China’s economic crisis, which has been brewing for years, is now taking a heavy toll on its once robust industrial sector. As Ben Blissett from TLDR News Global explains, the situation is dire, with a significant portion of China’s exporters facing unprecedented financial difficulties. The crisis, which initially seemed confined to domestic issues, has now spread to the industrial heart of the nation, threatening the last stronghold of China’s economic strength.
The Data Behind the Decline
According to Blissett, China’s National Bureau of Statistics has been monitoring the financial health of over 500,000 industrial businesses annually. The data reveals a worrying trend: the percentage of companies reporting losses has surged from 20% in 2022 to approximately 30% by June 2023. This is a significant increase and marks the highest level of financial distress among Chinese industrial firms in over two decades. Blissett notes that this alarming rise in loss-making enterprises indicates deeper structural problems within China’s industrial sector.
A Harsh Winter for Industry
Blissett highlights that this financial strain is not limited to small or medium-sized businesses. Even giants like China Baowu Steel Group, the world’s largest steel producer, are feeling the pressure. The company recently described market conditions as being akin to a “harsh winter,” and warned that 2023 could be the most challenging year for the steel industry since 1998. With steel production down by 4% and cement production, a key indicator of overall manufacturing activity, dropping by 12.4%, the broader implications for China’s industrial sector are becoming clear.
Declining International Demand
One of the primary reasons behind this decline, according to Blissett, is the drop in international demand for Chinese goods. This downturn is driven by a global economic slowdown and the expansion of protectionist measures against Chinese exports. Developed nations like the United States and the European Union have long imposed tariffs on Chinese goods, but now, developing countries such as Mexico, Brazil, and Indonesia are following suit. These countries are raising tariffs to protect their own industries, further squeezing Chinese exporters.
Weak Domestic Demand
Blissett also points out that China’s economic woes are compounded by weak domestic demand. Despite the government’s efforts to stimulate the economy, Chinese households are not spending enough to compensate for the loss of export revenue. This lack of consumer confidence is largely due to worries about overpriced mortgages and economic instability. The CCP’s response, as Blissett explains, has been to double down on manufacturing and industry rather than addressing the underlying issues in domestic consumption.
Local Government Spending Cuts
Another critical factor exacerbating the crisis is the significant reduction in local government spending. In the past, local governments played a vital role in supporting Chinese industry through subsidies and government contracts. However, as Blissett notes, these governments are now slashing spending due to collapsing land sales and skyrocketing debt levels. This reduction in spending is hitting Chinese industries hard, as they lose a crucial source of revenue.
Foreign Investment Dries Up
Adding to the sector’s woes is the unprecedented drop in foreign investment in China. Blissett reports that foreign investment has turned negative for the first time since 1990, as international investors increasingly pull their money out of the country. This withdrawal of capital is a significant blow to Chinese businesses that have long relied on foreign funds to fuel their growth.
The Dilemma Facing the CCP
Blissett outlines two potential solutions for the CCP, both of which are fraught with challenges. The first option is to stimulate domestic demand by restoring confidence in the property sector or rebalancing the economy toward consumption. However, this would require significant reforms and direct stimulus measures, which the CCP has so far been reluctant to implement. The second option is to try to persuade the rest of the world to continue buying Chinese exports, but this appears increasingly unlikely without substantial changes to international trade agreements.
Aggressive Marketing
People in the comments shared their thoughts: “theres a reason why chinese companies making cheap stuff like Temu and Shein are going aggressive with their marketing, China needs more exports.”
Another commenter said: “They pay crap wages, and then have the gall of asking why the middle class doesn’t have enough money…”
One person added: “Problem with dictatorships is that every mundane issues eventually become an existential crisis.”
The Road Ahead
Blissett concludes that neither of these solutions offers a quick fix. The CCP is caught between a rock and a hard place, needing to choose between difficult reforms or facing the continued decline of its industrial sector. As China’s exporters struggle with record losses and the broader economy falters, the future looks increasingly uncertain for the world’s second-largest economy.
Potential Obstacles
What do you think? Can China successfully pivot its economy from an export-driven model to one that is more reliant on domestic consumption? What are the potential obstacles to this shift? How might the global community respond if China attempts to reform international trade agreements to favor its struggling exporters? Could this lead to increased tensions or cooperation? With local governments cutting spending due to debt crises, what alternative sources of revenue could Chinese industries explore to remain afloat?
Check out the entire video for more information on TLDR News Global’s YouTube channel here.
