We have long held a bearish outlook on China, recognizing that its economic model was unsustainable—similar to others that followed the Asian Growth Model. The key difference is that China took this approach to an extreme, stifling household income while fueling unprecedented levels of debt to build unproductive infrastructure, property, and factories. China’s GDP is largely driven by two key sectors: investment in property and infrastructure, which it can no longer absorb, and exports, which the world will increasingly resist.
While many were captivated by China's rise, it is now the Chinese citizens who are beginning to pay a heavy price. Future generations are likely to face even tougher times. The country now contends with the "3D" problem: Debt, Demographics, and Deflation.
If Japan was the "mother of deflation," China is rapidly becoming the "grandmother" of that trend. Watch carefully as this situation unfolds over the coming decade.
The irony of economics is that you can fool almost everyone for a long time, but not forever. Eventually, the payback comes, and for China, that moment has begun.
The next 7 to 10 years could be exceedingly painful for China and its people.
While many were captivated by China's rise, it is now the Chinese citizens who are beginning to pay a heavy price. Future generations are likely to face even tougher times. The country now contends with the "3D" problem: Debt, Demographics, and Deflation.
If Japan was the "mother of deflation," China is rapidly becoming the "grandmother" of that trend. Watch carefully as this situation unfolds over the coming decade.
The irony of economics is that you can fool almost everyone for a long time, but not forever. Eventually, the payback comes, and for China, that moment has begun.
The next 7 to 10 years could be exceedingly painful for China and its people.