LAST WEEK, I came upon a question on the internet, asking about the state of the People’s Republic of China (PRC) and whether it will fall in the foreseeable future. The question was in the context of the water hosing incident.
My thoughts on the matter go something like this: Currently the PRC is having plenty economic and demographic problems, but they can probably hold on.
Last week, for example, China was officially in deflation. Ironic, seeing as how the rest world is suffering from elevated inflation.
For China, however, this is a very bad thing, because of its economic model. Deflation is the fall in prices, and the reason why they’re falling is because the economy is shrinking.
A standard economist’s solution to this problem is to lower interest rates to stimulate borrowing and therefore economic activity. The problem with this is that the two largest pillars of China’s economy – exports and real estate – are having problem as well, which means they can’t fight deflation.
Exports, in particular, are a problem because China can’t rely on global demand to offset its deflationary problems.
To further add to the issue, US allies continue to control tech investment into China. Taken as a whole, this puts the Chinese economy in a difficult situation, and there are some that are confident that thanks to China’s demographic problems, it will collapse soon.
I disagree with this assessment. I think that the China Communist Party (CCP) will be able to kick the can down the road. It will face years, if not decades worth of stagnation and weakness, but I don’t think it’s likely to fall, and the reason is that those very same factors – lagging economic activity, inverted demographics, etc. – when taken as a whole, are not conducive to revolutions, which tend to happen in young, economically mobile societies. They rarely happen to aging, stagnant societies.
I’d give the PRC a 70% chance that it will be able to kick the can down the road and maintain power. They will be weaker compared to the past several decades, and perhaps they will never recover, but they will still be around./PN
