At the annual meeting of the Communist Party of China last year, there were a few key points. I interpreted the content as seeking "stability". Why do I say seeking stability? What's the point?
The first point of the two major points mentioned at the annual meeting is that the demand is declining, and the retail sales data in China keeps falling. I think the main reason is that unemployment and inflation lead to households reducing spending.
The Chinese government's aggressive efforts to rectify various industries have led to the liquidation of many companies, including the technology sector, entertainment industry, small amount lending companies, educational institutions, and real estate sector. For private educational sector there are about 700,000 educational institutions and more than 10 million employees.
According to the survey, more than 160,000 educational institutions in China have been closed or their licenses have been revoked. This is only the field of educational institutions. What about the real estate industry? Evergrande has more than 200,000 employees unemployed.
If upstream and downstream industries are included, it is estimated that 4 million people unemployed. Recently, there are rumours that Foxconn is preparing to withdraw from China and relocate to Vietnam.
Foxconn has also invested 13.7 billion yuan to build a factory in Vietnam. How about Foxconn's 800,000 employees? These are just a few examples but add them all up and this wave of unemployment becomes dire.
The second is the supply chains which is caused by the epidemic and energy shortages. China's inflation is somewhat different from that of the US and Europe, mainly due to the cost-pull inflation caused by the rise in raw materials and the contraction of external energy supply.
China's CPI in 2021 rose by 0.9%, which is far from the target of 3%, but the scissors gap between CPI and PPI is at a high level, It was 12% in November last year. Although it dropped to 8.8% in December, but it is still at a high level. The economy is also in a state of stagnation.
Inflation is high, but the economy is stagnant, and unemployment is rising. This is the problem China is facing now.
China is the only country in the world that still maintaining a zero-covid policy. However, in July last year after the epidemic was cleared, the number of infected people resumed.
At that time, some officials suggested to follow other countries, abandon the zero-covid policy and learn to coexist with the virus, but at that time President Xi did not accept it. Xi'an's municipal party secretary and district head have been removed from their posts; the Yunnan municipal party secretary was also dismissed when the epidemic broke out in Yunnan.
The zero-covid policy and the future of local officials are already tied together. Under such circumstances, local officials might not report it, or lie about the actual infected cases and it can be delayed day by day. At the end of the day under the zero-covid policy local anti-epidemic may lead to the disintegration of the Chinese Communist regime.
Ray Dalio says “There is great internal conflict going on in the United States now, which makes it a risky place" He prefers China investments over the US.
There's an old saying " Heroes emerge in troubled times".
This article was written by Soon Joo.