We Don't Have to Trade With China

China is a gift that keeps on giving and that gift is rabies:

A man accused of paying bribes in one of China's biggest-ever military corruption scandals allegedly funneled at least 114 million Canadian dollars into banks in that country before investing more than CA$32 million in luxury Vancouver real estate.  

 

(Sidebar: real estate, you say? What of businesses?)

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The former president of a University of Toronto Chinese students association is now employed at the Chinese Consulate in Toronto. The group and its affiliated student associations in many other Canadian educational institutions have a history of close ties with Chinese envoys, and in some cases openly admit they are led by the Chinese diplomatic mission.

Zhu Yanhe's LinkedIn profile shows that he has been working as a "Reception Desk Clerk" at the Chinese Consulate in Toronto since November 2021. His Facebook page, under the name "Herman Zhu," shows that he originates from China's Guangzhou Province and completed his studies in statistics at the University of Toronto's Scarborough Campus.

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China is a country that pretends that it is an affluent nation, not a backward, communist hole whose own people can't wait to leave it:

How do wonderful infrastructures destroy wealth? One example is sufficient. In 2018, on a drive along the North Korea border, I encountered a vast and beautiful white six-lane highway suspension bridge across the Yalu river. It was built to connect the Chinese city of Dandong with North Korea, to service the trade boom Xi expected with the promised opening of the North’s economy. Naturally, it would require a customs house, duly built as a very impressive high-rise, warehouses and more than 10 blocks of commercial offices. Yet when I visited, the bridge ended in a North Korean potato field, traffic was exactly zero, the customs house was empty and so were the office blocks and warehouses, some paid for by private border merchants who were bankrupt when I met them in Dandong (they openly cursed Xi for going along with the US-sponsored Security Council Embargo).

Savings that could have enriched many Chinese citizens, including the 180 million officially counted as “very poor” and the further 300 million or so still trapped in poverty, were instead wasted on the Yalu bridge complex, with uncountably greater waste on infrastructure all across China. The list starts with a least 100 grossly under-utilised airports  and the many highways that are mostly empty of traffic even in crowded China, including the wonderful multi-lane G-214 that runs all the way from the near-tropical tourist town of Dali in Yunnan up the ever-rising landscape to Tibet.

The immediate issue now is not what might have been, had the capital been used to reduce poverty, but the way the money was found in the first place. Some was collected from taxes, but much more was found by adding to the immense debt mountain that now paralyses the investments of the private building firms that built skyscrapers and gigantic apartment blocks all over China, as well as the uniquely Chinese semi-private municipal and provincial joint ventures that built factories and infrastructural projects. The latter’s money came from the loans of the local branches of state banks, whose managers could not just say no to local party bosses, who could choose to invite them to sumptuous dinners in pretty company or to lock them up for corruption investigations as they saw fit. Back in Beijing, senior managers at Bank of China headquarters — whose role models are neither Mao, Lenin nor even Xi Jinping, but rather their Bank of England and Federal Reserve counterparts with whom many have studied in the US and England — kept trying to discipline the flood of bank loans to the chronically overambitious joint-venture companies. But they had no power at all to scare off the party bosses.

Pan Gongsheng, the current Bank chief, is certainly the most independent official surviving in Xi’s intensely autocratic China, just as the head of the Russian central bank, Elvira Näbiullina, is the most independent official in Moscow. Yet Pan knows he cannot stop the infrastructure projects that are daily adding to China’s debt mountain, without immediately replacing a debt crisis with a mass unemployment crisis — any more than Näbiullina can stop the Ukraine war, whose dead and wounded are much less of a threat for her than the ultimate horror of war-spending inflation (which in Russia can quickly starve 44 million pensioners).

The sudden economic crisis that has stalled China’s economy after decades of growth is very obviously not just “cyclical”. Xi Jinping cannot afford to just sit it out: the immense debt mountain must be reduced to resume profitable investments. In the US, the cure for the 2007-2009 debt crisis that stalled Europe’s economy as well, was the 2008 bankruptcy of literally high-flying Lehman Brothers (its 20-somethings in different offices in the same Manhattan building sent notes to each other by Federal Express via Memphis, Tennessee), and of hundreds of other high-fliers large and small. As for the millions of US homeowners with unpayable mortgages, they just walked out, becoming instantly homeless but also debt-free. Yet very few remained homeless because the US economy picked up very quickly once it was drastically purged of non-repayable loans. (Japan’s housing collapse, on the other hand, stopped the economy for a decade because home loans were personal and could not just be abandoned)

In China, the problem is the opposite: uncounted millions have all or much of their savings in apartments that stand empty, generating tax and other costs instead of income, and they cannot just walk out of them. They need renters, who in practice must be mostly young couples setting up families, especially today, when many young and not-so young single Chinese are stuck living with their parents. It is at this exact point that an economic problem becomes a political one, which can be lethal to any regime, even Xi Jinping’s constantly self-praising and seemingly formidable autocracy.