Pakistan once said, if necessary, they would eat grass but wouldn’t compromise with the dream to get their nuclear bomb. China passed them the technology and costly loans. Now, Pakistan is eating grass. At 21 percent inflation food is too costly in Pakistan and, Islamabad has no money either. They are begging for support from the IMF.
China adopted the same strategy in Sri Lanka minus the bomb. Costly loans worth billions of dollars were given to buy out the corrupt political leadership and establish complete control over the island nation. Colombo went burst under debt burden. People chased the corrupt president out of the country.
In Beijing, a totalitarian government is busy suppressing the descent of common people (China crushes mass protest by bank depositors demanding their life savings back, CNN, July 11, 2022). The years of misuse of unchecked power and public money in chasing wrong dreams is finally hurting them.
Growth is down to 0.4 percent in the April-June quarter. Industrial production rose to a paltry 3.9 percent in June year-on-year, up from 0.7 percent in May.
“Growth to be restored in H2,” Chinese Communist Party’s (CCP) propaganda machine, Global Times wrote on April 18. The hoax is now called out. “Analysts expect the latest reading will drag full-year growth to about four percent, slashing earlier estimates,” international news agency AFP wrote on July 15.
People are losing jobs and banks are pulling down shutters wiping out their life savings. Beginning April 2022, four banks have closed down. But protests are crushed under the boots of the law keepers. Protestors are beaten up and detained. But that is hardly going to solve China’s problems.China is sinking under a heavy debt burden. Banks are running out of cash because businesses that had taken loans are defaulting. Real estate is a big cash churner in China. As banks offer abysmally low interests to depositors and the financial product market is underdeveloped, common people invest in property to keep the money growing.
The bubble is now bursting. One after another, big real estate developers are failing to repay loans. As of July 4, Shanghai-based Shimao Group failed to pay the interest and principal on a $1 billion bond, CNN reports quoting a company filing to the Hong Kong stock exchange. According to a recent survey by property research firm, China Index Academy, prices for new homes in 100 cities plunged more than 40 percent during January-June this year. Beijing tried to revive home sales by lowering mortgage rates and easing rules on home purchases. But didn’t yield the desired result.
“China’s property crisis is leaping out of the frying pan and into the fire. Homebuyers in 22 cities are refusing to make mortgage payments on unfinished homes, Citigroup reports. The rare protest extends the risk of defaults from offshore developer bonds to banks with $6 trillion of mortgages,” said Reuters.
“The fat tail risk of President Xi Jinping’s efforts to deleverage the sector is emerging, and it puts Beijing in a tight spot, the news agency added (‘China property crisis enters dangerous next phase,’ Reuters, July 14).
Whatever is happening now was anticipated years ago. The father of modern China, Deng Xiaoping, visualized political reforms after the economic reforms. Mao Zedong’s ruthless rule was proof enough that centralization of power shouldn’t augur well for a large economy.However, Deng’s dreams remained unrealized. China kept debating about the right political model till the early last decade when Xi Jinping rose to the power (2012) and reversed the entire process. Over the last 10 years, he centralized every power. Even corporates, including foreign corporates, are not left out.
All Chinese private enterprise of significance has to have a CCP cell embedded in the top management. Since 2015, Beijing passed a series of laws to establish total control over the rights of the companies operating from its soil. A 2017 law allows Beijing to force a Chinese employee to work as a secret agent.
“The CCP adopts a whole-of-state approach in which business and individuals are forced by law to cooperate with the party (which is the government),” Gen Ken McCallum, director of the British Intelligence agency MI5 said in a written joint statement along with the FBI chief Chris Wray on July 6, 2022. The statement is available on the MI5 website.
This is unthinkable in a civilized society but normal for President Xi, who looks at the world through the expansionist eyes of Adolf Hitler. Only the methods are different. Over the last decade, China has heavily increased its debt.Part of it went to create a growth bubble in China to be showcased to the world. The rest was used to buy out poorer countries through white elephant projects like Belt and Road Initiative or BRI
The first salvo to the plan was fired by the former Donald Trump administration in the US. Trump realized that China is milking the world in both ways. He escalated the tariff barriers on Chinese products to force investors to move out of China.This impacted China’s growth and its capacity to repay was affected. “China crushed by debt,” wrote a blogger in ‘Seeking Alpha’, a crowd-sourced content service for financial markets, on May 22, 2019 (Check the blog here: https://seekingalpha.com/article/4265826-china-crushed-debt ).
The data-based analysis predicted that the weakening Chinese economy will “negatively affect related countries”. The fear is now coming true. The problems of Sri Lanka and Pakistan are not going to be over soon.The world is getting united against Chinese deceit. This will further impact their trade and investment flows. They will suffer but will not die. They have grown too big to die. However, those who enjoyed Chinese easy money and relied on them will face the worst nightmare.