The world has taken China’s continuing rise to superpower stardom (and the accompanying economic growth it brings the world along with it) for granted over decades now. Yet this appears to have been a mistake, as recent statistics out of the Middle Kingdom now cumulatively show.
China’s torrid pace of international investment and exports have plunged. In time, this is going to filter through and impact the values of financial assets the world over. Before it makes itself visibly felt throughout the world economy, you need to acquire your share of gold.
The yellow metal hedges against economic disruption and financial collapse far better than any other historically proven safe haven asset class in the world. It’s a good idea to review the gold IRA rollover rules and regulations. It will help you to learn the proper methods for how to invest in gold.
The Chinese Government Is Proving to Be Its Economy’s Own Worst Enemy
The greatest obstacle to the continued success and global expansion of the Chinese economy, investment, and exports has not proven to be arch-exporting rival Germany, the World Trade Organization’s arbitration of trade disputes in favor of other countries, or a Trump-inspired United States protectionist economy. Instead, it is the often erratic and continuously intruding meddling from the Chinese government interfering in private business affairs.
This has finally provided foreign multinational corporations with pause for thought. The latest example of this disturbing trend comes from Anbang Insurance Group Co. Ltd. It was only in the recent past that the enigmatic Chinese firm successfully pursued first one foreign acquisition and then another. In fact it was the premier symbol of the rising Chinese global economic clout and worldwide ambitions of China for several years.
Yet just this last week, it became apparent that the government of China has massively increased the pressure on the insurance giant to not only cease acquisition efforts for the future, but also to divest itself of these hard-won foreign assets at its earliest convenience as well.
Nor is this pressure on Anbang unique. Instead it looks increasingly like the new environment for Chinese firms abroad and for the nation’s economic prospects and future. In practically every quantifiable category, by any objective statistical measure, the rise of China to global economic superpower status has simply stalled out badly. Worst of all, it is the government of China that is to blame, not growing debt or economic problems. Despite the fact that their Chinese President Xi Jinping continues to reinforce the image of China as a world-leading proponent of trade, globalization, and even economic progress, statistics reveal another picture.
While the average Western citizen believes that China continues to overrun the globe with its ubiquitous exports ranging from steel to mobile phones to sneakers, the Chinese exports are instead petering out. From years 2006 to 2011, the exports by merchandise value from China roughly doubled. This got the Middle Kingdom through the Global Financial Collapse and Great Recession with minimal impacts felt. Yet in the years since 2011, their total export values have only grown by under 11 percent, per the data from the World Trade Organization.
China’s currency is experiencing a similar malaise to its flagging exports. By the end of 2014, the Chinese Yuan had finally cracked the world’s top five most heavily utilized currencies for global payments of goods. At this peak, they comprised a roughly 2.2 percent global share.
It looked like China would eventually attain its long-term ambition of forcing the yuan settlement to become a real rival to the dollar’s dominant position. Yet the progress has since reversed. This past June, the Yuan only held roughly only two percent of that payments share, putting it firmly after the Canadian dollar.
Consider the capital markets of China as well to see how the trend continues. It’s true that the government has slightly opened up both bond and stock markets to foreign investors. Yet investors still choose to purchase ADR versions of Chinese company shares from New York or Hong Kong over the actual shares traded on Shenzhen or Shanghai. As an example, the domestically traded class A shares of one of the Chinese equity funds that GAM manages out of Zurich only make up under ten percent of the holdings.
China’s Inevitable Loss of Competitiveness Threatens World Economies and Financial Markets
Part of the Chinese obstacles were inevitable. Every nation that makes the transition to economic power eventually loses its lower-cost absolute advantage. This transition is extremely difficult to navigate successfully and has been the ruin of many a developing economy turned developed nation. Nowadays China faces intense competition from the likes of both Vietnam and Asian arch-rival India. The wages prove to be significantly lower here these days. China is thus losing its edge in the important exports of textiles and apparels to favorite overseas market the U.S.
The problem is that the Chinese are not managing to substitute in these long-time traditional forms of exports with the higher-valued and more important ones at nearly the rate they need to do so. Back in 2016, China only exported 708,000 commercial and consumer vehicles. This represented a dramatic decline from 2014’s 910,000 vehicles shipped overseas.
Chinese Government Meddling Making the Problems So Much Worse
The biggest problem though is that the Chinese are now effectively becoming their own worst enemy. The government’s official policies only hinder the markets and private enterprise rather than help them. The only reason the Chinese Yuan is still a veritable side show on the both world currency and Forex markets is because the government constantly tinkers with its market determined values whenever it suits their interests. As recently as May, they reversed their long-stated and -held policies on the currency. Instead of liberalizing it, they instituted an even greater amount of control over it.
Investors also remember without found memories how in 2015, the national government employed a heavy hand in attempting to stop the stock market collapse that was then underway. It left them with a bad taste in their mouth for carrying exposure to Chinese market-traded stocks.
Such interference is best exemplified in the overseas direct foreign investment which Chinese companies attempt to pursue with a free hand. Officials had long applauded their major firms for buying overseas assets and companies. This led to a massive increase in acquisitions from the likes of Anbang. It also caused a debt-crazed buying spree of foreign assets.
The government first caused the problem, then tried to solve it by abruptly changing official policy to restrict runaway foreign deals. While offshore investment managed to grow by a still impressive nine percent for the first half of the year, this was thanks to a single enormous deal when Syngenta AG was acquired by the state-owned company China National Chemical Corporation. With this deal removed from the statistics, the foreign investment would have declined by a full one-third.
Chinese Government Simply Can’t Let the Market Be the Markets
An ancient cultural love affair with micromanagement on an economic level is hampering the Chinese terribly. This is the ultimate cause of their worldwide global hangover and slowdown. Their insistence on parceling out finance to the well-connected means that the desperately important capital always goes to the politically best-connected rather than the most competitive firms and entrepreneurs.
China is not taking their own gradual decline sitting still either. They are instead throwing still more government at the problem of too much government interference. Their latest concocted scheme involves the “Made in China 2025” subsidy-heavy industrial policy. Then there is their ambitious (but ultimately probably doomed to fail) Belt and Road Initiative to build the infrastructure necessary to carry their newfound hoped-for boom in exports throughout Central Asia, Europe, and the Middle East as this graphic demonstrates:
The ultimate lesson the Chinese administration needs to learn from the past history of countries who went through similar stages in economic development centuries ago (ergo the British Empire and the United States in their respective hey-days of the 1700’s and 1800’s).
The Chinese multinationals and domestic giants alike are going to struggle enough with successfully making the difficult transition into international giants. This requires financial savvy and expertise, branding, technological innovation, and experienced management in order to truly compete against the finest multinational conglomerates which the world offers by way of intense competition.
In the meantime, countries and markets will no longer be able to count on a limitless flow of capital from China buying up foreign companies, bidding up foreign assets, and driving up the prices of natural resources and gold. This could easily be the catalyst that kicks off the long-overdue correction in global financial markets. Now you know why you need a gold IRA to hedge your retirement portfolio to prevent this from becoming a financial disaster for you personally. These are all part of the five reasons not to sell your gold now.