China is one of the oldest civilizations ever existing in some form or another for the past 4,000 years. Despite being one of the oldest civilizations and the oldest continuous civilization, ironically, China is/was a rising force. I remember talking to several people my age who perhaps thought they were smarter than they actually were, and they all made the observation that China would assuredly overtake the US. Perhaps out of something close to fear or maybe genuine foresight, I said that I thought China would never overtake the US, and if it did, it would be very temporary, similar to what Italy did to the UK, the Il Sorpasso. I had a variety of reasons in 2019, but it mainly boiled down to the fact that China just did not look sustainable. It turns out the Chinese system was not sustainable. I am not taking a victory lap quite yet as it is undeniable that the Chinese economy is historically one of the strongest ever, and I could see them bouncing back, but I am going to cover my fears for their economy and the ramifications the demise or halting of the Chinese economy can have.

The biggest Chinese problem is their shrinking population. A shrinking population is a problem in Japan, South Korea, and many other major countries, but China has an economy almost solely reliant on manufacturing. Even in newer industries that China is attempting to build out, solar, semiconductors, and auto, China is reliant on being able to throw enough highly skilled labor to make any problem go away. With companies like Apple shifting manufacturing away to countries with labor that will soon be equally skilled like India, I fear China will lose its edge.

Youth unemployment is too high. China stopped reporting its unemployment numbers because the numbers were so bad, and they are a touchy country. Youth unemployment leaves a scarring effect on countries. If fewer youth are working, fewer youth are building connections, picking up on abilities for the future, and limiting their future earnings. “A six-month bout of unemployment reduces future earnings by $22,000 over the next decade.” That last point is most important. If China is going to shift its economy from whatever it is now to a services economy where the people generate most of the economic growth, it will need youth to make money and pick up knowledge for the future. The scarring effects their bizarre youth unemployment numbers will have could make it difficult for China to change its economy.

The Chinese economy is fragile and built on government infrastructure and real estate spending. Previously, China faced economic difficulty, and it threw money at infrastructure. Infrastructure spending is a great way to fix your economy if you do not want to give out stimulus or “handouts,” as they call them. After ‘08, China saw what the West was doing: bailing out banks, giving out stimulus, exploding government deficits, etc., and hated it. China decided not to bail out banks or sectors and instead directed government spending into infrastructure, the ole’ Roosevelt strategy. By doing this, China got new gadgets like high-speed rail, bridges, and airports. Each Chinese province was rewarded for economic growth, and so every province borrowed wildly so they could finance new infrastructure building. There is one impoverished province, I cannot remember the name, that has something like 30 of the world’s 50 tallest bridges and four airports that are never used. Now, there is simply nothing to build. China has been building infrastructure for 16 years straight, and now you see rail lines going to nowhere, bridges not being finished, and intense corruption in the building process. China’s economy is getting hit again, and they are turning to more infrastructure spending. That is bad but I haven’t even gotten to Chinese real estate.

For over 16 years, the Chinese real estate sector has powered the Chinese economy. Until last year, real estate made up over 30% of Chinese GDP. Real estate companies like Evergrande were building wildly before they knew they had customers, and now the bill has come due. None of these companies have been able to foot it, and they have all been pushed to bankruptcy. The relentless corruption never helped. Ghost cities have been demolished and now the Chinese government is saddled with trillions in debt to add to its already ballooning balance sheet.

The last and perhaps most important factor in why China is in trouble for the coming year, decade, and century is that the leadership system does not work. We have seen consistently that when power is centralized around one man like Xi, it never goes well. The system is too large and bulky and is not nimble enough to maneuver in this new world. China will face many challenges in the coming decade, as every country must, and I have no faith that they can handle them.