Beijing's Bubble Bursts

February 1, 2024
China suffered major setbacks in 2024. On January 13, the much-anticipated election in Taiwan was won by William Lai who had been dubbed by Beijing as “a separatist troublemaker”. His victory was a rebuke: The Taiwanese landed a you-don’t-scare-us punch at the giant panda next door and China simply took it on the chin. Throughout January, mainland China's stock exchanges declined 6 or 7 percent, and Hong Kong’s fell 12 percent — the lowest levels in years. Then, on January 29, the country’s high-wire financial/real estate saga ended when a Hong Kong judge said “enough is enough” and ordered the liquidation of Evergrande Group with $300-billion loans, equivalent to Singapore’s national debt. The property developer defaulted in 2021 and at that time owned 30 million unsold units across China, enough to house the population of Germany. Another 100 million units, capable of housing 260 million people, had been “bought on spec” with small deposits invested by working-class Chinese in smaller urban centers. The bubble occurred after Beijing allowed people to own more than one home and turned the country into a casino. Bejing so far has been able to duck a “Lehman Brothers” moment, but its debt debacle has taken a toll and is why China has lost prestige and its mojo.



China is no longer a get-rich-quick destination, nor is it user friendly to foreign capital or even to many of its own tycoons. President Xi Jinping also handled COVID poorly, and further damaged the country’s reputation and prospects by not denouncing Vladimir Putin and his genocidal war against Ukraine. The pandemic and war upset the West which has pivoted trade and capital away from China, and repatriated jobs or created them in other parts of Asia. To many, a diminished Beijing is not a bad outcome because weak countries don’t invade their neighbors. But the world’s economies are affected by its troubles and, as economist Paul Krugman wrote recently: “Let’s not gloat about China’s economic stumble, which may become everyone’s problem.”

Frankly, Beijing’s bluster and attention toward Taiwan never made much sense for either country. For China it’s unproductive. Xi’s sabre-rattling frightens away foreign investment from its own economy. For Taiwan, it’s business as usual for 23.9 million people. They ignore it and prosper, enjoying the 14th highest income per capita in the world. By contrast, China’s incomes rank 72nd. The Taiwanese have also become distinct. In 1945, opponents of Mao Tse Tung’s communist regime left the mainland for the island, then known as Formosa. In the 1980s, the island evolved from a one-party state to a democracy and successfully adopted Japan’s export-oriented business model. And world’s beating businesses evolved.

The island’s delicate balancing act has worked despite China’s threats to swallow it whole and punish those who recognize it as an independent nation. Only 12 countries officially recognize Taiwan, but Washington and Europe have played their diplomatic cards carefully and do not support a formal declaration of independence. But America is Taiwan’s biggest backer and arms supplier, and in September 2022, after Putin’s invasion of Ukraine, President Joe Biden explicitly stated for the first time that U.S. Forces would defend Taiwan from a Chinese invasion.



Taiwan’s President-elect William Lai

Taiwan’s newly-elected President Lai also plays the politics astutely. In his victory speech, he averted tweaking Beijing and merely said “Taiwan will continue to walk side by side with democracies around the world.” By contrast, China responded by resuming combat exercises around Taiwan to intimidate its populace and Russia said it viewed Taiwan as an integral part of China. But the other Asian tigers, Japan and South Korea, were supportive and rebuild their military forces as a counterbalance in the region. The QUAD (Asia’s fledgling NATO) was launched a few years ago by Japan, India, and the US and now includes a dozen other nations as members.

Beijing’s is preoccupation is internal: A major military corruption scandal, the existence of hundreds of zombie cities with empty buildings, and a Generation Z sociological phenomenon labelled in China as the “lying flat movement”. China’s current generation disdains the work ethic of its parents and grandparents, partly because they were indulged “only children” as a result of its one-only child edict. But they are also unimpressed by their government’s real estate and other economic fumbles and discouraged by the economic slowdown. Youth unemployment in the country is so excessive that the government refuses to publish the figures, and Beijing censors now block any economic “negativity” comments that appear online.



In recent years, President Xi publicly warned against the danger of “lying flat” and began imposing athletic requirements in schools and restricting video game usage. But many are idle because of the economic downturn. A “laying flat” student protest



A Chinese “zombie” city: New and vacant

Another sociological trend sweeping the country is called the “runolution” — or the unprecedented desire of young Chinese people to immigrate and live in more interesting and prosperous countries. And reports of discontent also dog the military, said an official on Chinese social media. “Many of China's officers don't want to fight, and so we really have a force led by an officer corps that is ambivalent about going to war.”

China’s slump points to a safer Taiwan, region, and world. Beijing’s bubble has burst and its middle class and younger generation appear to be uninterested in economic superiority or military conquest. They seek security and comfort.