Economic Experts: Act While You Can, Stay Away from China

China's catering industry began to falter even before the economic downturn hit. (Video screenshot)

[People News] In Taiwan, several prominent economists recently expressed to National Security Council Secretary-General Wu Zhaoxie that the central planning economy of the Communist Party of China is severely lacking in 'hope.' They advised, 'Act while you can, and stay away from China (the Communist Party).' A consensus has emerged among many experts, who argue that China's economic troubles are not merely a temporary setback but rather a structural chronic issue. As a result, relying on stimulus measures or interest rate cuts is unlikely to restore the previous era of rapid growth. To genuinely resolve these problems at their core, systemic reform is essential. Such reform would necessitate a change in regime, which means moving away from the Communist Party, allowing the Chinese economy to enter a new phase. The prolonged economic stagnation in China, leading to widespread hardship among the populace, may indeed signal the approaching end of the Communist Party.

Wu Zhaoxie: 'Act while you can, stay away from China'

Recently, key economic indicators in China, including industrial added value and retail sales of consumer goods, have shown signs of weakening. On Saturday (May 30), Taiwan's National Security Council Secretary-General Wu Zhaoxie remarked that he consulted several renowned economists regarding the future of the Chinese economy. They candidly stated that the centrally planned economy of China (the Communist Party) is severely lacking in 'hope' and recommended, 'Act while you can, and stay away from China (the Communist Party).' 

According to a report from the Central News Agency, key economic indicators in China, including industrial added value above a designated scale and retail sales of consumer goods, showed signs of weakening in April. A report from the National Financial and Development Laboratory of China (CPC) indicated that in the first quarter of this year, the growth rate of household and personal debt in China was -0.4%, representing the first instance of negative growth since the third quarter of 1995.

On Saturday, Wu Zhaoxie shared a post on the social media platform X, revealing that after consulting several prominent economists, they straightforwardly told him that the most significant deficiency in China's (CPC) centrally planned economy is 'hope.' The economists advised him to 'distance oneself from China (CPC) while there is still time.'

Wu Zhaoxie also included four charts: 'China's Economic Growth and Forecast', 'Core Engines of China's Economic Growth: GDP Growth and Wage Growth', 'Structural Drivers of China's Economy: Foreign Direct Investment and Domestic Consumer Confidence', and 'China's Economic Deflation'.

The outlook for China's economy suggests it may remain sluggish for an extended period.

Numerous experts, after extensive observation, have concluded that China's economic 'recovery model has failed, and it may remain sluggish for an extended period.' They point out that the Chinese economy is grappling with various issues, including prolonged stagnation in the real estate market, significant local government debt, low consumer confidence, youth unemployment and income anxiety, an ageing population, declining confidence among private enterprises and foreign investors, and an over-reliance on exports. Consequently, many experts argue that to genuinely resolve these issues at their core, systemic reform is essential. However, such reform would entail a regime change, which means the abandonment of the Communist Party of China (CPC). The CPC and those who have profited from the corrupt practices of the communist system would lose their privileges, making it unlikely for them to agree to systemic reform.

When we examine the recent official data as a whole, it clearly indicates that the overall momentum of the Chinese economy is weak, even displaying characteristics of 'external heat and internal cold': while exports are still holding up, domestic demand, consumption, and public confidence are lacking.

1. PMI Remains at the Line of Prosperity and Decline: Signals of Economic Stagnation

The latest official manufacturing PMI fell from 50.3 in April to 50.0 in May, landing precisely at the line of prosperity and decline. A reading of 50 signifies almost no growth or decline, which is generally interpreted as a signal that 'the economy has lost momentum.' Notably, new export orders have dropped back into the contraction zone (below 50), suggesting that external demand is also beginning to weaken.

In this context, Reuters has directly characterised the situation as: 'factory activity stalled.'

2. Public Consumption Becomes More Cautious.

Official retail data indicates growth, but the pace of this growth is weak. Many analysts suggest that residents are not entirely out of money; rather, they are reluctant to spend. The reasons for this include unstable employment, declining housing prices, shrinking household assets, significant pressures from healthcare, education, and retirement, as well as a lack of confidence in future income. Consequently, there is a trend of 'saving money to mitigate risks, saving more and spending less.' This has led many businesses in major cities to observe that 'people come, but do not spend.'

A Reuters analysis also highlights that the recovery of China's service and retail sectors remains limited.

3. Youth employment poses a hidden concern

While the official urban unemployment rate hovers around 5%, which may not seem alarming, the pressure on youth employment is considerable. This year, the number of graduates has reached an all-time high, and conservative hiring practices by companies have resulted in a decrease in young people's spending power. There is a straightforward economic principle: without stable jobs, individuals lack stable incomes, making them hesitant to borrow or spend, which further weakens domestic demand in China.

4. Real estate continues to be the largest burden

For the past two decades, a significant portion of Chinese household wealth has been tied to real estate. However, the housing market is currently experiencing a prolonged downturn, with prices continuing to fall and the repercussions of the construction industry crisis still felt. This has led to what is referred to as the 'negative wealth effect,' meaning that even if incomes do not significantly decline, people instinctively become more conservative when their assets shrink. As a result, we observe downgraded consumption, increased price comparisons, and delayed expenditures.

5. Relying solely on exports and high-tech industries is proving to be a struggle.

When focusing solely on exports and high-tech manufacturing, the performance is actually quite decent. For instance, sectors such as semiconductors, AI-related equipment, electric vehicles, and high-end manufacturing continue to show growth. The role of exports in supporting GDP remains significant. In other words, the Chinese economy is currently more reliant on 'exports and industry' rather than on consumer spending by the general populace.

In conclusion, recent official data from the Chinese Communist Party indicates that the Chinese economy has not experienced a sudden collapse; however, it does show signs of weakening, including slowing growth, weak domestic demand, low consumer confidence, and a drag from the real estate sector.'

Experts: Deep institutional reforms are essential

Michael Pettis, a finance professor at Peking University's Guanghua School of Management and a noted economist, has frequently expressed in various columns and media interviews that he has long believed that China's over-reliance on investment and export-driven growth has reached its limits. Without a substantial increase in residents' income and consumption share, the Chinese economy risks entering a phase of 'long stagnation.' He has emphasised repeatedly that issues related to real estate, local government debt, and insufficient domestic demand are not merely short-term economic challenges, but rather systemic problems. Beijing cannot sustain high growth, local fiscal stability, and the current system simultaneously. 'The primary issue facing the Chinese economy is not a lack of stimulus, but rather the excessively low share of residents' income, which results in long-term insufficient consumption.'

Prominent American economist Adam Posen has issued a stark warning that the Chinese economy may be heading towards 'Japanification.' This term refers to a scenario characterised by prolonged low growth, deflation, conservative consumer behaviour, a sluggish real estate market, and a sense of pessimism among the youth. He emphasised that the Chinese populace is increasingly losing confidence in their future wage prospects.

Hong Hao, the chief economist at the Sire Group and a financial analyst in Hong Kong, has frequently remarked that China's core issue lies in 'overproduction and insufficient consumption.' He noted that local governments have historically focused on heavy investment while neglecting residents' income. Consequently, this has led to intense corporate competition, price wars, and deflation. He even suggested that instead of subsidising businesses, it would be more effective to provide direct subsidies to residents.

The World Bank has also highlighted that China is grappling with a range of challenges, including the lingering effects of the real estate crisis, an ageing population, weak consumer spending, and a diminishing sense of security among the middle class. In light of these circumstances, relying solely on stimulus measures is inadequate to resolve the issues at hand. What is truly necessary for effective solutions is profound institutional reform. △