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With a slowing economy, a President that looks set to rule for life, the path ahead for China looks more uncertain than it has in decades.
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China’s tech giants, once lauded as the Sino supra equivalents of their U.S. counterparts are now facing pressure to cut profits, redistribute wealth and dismantle capitalist models of making money.
It would take a brave investor to buy the dip on Chinese stocks and the economic miracle that has been China.
Any student of Chinese history will know that it tracks a relatively predictable path – centralization leading to decline, forcing decentralization, leading to ascendency, which inevitably leads to overconfidence and centralization, preempting a fresh period of decline.
A civilization as old as China’s has seen countless periods of ascent and decline, from the imperial age to the current epoch.
With a slowing economy, a President that looks set to rule for life, the path ahead for China looks more uncertain than it has in decades.
Chinese who have grown accustomed to knowing nothing other than the price of their properties rising are now having to contend with a rapidly slowing real estate sector.
Developers hopped up on leverage and building shiny new apartment buildings at breakneck speed are facing default on their debts.
China’s tech giants, once lauded as the Sino supra equivalents of their U.S. counterparts are now facing pressure to cut profits, redistribute wealth and dismantle capitalist models of making money.
On their own, each individual factor could be dismissed as socialism with “Chinese characteristics” but taken in totality, appear to represent a failure by top Communist Party apparatchiks to understand what had made China great again.
Washington is tightening the screws on Chinese companies listed on American exchanges, requesting (rightfully so) more transparent accounting practices and those firms unwilling or are unable to do so, are finding themselves struggling to relist closer to home in Hong Kong.
Investors who had been punch drunk on China’s economic miracle are now questioning their portfolio allocations to the Middle Kingdom, especially as its leader, Chinese President Xi Jinping, draws closer with Moscow.
Far from distancing itself from Russia’s unwarranted invasion of Ukraine, Beijing appears to be doubling down on its close ties with Moscow, spreading disinformation about potential chemical weapons developed by Ukraine in conjunction with the U.S. and refusing to condemn the invasion.
U.S. officials have also claimed that Beijing has entertained the prospect of supplying both military and financial aid to Russia, so that it can continue to bombard Ukrainian cities and slaughter civilians.
While Xi has publicly stated that Beijing is neutral on the invasion, Chinese state media plays out a very different story, continuing to repeat and bolster Moscow’s justifications for its invasion.
But that could be Beijing being adroit at playing both sides.
China is a major importer of Russian oil and commodities, but also has a strong trading relationship with Ukraine – the war does little to help Xi’s bid for an unprecedented third term in office, coming at a time when he needs prosperity and stability in for his 1.4 billion subjects.
Internally, there are signs of division on Russia’s invasion of Ukraine, even at the highest echelons in Beijing.
But the extent and determination with which Western sanctions have been brought to bear on Russia should serve as a reminder to investors contemplating dollar-cost averaging strategies on Chinese equities – they could be catching falling knives.
Should Xi’s personal relationship with Russian President Vladimir Putin cause him to throw his weight behind Russia, even a limited set of sanctions on China could see shares in that country fall further.
There are just so many reasons right now not to be excessively bullish on China – from a property sector that has plenty of skeletons in its closet, to an obsession with zero-Covid that is driving its all-important manufacturing sector into the ground – Beijing casting its lot with Moscow could be the last straw that breaks the camel’s back.
Economic miracles, regardless of how compelling can rapidly become illusory if not tended to.
