr. Trump still has one big arrow left in his quiver with the threat of tariffs on the remaining $300 billion worth of Chinese imports into the U.S.
As time goes by, the sting to the American economy from the trade war will lose its potency. The world will find out that Mr. Trump was spot on when he said that China needs the U.S. market much more than America needs China’s consumers.
This truth will manifest itself — no matter the cries of gloom and doom from bought-and-paid-for Wall Street pundits or the crowing from the ivory tower about the madness of Donald Trump.
• L. Todd Wood is a former special operations helicopter pilot and Wall Street debt trader, and has contributed to Fox Business, The Moscow Times, National Review, The New York Post and many other publications. He can be reached at LToddWood.com.
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