A Trade War Truce Won’t Fix China

The Main Stream Financial Media would love to have investors believe that the recent problems in the global equity market are all about a trade war with China. Therefore, everything can be made right just because Trump shook hands with Xi Jinping at the G-20 meeting in Argentina. But the truth is, China’s problems are structural in nature--resulting from a centrally-planned economy that goads its citizenry into pre-fabricated urban areas in order to manufacture a pre-determined rate of growth. Nevertheless, what the Chinese government has actually accomplished is to produce a dystopia; one that was erected upon the largest percentage increase in debt the world has ever witnessed.

China is home to 18.5% of the world's population. In order to micro-manage all these people, the Communist government has engineered a mass migration from rural areas into urban pre-planned cities. The government claimed this would allow them to better distribute resources. But the government’s biggest fear is a peasant’s revolt. By moving people into highly populated urban areas where they can be placed under constant surveillance by over 170 million cameras, helps Xi Jinping sleep much better.  It also helps him implement China’s “Social Credit System”, where people gain and lose points by conducting their lives in allegiance with government policies. This is not a monetary reward system, but one where freedoms must be earned from autocrats instead of ordained by God.

Since 1995, the amount of Chinese living in urban areas has doubled from 30% to 60%. Yet, even with this huge relocation, over 22% of these dwellings remain vacant. This is because relocation plans went into overdrive during the worldwide financial crisis. What started as an exercise in state control, morphed into a Keynesian style unproductive jobs initiative. With this, China’s debt has risen from $2 trillion in 2000 to $40 trillion today.

Mortgage loans have grown 8-fold in the past decade. Loans on empty homes in China grew to 4.2 trillion yuan, on what is estimated to be 50 million vacant apartments. There were 22.4% vacant homes in 2013. That number is up from 20.6% in 2011, according to the Research Center for China Household Finance.

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Michael Pento is the President and Founder of Pento Portfolio Strategies, produces the weekly podcast called, more

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Gary Anderson 4 months ago Contributor's comment

So, the west is doing better? I think not.