November 19th, 2024

Economics

China Aims to Combat its “Hidden” Debt 

By Contributor Caden Hubbs

Beijing announces a new stimulus package to address regional government debt.

From Creditor to Debtor: Traditionally, China has been considered a lender, purchasing foreign bonds with the excess profits of its lucrative export market. When compared to the U.S., the Chinese national debt of $4.2 trillion should be far from a pressing concern, however the national debt is one of the CCP’s most existential threats. While the central government is relatively unburdened by debt, off the books lending from “local government financing vehicles” have contributed to the accumulation of a colossal $10 trillion “hidden debt” at the local level. Analysts warn this debt acts as a “ticking time-bomb” threatening an already weakened Chinese economy. A topic that was once taboo in the halls of Beijing is now taking center stage as China's latest $1.4 trillion aid package aims to restructure local debt.

A Century of Spending: This $10 trillion of outstanding debt didn’t appear overnight. China has long relied on local municipalities to direct its industrial policy. Beginning in the 1950’s China pursued a policy of “regionally decentralized authoritarianism”. Political power accumulated at the upper echelons of the national government, while local governments were responsible for managing regional development. The decision to leave economic policy up to local governments created  incentive structures for competition amongst municipalities over additional resource allocation. This further incentivized local governments to overinvest in unprofitable ventures leading to substantial waste. China’s financial house of cards ultimately fell apart when exorbitant spending on  “Covid-Zero” policies, paired with the collapse of the housing sector (which accounted for 40% of local revenue) pushed budgets to the breaking point.

A Problem For a Future China: So will China’s latest stimulus package stop its local governments from drowning in debt? Likely not, as the plan calls for the creation of new, low-interest bonds and the raising of inter-governmental lending limits. In effect, local governments will be able to restructure their debts into more manageable packages. The problem is this simply kicks the can down the road, hoping that future profits from efforts to revitalize ailing sectors, raise domestic demand, and shift to high income manufacturing will pay off the debt, but if China’s economy continues to falter, Beijing may be forced into taking far more drastic measures.

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Trade

Trade Surplus Skyrockets In Wake Of U.S. Presidential Election

By Contributor Lindsey Spain

China’s export surplus has reached its highest recorded rate since 2021, inciting concerns of trade barrier imposition by the United States President-elect. 

China’s Surplus: China’s export surplus has reached its highest recorded level since 2021, with the difference between Chinese imports and exports projected to reach nearly $1 billion if growth continues at the same rate. The trade surplus jumped from $57.13 billion to $95.27 billion in October, exceeding the predicted stopping point of $75.1 billion the same month. The goods trade surplus topped out at $785 billion during the first ten months of the year, a marked increase of 16% from the same period last year. The surplus jumped to  $785 billion in the first ten months of the year, an increase of 16% from the same period last year. 

Trump’s Tariffs:  Even prior to his ascendancy, a mainstay of President-elect Trump’s policy agenda was the implementation of a 60% tariff on all goods imported from China, and a 10-20 percent tariff on all imports. This controversial policy decision increases the  chances of heightened prices for imported goods, with dozens of expert estimates predicting a harmful effect on consumers. Though viewed from the perspective of domestic producer benefits, consumers will undoubtedly see significant implications for their domestic livability, with the average after-tax income predicted to fall by around 4.1%.  

Domestic Implications:  The relationship between the United States and China remains a subject of debate, with many scholars predicting that escalating trade tensions could have significant consequences for both economies. A sharp rise in tariff stipulations, such as those proposed by former President Trump, would likely have mixed effects domestically; it is predicted that President-elect Trump’s tariffs would cost the average American household $2,600 annually. There  are also arguments that a tariff increase could benefit certain sectors of the U.S. economy, especially domestic manufacturers who might face less competition from Chinese imports. If U.S. companies can increase their market share, it could spur investment and job creation in some industries. The tariffs would likely slow export growth, especially in industries where Chinese manufacturing holds a competitive edge. However, China has increasingly sought to diversify its trade relationships, particularly with other emerging markets, and might adapt by strengthening trade ties with countries in the Belt and Road Initiative, or seeking alternatives to U.S. exports.

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Domestic

Zhuhai Car Massacre Shocks China, CCP Scrambles to Respond

By Contributor Max Low

Last week, a man drove his car into a crowd at Zhuhai Sports Center, killing 35 and injuring 43 more. In the aftermath, the Chinese government doubled down on censorship.

A Shocking Attack: Last Monday, November 11th, 35 people were killed and 43 more were injured after a man drove his car into a crowd in Zhuhai, China. Police apprehended the perpetrator as he was fleeing the scene, later identifying him as a 62 year old Zhuhai resident with the surname Fan. The exact motive of the crime remains unknown. Police initially suggested that the man’s recent divorce contributed to his fractured mental state, but have since retracted that explanation. Chinese officials like Xi Jinping and Huan Kunming made statements acknowledging the attack, calling for the “severe punishment” of the perpetrator and “greater efforts” to protect people. However, in the following days, the Chinese government also took significant strides to sweep it under the rug.

Latest in a Long Line: Though this attack was the deadliest Chinese mass killing in recent memory, it's far from the first act of indiscriminate violence to shock the nation in the last few years. This May, a man attacked a hospital with a knife, killing two and injuring twenty-one. This September, a man attacked a supermarket with a knife, killing three and injuring fifteen. No motive was provided by police in either instance. In the absence of any clear explanations, people on Chinese social media have begun to speculate that such attacks are motivated by a desire to “take revenge on society.” They have also begun to call for an examination of the “deep-rooted” societal factors that are fueling this grim trend.

China’s Modus Operandi: Many have also taken to social media to criticize the Chinese government's response to the attack. As one user pointed out, though the attack took place on Monday of last week, the vast majority of the country didn’t find out about it until Tuesday evening, when Chinese police finally released their report and state media was given the green light to cover it. Further criticism was launched at the Chinese government’s censorship efforts after the Chinese public found out. In one particularly inexplicable attempt at censorship, Chinese officials took away flowers left at the scene of the tragedy and forced mourners to disperse. These mass censorship efforts have become the Chinese government’s typical response to tragedies since Xi Jinping rose to power in 2013. Xi has attempted to shape the CCP into a more controlling, authoritative regime, and this recent incident stands as evidence of his success.