These 3 economic threats are a potential disaster made worse by the unrelenting trade war between the two countries.
The trade war threatens to exacerbate all three and potentially be the real killer of the Chinese Communist Party.
THE SHANGHAI CASINO:
- Financial repression—keeping the interest rates on deposits low to subsidize China’s powerful alliance of export industries and governments in the coastal provinces—has been central in pushing investors into real-estate speculation. However, growing uncertainties in that sector have caused many middle-class investors to seek higher returns in the country’s poorly regulated stock market. The unfortunate result: A good many Chinese have lost their fortunes as stock prices fluctuated wildly.
- As early as 2001, Wu Jinglian, widely regarded as one of the country’s leading reform economists, characterized the corruption-ridden Shanghai and Shenzhen stock exchanges as “worse than a casino” in which investors would inevitably lose money over the long run.
- When the Shanghai index plunged 40 percent later that summer, Chinese investors were hit with huge losses—debt they still grapple with today. Many lost all their savings—a significant personal tragedy (and a looming national crisis) in a country with such a poorly developed social-security system.
SHADOW BANKING COMES OUT OF THE SHADOWS:
- Another source of financial instability is the virtual monopoly on credit access held by export-oriented industries, state-owned enterprises, and the local governments of favored coastal regions. With the demand for credit from other sectors unmet by the official banking sector, the void has been rapidly filled by so-called shadow banks.