The coming collapse of China?

 Barrons:

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The key to understanding China’s success in these past few decades as well as its fall in the next few is this intersection of industrialization and urbanization. Cramming two centuries of development into 40 years means China crammed two centuries of growth into that same 40 years. Of course China’s growth has been shockingly fast—but that can only be done once. Similarly, advancing from preindustrial farms to postindustrial condos pours all a society’s energy into industrial development. Great for growth, but it leaves exactly zero space (or time) for children.

It isn’t that other factors play no role. That’d be a silly position to take. Cultural unity, a work ethic that makes Protestants seem lazy in comparison, a government that is, shall we say, involved with managing the minutiae of people’s lives. It factors in. It all factors in. But I don’t care how unified and hardworking or coordinated a population is if the country in question has…

…no…

…people.

A replacement birthrate is 2.1 children per woman. China slipped below that in the 1990s. Birthrates in Beijing and Shanghai are now the lowest in the world. China’s labor force and overall population peaked in the 2010s, heralding the fastest increases in labor costs in the world. Ever. The average Chinese citizen aged past the average American citizen sometime around 2018. Recent analysis by the South China Morning Post of data from the Chinese census authority suggests China’s population will be half the size in 2050 compared to today.

It’s (far) worse than it sounds. Nearly all of China’s 600 million-strong population growth since 1970 isn’t from more births, but from longer lifespans and fewer deaths. Any disruptions in the flows of foods and fuels that enable modernity will earn the Chinese another “world’s best” title; Not only is China the fastest-aging population in human history, soon it will also be the fastest-collapsing.

Even that assumes nothing else goes even a little bit wrong.

China also imports the vast majority of its energy as well as the inputs used to grow its food. China depends on trade to keep its population not simply wealthy and healthy, but alive. Remove international links, and Chinese mortality levels will rise even as baked-in demographic trends mean birthrates will continue to fall.

What might we see break first?

I freely admit the very nature of national collapse makes sussing out leading indicators a bit like feeling around in a bag of snakes, but I’d reach for finance. Specifically, currency. You think the Japanese, Europeans, or Americans have a problem with their tendency to print currency?

The Chinese economy, even by the boasts of the most ultranationalist of Chinese, is still significantly smaller than the American economy, and yet in most months the Chinese expand their yuan supply by a factor of two to five times more than the U.S. dollar, granting them an overall money supply that’s often more than double. Since 2007—the year just about everyone started talking about the Chinese taking over the planet—the supply of yuan has increased by more than 800%. And whereas the U.S. dollar is the store of value for the world and the global medium of exchange, the Chinese yuan wasn’t even used in Hong Kong until the 2010s.

The yuan is a store of value for no one—not even the Chinese Communist Party. Its preferred method of storing wealth is U.S. currency—specifically U.S. government bonds—held outside of China.

China’s financial system, paired with its population decline, condemns it to not being consumption-led, or even export-led, but lending-led. Fresh new Chinese lending in calendar year 2020 was about 34.9 trillion yuan (roughly $5.2 trillion), about 40% of GDP. The best guess is that as of calendar year 2022, total outstanding corporate debt in China has reached 350% of GDP, or some 385 trillion yuan ($58 trillion). It is the largest and most unsustainable credit boom in human history.
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It is hard to see how China and sustain its current economy.  Their one-child policy has built-in a limit on their potential growth.