Recently, two pieces of news from Asia have coincidentally shed light on China’s economic issues and the incompetence of the Communist regime in addressing these problems.
One is the decision by Apple to shift the assembly of iPhones from China to other parts of Asia. The other is the feeble and almost comical efforts made by the Chinese government to boost domestic consumption in order to fill the significant void left by the weakening export relationships with developed economies like the United States, Europe, and Japan. Apple’s decision to diversify its sourcing beyond China is a direct response to this situation, as highlighted by the company’s CEO Tim Cook during his recent trip to Asia.
In the past, Apple assembled nearly all iPhones in China, mainly for export to the United States and other regions. Cook mentioned plans for the company to broaden its procurement locations beyond China, with significant commitments already made in Vietnam over the past five years amounting to approximately $16 billion. Additionally, Apple intends to expand its iPhone production in India rapidly, aiming to account for a quarter of the company’s global output. With no current business operations in Indonesia, Cook referred to the country as having “infinite investment potential.” All these expansions come at the cost of reducing business in China, both relatively and absolutely.
This is just the latest example in a series of moves by Western and Japanese companies diverting investments away from China to other locations, primarily in other parts of Asia. The reasons behind this shift and the problems it brings to China stem mainly from three fundamental sources.
Firstly, during the global COVID-19 pandemic, China’s production failed to meet the demands of foreign buyers, especially as the world began reopening. Despite this, the Chinese government continued to enforce lockdown and quarantine measures under the “zero-COVID” policy, which tarnished China’s once-reputable reliability and subsequently drove away foreign investments and procurement.
Secondly, the Communist regime has shown an increasing obsession with security and spy activities. China has imposed numerous restrictions on foreign businesses operating within its borders. However, this exaggerated fervor has led to surprise audits on foreign companies and widespread disruptions to daily operations, particularly in conducting market research and communicating with overseas headquarters. This behavior easily convinces decision-makers that the returns on doing business in China are less lucrative, whereas establishing new facilities in countries like Vietnam, the Philippines, and Indonesia offers higher profits.
The third reason for companies exiting China is the escalating trade tensions between Beijing and Washington, Brussels, and Tokyo. Previously, these governments supported China’s development, believing it would benefit global trade and cooperation. However, China’s unfair trade practices and aggression in the South China Sea and East China Sea have caused a shift in their perceptions.
The United States has imposed tariffs on Chinese products, with President Joe Biden indicating a likely increase in tariffs. His political opponent, former President Donald Trump, shares a similar stance. Brussels is also considering tariffs as a punitive measure against China for flooding its market with electric vehicles. So far, Japan has not commented on imposing new tariffs, but Tokyo has issued warnings against China’s actions and taken measures to avoid sudden disruptions in the supply of essential products like rare earth elements.
Aside from these considerations, the increased uncertainty brought by the Chinese Communist Party’s harsher demeanor has led businesses to believe that elsewhere poses less risk than China. This commercial decision-making has caused China to lose the capital investments it once relied on for its economy, along with the substantial exports, employment, and income brought by production facilities constructed and operated by foreign companies in China. China could have encouraged domestic consumption as an alternative driver of economic growth to replace lost foreign support. However, the Communist authorities have exhibited gross incompetence in this regard.
Currently, Chinese domestic consumers are not viable substitutes. The stringent “zero-COVID” policy has left them feeling frustrated, with a stagnant economic activity model imposed by the policy eroding the confidence of the average wage earners in receiving their wages regularly. Moreover, the reluctance of the Chinese government to tackle the 2021 real estate crisis has led to a decline in housing construction and purchases, a situation that persists to this day. Worse yet, the indifference of the Communist Party has significantly lowered property values, thus damaging household wealth. All these factors notably constrain consumer spending.
The Communist Party has proven ineffectual in alleviating these pressures, especially in addressing the real estate crisis, thus ensuring that Chinese consumers will continue to exhibit spending restraint in the foreseeable future. So far, the most the Communist Party has offered is special financing for stalled real estate projects, referred to by policymakers as the “white lists” plan. However, the amounts involved in this plan are too insignificant to make an impact. To date, the plan has only provided over 5% of the funds for the first distressed real estate developer, let alone others facing difficulties.
Another policy support includes a slight interest rate cut by the People’s Bank of China. Since the implementation of this policy, interest rates have dropped by less than half a percentage point. This minor interest rate cut is insufficient to sway households, let alone enterprises. Particularly since China has transitioned from mild inflation to mild deflation, this slight rate reduction may well result in an actual increase in real interest rates.
The only assistance provided by the Communist Party is raising the recycling value of household appliances and cars. According to the Ministry of Commerce of the People’s Republic of China, this is intended to encourage households and individuals to replace items more frequently and increase purchasing power. The Ministry claims that this will stimulate the economy and protect the environment by promoting wider ownership of more environmentally friendly products. These policies seem inadequate to counter the impacts of the “zero-COVID” policy and the real estate crisis. However, these policies indeed inject a sense of comedy into this equation. After all, it brings to mind the 2009 United States economic recession, where the Obama administration encouraged people to trade in old items for new ones to stimulate consumption and advance the green agenda through the “Cash for Clunkers” program. Yet, similar to that initiative, China’s efforts have not proven very effective in achieving better outcomes with this program.
China’s economy has found itself in a quagmire. Beijing’s policymakers need to find better ways than those attempted so far to stimulate domestic consumption. Extensive refinancing in the real estate industry might be helpful. They need to temper the antagonism towards China’s trade from Washington, Brussels, and Tokyo, which may involve abandoning their evidently unfair practices. Additionally, they need to convince American, European, and Japanese companies that the risks of investing in China are now lower, and its credit is more reliable, compared to the situation over the past five years. As no such occurrences have emerged thus far, it appears that China’s economic issues may persist for quite a long time.
Note: This translation and rewriting does not reflect the views of the original news source.