China’s Precarious Posturing in a Scenario of Domestic Discontent. . By Rubin Rothler LLB, LLM
Seeking to embellish her legacy as Speaker of the House, Pelosi scheduled a highly publicized trip to Taiwan despite warnings from China.
The excursion must also be viewed within the broader context of partisan political expediency. The Democrats are pursuing a stance of military prowess as an attempt to redeem the colossal debacle of the chaotic Afghani withdrawal in the eyes of voters with mid-term elections coming up. This pre-election strategy is also reflected by the assassination of Zawahiri, and the US arms shipments to Ukraine that has witnessed Russian fatalities in the tens of thousands.
In the wake of Pelosi’s visit to Taiwan the CCP predictably displayed a rehearsed feigned outrage and launched a series of disproportional ongoing military drills around Taiwan. These military drills serve as a dry run for a future invasion and are an attempt to change the status quo in the region. Yet more importantly, the ostensible show of military strength serves to divert attention away from the looming domestic social and economic crisis.
Since April, several bank protests have erupted in Henan Province after some depositors failed to withdraw money from several financially troubled rural banks, as a result of frozen bank accounts. Ironically these protestors were stopped from traveling by a health app on their cellphones used for covid related tracking data, which was manipulated by designating infection status from green to red. The two events drew widespread rage online and offline, as they cast severe doubts on the reliability of both the financial institutions controlled by the People’s Bank of China, and the legality of the unrestrained and cynical use of the health app originally designed as a measure to control covid to say nothing of violent plainclothes police thuggery.
After a protest over these frozen bank accounts became turbulent, the financial regulators in Henan have promised to reimburse some account holders for part of their deposits. The Henan bank crisis however is far from being resolved, and a complete resolution has not been reached yet. The crisis is also contributing to the growing instability of the Chinese financial system. Since 2022, if not earlier, the country has seen an increasing number of defaulted property loans recorded by smaller, regional lenders that represent higher risks to their customers compared with those nationwide banks.
Another challenge facing the country is the real estate market. According to S&P Global Ratings, China’s property sales this year are set to plunge 30%, which is almost two times worse than their prior forecast. There are a growing number of Chinese homebuyers who have suspended their mortgage payments. Some homebuyers are paying for unbuilt houses that can never be finished because of irresponsible developers who would abandon their projects for financial reasons. When prospective home buyers thought that house prices would continue increasing, property developers would then take the income from the pre-sale round of financing and use it to market even more pre-sale homes. This is already having adverse ramifications for the steel industry and unemployment levels. Similar to a Ponzi scheme, this business model works well when house prices keep increasing, but faces severe risks when buyers become skeptical about whether the developers can deliver what they promised. In China, many developers are failing to meet the timeline they promised these buyers, causing a loss of confidence amongst home purchasers. Despite obvious signs, the bubble continued to grow until recently.
Following the protests, hundreds of thousands of home buyers refused to pay around $300 billion dollars’ worth of mortgages. Unlike the 2008 crisis in the U.S. with subprime lending where there were at least actual homes that banks could seize in foreclosure proceedings, there are no tangible assets securing the debts because the homes haven’t actually been built. For the first time these defaults are starting to affect big government owned nationwide banks, not just regional ones.
Taiwan is a virtually impregnable island fortress that can only be taken by prolonged siege. To be successful, such an encircling barricade would demand a massive naval and air undertaking over an extended period of time (and this is presuming a scenario involving no substantial U.S. intervention). Beijing military planners surely know this well. So far China’s military flexing has proven to be a hollow threat. Pelosi visited anyway, and the US Navy continues to be deployed in the vicinity undeterred. The CCP is treating the nation’s economic woes as a political and public health crisis. Public discontent acutely manifested during the recent lockdown in Shanghai is a demonstrative harbinger of what is to come should the current zero covid policy be pursued any further. Sooner or later this volatile strategy will probably be unsustainable, given the impending real property bubbles and the Henan banking crisis. The use of gauze, such as a digital yuan, will not control the hemorrhage. The squashing of entrepreneurial capital in a Neo-Maoist return to a party-controlled state enterprise policy, has relegated any free-market rescue efforts as untenable. Among other implications, such a remedy would incur mass corporate bankruptcies and fiscal insolvency of major banks. This would generate considerably more collateral damage to the rest of the economy than the American S&L implosion of the 80s & 90s, and the 2008 Sub-Prime collapse combined. Any attempts at a radical restructuring solution with a political liberalization would leave China in the same state as Glasnost and Perestroika did to the Soviet Union.
As China’s crises spreads and deepens with no financial magic bullet solution, the economic quagmire is instead being addressed by Jiping & the CCP as a political one, where Taiwan is not primarily about Taiwan, and Covid 19 is not primarily about Covid 19. Nancy Pelosi and Xi Jiping meanwhile share one common square foot of floor space – political desperation, and the inevitable displays of lies, hypocrisy, and staged antics that accompany it.