Is the China Economy a Bubble or House-of-Cards?

You can choose that China’s biggest problem is that their economic bubble is waiting to burst, you may be right because of the macroeconomic and political forces starving the PRC of cash and political survival worries. On the other hand, if you think China’s business future is a house of cards in a wind storm with companies making micro-economic supply chain decisions to pull out of China and their influence, you also may be right.  If you think China’s problem is a house of cards, then the blame for the pandemic may be the catalyst for the economic hurricane. Either way, the PRC’s economic future is a hot mess.

China’s biggest companies

Two of China’s most prominent companies are petroleum-based. With the price of a barrel of oil at $-32 per barrel, this is a math and cash flow disaster.  Both companies are owned by the PRC government. Alibaba is the largest company in China in name only. The owner is a card-carrying member of the Communist Party and has vowed to give his company to the PRC if asked.

The PRC’s Global Political Influence

The PRC’s influence over the past three decades was overwhelming. They had not only gained massive control with infrastructure loans with sticky strings attached but when most of the counties could not pay back the loans, the PRC would renegotiate the debt from a position of strength. Hence, gaining control of ports around the world.  The World Trade Organization, The US granting China with Most Favored Nation Status, and financial market manipulation via Chinese Government subsidies and acquisition of intellectual property propelled the Chinese Economy with a steady 9% growth rate for the past twenty years.

The Chinese Military

To further solidify their political influence, the PRC has had a massive build-up in their military and weapons. The fear is that the PRC will create a blockade to control most of the commerce in Asia to strangle the rest of the world.

The Change in Political and Economic Tide

Sweden, Germany, and some US states have already filed lawsuits against the PRC. There have been rumors for years of direct political influence. It remains to be seen how many companies leave China to reduce the risk of their supply chain.

China Exporting Business

It appears many companies around the world are fleeing China for their manufacturing for both perceived and realized increased risk exposure to corruption. For the past few decades, companies have overlooked the extra costs of fraud as a cost of doing business in China. With the pandemic and

current aftermath, the calculus is quickly changing as economic investment moves away from the PRC shore like the tide. But a tide that will be slow to return.

How to Monetarize this Macro-economic Situation

There will be a massive US effort to start manufacturing vital products under the cry of national security. For national security reasons, as politically easy stimulus reasons, as a way to bring manufacturing jobs to the US, the US government will target certain products with incentives to start manufacturing in the US. PPE and vaccines will be on the top of the list, but the list will soon be long and lucrative. Decide which niches which you think will be the winners and support them with investment.

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