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China - Has the House Been Built on Sand?

  • Writer: marycoupland5
    marycoupland5
  • 1 day ago
  • 4 min read

By Mike Adams


The five year plan China 2025 targeted surpassing the United States in these areas:

  • Medical

  • Computers

  • Telecommunications

  • Electric Vehicles

  • Advanced and Basic Materials

  • Mobile devices

  • Agricultural machinery

  • Robotics


China if not surpassing the United States has become a serious contender to do so in every one of those areas. They are succeeding in many of these areas, but the real question is this: “At what price?”


China is a centrally planned economy which requires obedient citizens and controlled ecosystems with every aspect of life controlled by the very top. They have one camera for every ten citizens to control what people do and how they do it. The planners set the production quotas and allocate the resources.


To meet the goals of the Made in China 2025 the government allocates resources which could have been directed to populace. It’s the old saying that the we buy from the butcher. But the butcher pays the baker pays the candlestick maker. The resources the government allocates to the Made in China 2025 has left the consumer economy suffering.


The initiative to become world leader in EV production meant building factories and build they did. They can produce 45 million EVs a year. But the factories run at just 60% of capacity. The Chinese people are buying just 11 million of the vehicles. China’s planners are exporting almost 20 million cars. The exports are being sold at a significant loss. That loss is being covered by the Chinese government. 


It seems like the former Soviet Union. The Soviets centrally planned economy eventually caved in and the country dissolved into fragments.


From the outside it seems like China is succeeding in replacing the United States in the areas above. But there are so many similarities to the Soviet Union. China was selling land to their people. Those land sales and the revenue from them have dropped off a cliff. Many of the apartment buildings in the planned cities sit empty and in default. Unemployment especially among the young Chinese has soared. With no income the youth are not buying goods. The butcher is not able to pay the baker who is unable to pay the candlestick maker.


“Around half the world’s billion CCTV cameras are in China. Many have built-in facial recognition and are carefully positioned to gather maximal information, often in quasi-private spaces: residential buildings, hotels, even karaoke lounges. A New York Times investigation found the police in Fujian Province alone estimated they held a database of 2.5 billion facial images. They were candid about its purpose: “controlling and managing people.” Authorities are also looking to suck in audio data—police in the city of Zhongshan wanted cameras that could record audio within a three-hundred-foot radius—and close monitoring and storage of bio-data became routine in the COVID era.”1


In my opinion people whether in the United States or in China – we are the same. The efforts of the central government to mold everyone into a conforming and obedient society geared to support the five year plans are seemingly only working on the surface. The collapse of the real estate in China shows that the central government’s plan to control the economy is not working. The high unemployment of the young people also demonstrate that failure of control. Global banks are withdrawing from China. Foreign investment capital which for many years flowed in like a never ending stream has reversed course and is being drained out. Local governments are buried in massive debt which will probably default.


Right up until almost the end the Soviet Union looked every bit like a super power equal in stature to the United States. The collapse seemed sudden and for most people unexpected.


Will China implode like the Soviet Union did? In my opinion the probability is growing daily. On the surface all looks good. But it looks to me like a house built on sand.


How will that impact the investment markets? It will. United States financial institutions hold nearly $1 trillion of Chinese stocks. I cannot find out how much of the debt US institutions holds. But there is at least $1 trillion of Chinese debt held by US institutions that is already in default. How much more will default, I do not know. But I would guess it is significant.



My best guess is that even as China could implode the central government will continue to pursue their goals of achieving Made in China 2025. That too will impact US competitors, until it no longer does. When will that happen? It will probably take a lot longer than we would expect.


That also gives insight into how to structure stock portfolios. For clients of Adams Financial Concepts one of the evaluations of our holdings is understanding the Chinese impact. That is one of many factors but it is not insignificant.


How do your holdings stack up? If you have mutual funds or ETFs there is little way to know. It just adds to the risk of your investments.


If you are concerned, and I believe you should be, please reach out and make an appointment with us to discuss your concerns and portfolio.


Note:

  1. The Coming Wave: Technology, Power and the 21st Century’s Greatest Dilemma by Michael Bhaskar and Mustafa Suleyman,  September 5, 2023.


Article Written By:

Mike Adams, President & Principal

Adams Financial Concepts LTD

1001 Fourth Ave, Suite 4330, Seattle WA 98011


 
 
 

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