While not getting much attention by the western media, a financial crisis is building in China, which could possibly lead to the collapse of the Chinese economy, and either the end of government rule by the Chinese Communist Party (CCP) or a sudden military adventure by the CCP in an attempt to distract the Chinese people from the financial crisis inside of China.
The Chinese Communist Party came to power by promising the Chinese people a higher standard of living. In order to provide this higher standard and living, and to remain in political power, the CCP opened up its economy to the West in 1978.
China’s GDP in 1978 was $149.5 billion. After China opened its markets to a free economy in 1978, the growth rate of the Chinese economy was nothing short of phenomenal. In 2021, China’s GDP was $17.7 trillion. The main reason for the explosive growth of the Chinese economy was that it’s economy in 1978 was bankrupt, and had no place to go but up.
While China’s economic growth has been impressive, it has relied specifically on “Steady State Growth.” Steady State Growth relies on continuous and increasingly amounts of economic inputs to keep its growth rate. Once the inputs into the economy level off or stagnates, the growth rate suffers, and a decline in the economy is inevitable.
In contrast, western economies are subject to the “Non-Steady State Growth” model by the Solow-Swan economic model. Non-Steady State Growth is where a technological change in production increases the productivity of the economy, which causes the supply curve of a particular good or service to shift to the right on a Cartesian coordinate system, which increases demand for that good or service at a lower price. Such an increase in a supply of a good and/or service increases that countries GDP without the use of additional economic inputs. The non-steady state growth rate continues until the new technology become the new normal, whereupon the non-steady state growth model transitions back into a steady state growth model.
China is not able to experience this type of economic growth due to its lack of an impartial judicial system in China to fairly and impartially adjudicate contract law conflicts. Because of this, the current Chinese economy depends on increasingly more and more economic inputs to increase meaningful economic growth.
Money As a Political Good
In the West, and throughout most of the world, money is an economic good. Money in the West is governed by the philosophy of a return on investment which creates more wealth. Money is used as an intermediation between buyer and seller.
In China, according to the geopolitician Peter Zeihan, money is considered by the CCP as a political good.
According to Mr. Zeihan “Investment decisions not driven by the concept of returns tend to add up. Conservatively, corporate debt in China is about 150% of GDP. That doesn’t count federal government debt, or provincial government debt, or local government debt. Nor does it involve the bond market, or non-standard borrowing such as LendingTree-like person-to-person programs, or shadow financing designed to evade even China’s hyper-lax financial regulatory authorities. It doesn’t even include US dollar-denominated debt that cropped up in those rare moments when Beijing took a few baby steps to address the debt issue and so firms sought funds from outside of China. With that sort of attitude towards capital, it shouldn’t come as much of a surprise that China’s stock markets are in essence gambling dens utterly disconnected from issues of supply and labor and markets and logistics and cashflow (and legality). Simply put, in China, debt levels simply are not perceived as an issue.”
In China, money is a political good, and only has value if it can be used to achieve a political goal. That political good is maximum employment.
The concepts of rate of return or profit margins do not exist in China, and therein lies the danger; eventually the law of supply and demand will win out, and the Chinese economy will have to face a correction. The longer it takes to face this economic correction, the greater damage that the inevitable correction will cause to the Chinese economy.
The Chinese Real Estate Market is in Crisis
The default by the massive real estate giant China Evergrande Group in December of 2021 foreshadowed the slow-motion train wreck of the Chinese real estate market. While teetering on default, state owned enterprises in China cherry picked assets of Evergrande and took them over with cash and in some instances assuming the debt of those assets with the blessings of the Chinese state government. Because of Chinese law, the international debt is what is known as ‘unsecured’ and issued by a Hong Kong offshoot, meaning creditors do not automatically have the right to seize anything on the mainland, where Evergrande has almost all of its 1,300 projects. There is little prospect that overseas investors will be able to recover their investment because of this law.
In July, an article in the British news organization Reuters detailed the continuing crisis of the real estate market in China. According to the article, homebuyers in 22 cities inside of China are refusing to make mortgage payments on unfinished condos and apartments. According to Dan Wang, chief economist for Hang Seng Bank China…”If tens of thousands of homebuyers really stop paying their mortgage, the real estate companies will soon collapse because they have no liquidity, there are huge risks for banks, particularly local banks, whose assets are mainly in the housing market, and there is no way that the central bank could save all of them.”
Those protestors are in danger of being punished under a government system called “social credit” which rewards what is considered good behavior by Chinese citizens, and punishes bad behavior. The refusal of frustrated Chinese families to pay for a mortgage for an apartment or home that may never be built, indicate the level of anger among thousands of Chinese buyers, and is bleeding over into the developing banking crisis in China.
A Developing Banking Crisis in China
On July 10, 2022, in the Chinese province of Henan, in the provincial city of Zhengzhou, a crowd numbering about 1,000 people clashed with the police in front of a branch of the Chinese Central Bank protesting their deposits being frozen by the bank.
The freeze on the bank’s deposits began in April of 2022. Depositors were not able to withdraw their money from the bank from that time on, despite promises that their money was safe.
The clash on July 10th, resulted in many protestors being attacked and being beaten by unidentified men, which were later identified as government police, and then detained in detention centers. The protestors were released later on that afternoon. The next day, authorities announced that some monies would be released with a maximum amount of 50,000 yuan ($7434 in USD). Authorities announced that deposits frozen above this amount will eventually be released, though no information as to the how and when was given.
The bank, one of some 1,600 village banks, have been under pressure as a result of the slowdown in the Chinese real estate market. Many banks and financial institutions are heavily invested in the Chinese real estate market, and with the slowly collapsing real estate market, the damage is slowly seeping into the Chinese financial sector.
To juice its economy, China has announced a $1.1 trillion (USD) infrastructure package. This is an example of the Chinese economy adding inputs to its economy to spur growth, but the input is simply more debt. The stimulus package will depend on bonds, which provincial banks are supposed to invest in. Given the illiquidity of the smaller banks, this may prove to be a daunting challenge.
With the real estate market in crisis in China, and with collateral damage leaking into the Chinese banking industry, with funds being frozen to where the depositors cannot gain access to their capital, a serious crisis in real estate and banking is developing in China.
With the crash of the real estate market in China, and the beginnings of a crash of the Chinese banking system, it appears that the inevitable economic correction has arrived.
Uniqlo vs. Indonesia: A Battle of Bargaining Power Position
In negotiations, bargaining power is the capacity to exert influence or negotiate. A country or multinational corporation (MNC) has a stronger position than others in certain circumstances. The ability of a country to control market access and provide additional incentives to encourage market participation are just two of the many factors that influence a country’s strong bargaining position. A country’s position in the value chain, economic development, labor, and ties to major corporations are just a few factors that can affect its bargaining power in the context of global production networks. Doz & Prahalad (1980), note that product differentiation, economies of scale, and technology influence the bargaining leverage of multinational corporations.
The parent company of Uniqlo fashion retail, Fast Retailing Co., Ltd., is headquartered in Yamaguchi Prefecture, Japan. In another study by Coe & Yeung (2015) on global production networks, they see that a fashion retail company controls a global production system by collaborating with partners who supply finalized products according to product specifications requested by export-oriented nations. In addition, the finished products are distributed and marketed with strong trademarks and access to large consumer markets, such as shopping center outlets and online retail. Uniqlo is taking measures to establish partnerships with countries in various regions of the globe, including the Asian region. Uniqlo’s expansion in the Asian region is a manifestation of the company’s economic interest in broadening the scope of product marketing, increasing competitiveness by prioritizing innovation, and establishing a variety of facilities that cater to the requirements of consumers. Under PT Fast Retailing Indonesia, Uniqlo continues to expand in Indonesia.
Merit comparison between Indonesia and Uniqlo
With a population of 278 million, Indonesia has a large and expanding labor force that can encourage the acceleration of production in the Indonesian garment or apparel industry. In addition to its large and productive workforce, one of Uniqlo’s primary advantages is its low labor costs. It is not surprising to see that the Uniqlo brand has collaborated with 17 apparel supplier partners and retail center outlets in Indonesia. The domestic market in Indonesia can also be advantageous for Uniqlo, as the country’s high population will continue to generate demand for clothing.
Considering product differentiation, economies of scale, and technology, Uniqlo has a superior bargaining position. Based on Yuan (2023) research, by cultivating a strong “comfort and simplicity” brand image and actively collaborating with other brands, Uniqlo is able to increase its bargaining power. These strategies have helped Uniqlo achieve success in the fashion industry, increase its capacity to attract and retain customers, and distinguish its products from those of its competitors. According to Bisnis.com (2023), Uniqlo has also achieved economic success in the fashion industry, with a total net profit of IDR 83,2 trillion. By signing an agreement with the International Labor Organization (ILO), Uniqlo enhances its relationship of trust with its production partners and promotes the well-being of workers. Furthermore, Alexandra Santiago (2021), through YCP Soliadiance, reveals that Uniqlo also owns software for supply chain management called Global One (G1) SCM System, which it requires all of its suppliers to implement, and that this digitalization can enhance production planning and reduce production lead times.
Uniqlo’s bargaining position is strengthened in the negotiation process because the company has a great deal to offer Indonesia. For instance, PT Fast Retailing, the parent company of Uniqlo, signed a cooperation agreement with the International Labour Organization (ILO) to promote employment and social protection in Indonesia, funding the program with $1.8 million. One of the goals of this program is to ensure the minimum wage, assist workers in this industry in regaining employment, and enhance their abilities and skills. Uniqlo also collaborates with BUMN to support the development of Indonesia’s renewable energy sector by procuring Renewable Energy Certificates (RECs). In 2019, Uniqlo became the first fashion retailer in Indonesia to use renewable energy from the Geothermal Power Plant (PLTP) in Kamojang, West Java, by signing a Renewable Energy Certificate Sale and Purchase Cooperation agreement with PLN. Based on Antaranews.com (2023), Uniqlo facilitates Indonesian small and medium enterprises (SMEs) by providing SME training and marketing curated products through the “Neighborhood Collaboration” program, so that local Indonesian products are better known.
PT Fast Retailing Indonesia has a greater bargaining position than Indonesia. Indonesia’s bargaining position is quite weak due to the fact that it offers only a ready-to-work population and personnel resources, with no other bolstering factors. The garment industry in Indonesia still faces a number of issues, ranging from the need to import raw materials, which drives up production costs, to labor demonstrations demanding wage increases. This has caused many businesses to relocate to inexpensive nations, such as Vietnam. Indonesia must address its deficiencies create a more business-friendly regulatory environment because a nation’s bargaining position will be enhanced if it meets the requirements of the Global Production Network’s major corporations. If Indonesia has everything required by multinational corporations, it is not inconceivable that many companies from diverse industrial sectors will build facilities in Indonesia.
Overall, both Indonesia and Uniqlo benefit from their respective bargaining positions. Uniqlo provides a variety of benefits to Indonesia, including the protection of labor in production partner companies, the use of Indonesian renewable energy in its production to support the sector, and the promotion of small and medium-sized enterprises (SMEs) through training and the marketing of its products through the Neighborhood Collaboration program. By assisting the SME sector and promoting the use of renewable energy in its partner countries, Indonesia also benefits Uniqlo in terms of human resources that support accelerated production and a positive corporate image. Indonesia can make improvements to increase its competitiveness and attract multinational corporations to produce there.
There are a number of advantages to the presence of multinational corporations in a country, including the following: the presence of multinational corporations in a country can facilitate the creation of new jobs and reduce unemployment rates in the country; there is an increase in expertise for the workforce in a country as a result of the transfer of new technology and management systems, which are unquestionably more effective; and the presence of multinational corporations in a country can i) improve the quality of life in the country; ii) promote economic development.
International Forum for China’s Belt and Road and the Six Economic Corridors Projects
China will hold the third edition of the Belt and Road Initiative Global Forum in October 2023. The Chinese Belt and Road Initiative aims primarily to stimulate and encourage global trade infrastructure. China began its Belt and Road Initiative more than 10 years ago, and it is a global strategic initiative to develop infrastructure, to connect with Asia, Africa, and Europe by land and sea. The “Belt and Road” project, or “One Belt – One Road”, is an international initiative previously presented by China with the aim of developing currently operating commercial transport corridors and establishing new corridors linking more than 60 countries around the world in the regions of Central Asia, Europe and Africa, and it is designed to enhance the development of the trade relations between them, and this in turn leads to the development of trade relations between them and China.
The idea of forming a “Silk Road Economic Belt” was proposed by Chinese President Xi Jinping, and was announced for the first time during his speech in the city of Astana, the capital of Kazakhstan, in September 2013. The first forum was held in 2017, while the second one was held in 2019.
The third Belt and Road Forum for International Cooperation will be held in Beijing in October 2023, and it is expected that three high-level forums will be held on connectivity, green development and digital economy, and six other forums on trade connectivity, people-to-people connectivity, think tank exchange, the Clean Silk Road, and Sub-national cooperation, that is, with other economic blocs such as BRICS and others, and maritime cooperation, in addition to holding a conference for CEOs of major companies and projects around the world. With China officially confirming that the tenth anniversary of the Belt and Road Initiative is an important platform for all parties to research and develop high-level cooperation within the framework of the initiative.
The Belt and Road Initiative is of great importance to Egypt and the countries of the region, given its economic benefits and the investments and various economic benefits it brings. Relations between Egypt and the countries of the region and China have witnessed great development and an important shift in recent years, within the framework of the Belt and Road Initiative as an entry point for developing these relations and establishing more diversified relations between China and the countries of the region. The initiative also provides a great opportunity for cooperation between Egypt and China in the maritime field, because the Suez Canal is part of the maritime component of the Chinese Belt and Road Initiative, and Egypt has extensions with the Indian Ocean and the Mediterranean Sea that facilitate the opening and establishment of new projects between China and Egypt. The Chinese presence in the (Suez Canal Economic Zone) also contributed to transforming it into an industrial zone, with the Egyptian side planning, based on China’s role in transferring technology and expertise to the Egyptian side. The Belt and Road Initiative also gave great importance to the issue of interaction between peoples, especially in the tourism sector, with Egypt expecting an increase in the volume of Chinese tourism during the coming period.
Egypt and all countries of the region also interacted with the Chinese Belt and Road Initiative in a very large way, whether by attending Belt and Road forums or opening the way for Chinese investments in our countries. In addition to the role of the Suez Canal in establishing major partnerships with the Chinese side regarding international navigation and trade through the maritime component of the initiative. The interaction of Egypt and the countries of the region with the Belt and Road Initiative has been positive, and Egypt has benefited greatly from financing institutions within the framework of the Chinese Belt and Road Initiative, such as the Asian Infrastructure Investment Bank, which contributes to financing important projects in Egypt, including: the huge Benban project in Aswan to generate electricity and the solar energy.
China has already announced the participation of 110 countries in the Third Belt and Road Forum in October 2023, in addition to the invitation of the Chinese side to many international economic forums and gatherings. The most important thing for me is the official Chinese media’s confirmation that China did not invite the heads of some Western countries to attend the Belt and Road Forum, given their interference in China’s affairs and obstruction of the growth of its interests. This is precisely what was confirmed by the Chinese newspaper “Global Times”, which is close to the ruling Communist Party in China, by confirming that the vast majority of invitations to attend the forum were sent to leaders of developing countries, while the heads of some developed countries were not included to attend the Belt and Road Forum in 2023. With the Global Times confirming that this was done, because the main goal of the forum is development cooperation between countries, so a number of Western countries in particular were excluded. Knowing that Russian President Putin intends to visit China, and this coincides with the holding of the Belt and Road Initiative Forum in October 2023.
Some Western pressure also came on Italy in particular, despite its previous strong enthusiasm for the Chinese Belt and Road Initiative, with the Italian Foreign Minister Antonio Tajani’s assertion that cooperation within the framework of the Belt and Road “did not achieve the results that the Italian side expected, and his confirmation that many Italian parties It opposes Italy’s participation in the Belt and Road Forum in China in October 2023. Here came the Chinese response to the Italian Foreign Minister, through Chinese Foreign Minister Wang Yi, stressing that the “Belt and Road” plan is a huge infrastructure program similar to the ancient Silk Road of roads. Eurasian trade, and this initiative has borne fruit for Italy, which is the only economy in the “G7” that has signed a memorandum of understanding regarding the agreement to implement a number of Chinese projects in Italy in relation to the Belt and Road Initiative, to end in March 2024.
I believe that the Belt and Road Forum, in its third edition scheduled to be held in October 2023, will be different from previous years, especially with China’s introduction of the economic corridors project, in light of American and Western pressure on it. Before the Belt and Road Forum began in October 2023, China officially announced the signing of cooperation documents related to the Belt and Road Initiative with more than 150 countries and more than 30 international organizations. With Belt and Road cooperation achieving economically fruitful results, such as implementing 3,000 cooperation projects and stimulating investments worth a trillion dollars. Also, since the proposal of the Belt and Road Initiative, the project to build China’s economic corridors has achieved great results, which serve the direction of development for the countries participating with China in those six economic corridors, the most prominent of which are:
The New Economic Corridor for the Eurasian Continental Bridge, which relies on high-speed railways between China and Europe.
The China-Pakistan Economic Corridor, which has entered the second phase of implementing its projects, after the completion of the first phase of the Pakistani Gwadar Port Free Zone project to attract investment, and the cross-border optical cable project between China and Pakistan was completed and opened.
The economic corridor between China, Mongolia and Russia
Indochina Peninsula Economic Corridor
The economic corridor between China, Central Asia and West Asia
The Economic Corridor between Bangladesh, China, India and Myanmar, which is making slow progress
We find that the strongest projects of these six economic corridors are the China-Pakistan Economic Corridor and the China-Mongolia-Russia Economic Corridor, which has achieved many international cooperation plans for its parties. The China-Pakistan Economic Corridor has established a bilateral joint committee as a mechanism for international cooperation for coordination.
On the other hand, the American pressure on China, especially since the beginning of the Biden administration period, has considered China its biggest competitor. Not only did the United States of America pursue a policy of containment against China, but it also attracted allies to Washington to launch the Supply Chain Alliance and the Technological Alliance, which faces major objections from the Chinese, because it imposes many checks and balances in the form of huge challenges facing China. These measures taken by the United States of America, as well as the period of global embargo during the outbreak of the Corona epidemic, exacerbated many geopolitical contradictions along the Belt and Road, due to American pressure on China’s projects in those six economic corridors.
A New Horizon for Kazakhstan’s Economy
On September 1, President of Kazakhstan Kassym-Jomart Tokayev delivered an address that outlined the nation’s priority areas for development. Primarily focusing on Kazakhstan’s economic trajectory, the President’s remarks have a significant impact on the activities and initiatives of public authorities, including quasi-public sector companies like Samruk-Kazyna, a sovereign wealth fund of Kazakhstan, which owns several major companies in the country.
Rethinking Tariff Policy
President Tokayev emphasized the necessity of reforming the tariff policy and introducing adequate market tariffs for entities subject to natural monopolies. This marks an important shift from the existing approach, which has reached its limits. Adopting a cost-plus principle for tariffs will enable us to discontinue subsidies to the economy. This, in turn, will facilitate timely preventive maintenance, thereby reducing the risk of industrial disasters. This policy overhaul will ensure break-even in the areas of activity, bolster the investment attractiveness of our companies and a number of industries, and ultimately lead to increased dividends and social payments. We have already been collaborating with the Government to systematically increase tariffs, taking into account the 10-12% inflation corridor set by regulators to ensure social stability.
Focusing on Exploration
Tau-Ken Samruk, our national mining company, is currently engaged in exploration projects with leading international companies like RioTinto, Fortescue Metals Group, and others. With Kazgeology joining the structure of Tau-Ken Samruk this year, the number of exploration projects has increased from 15 to 45, expanding the exploration area from 1887.7 km² to 13,609 km². Notably, we are focusing on copper, gold, lead, and zinc, as well as rare metals like tungsten, molybdenum, and yttrium. Joint ventures registered in Kazakhstan will own the extraction rights to these minerals if confirmed. Geological exploration work will be carried out not only by Tau-Ken Samruk, but also by the world’s largest uranium producer Kazatomprom, national oil and gas companies KazMunayGaz and QazaqGaz in their areas of activity.
Energy Goals for the Next Five Years
The President has set a goal to commission 14 GW of new energy capacity over the next five years. This includes the Samruk-Kazyna projects aimed at restoring the first unit of Ekibastuz GRES-1, a coal-fired thermal power station, expanding GRES-2, and constructing GRES-3. These initiatives focus on traditional coal energy.
In addition, the Fund’s portfolio features gas generation projects, the largest of which involve the reconstruction of Almaty CHPP-2 and CHPP-3, as well as the construction of a combined cycle power plant in the Turkestan region.
Special emphasis is being placed on the development of renewable energy sources, particularly hydroelectric power plants. Plans include constructing wind farms with a capacity of up to 5 GW in collaboration with foreign partners such as Total Eren, Acwa Power, Power China, Masdar, and China Power International Holding. The projects also encompass the construction of counter-regulators for Kapshagai HPP and Shulba HPP.
According to forecasted data, a capacity increase of approximately 9 GW is expected by the end of 2028.
Transport and Logistics
Strategic upgrades are in progress to improve our existing transport infrastructure and eliminate bottlenecks. Several significant infrastructure projects are currently underway, including the construction of second lines on the Dostyk–Moiynty section, and the development of new railway lines: Bakhty–Ayagoz, Darbaza–Maktaaral, as well as a bypass line around Almaty.
Alongside the widespread modernization of railway infrastructure across the country, the North–South transport corridor stands out as a promising focus area. Plans are in place to upgrade railway sections leading to the Bolashak station, which is located at the border with Turkmenistan.
Simultaneously, initiatives to boost terminal capacity are in the works both within Kazakhstan and abroad. Noteworthy projects include establishing a container hub in Aktau, constructing a terminal at Xi’an port in China, and creating a dry port at Bakhty station, among others. Kuryk port is receiving special focus; the construction of its ferry complex is nearly complete, and activity along the Trans-Caspian International Transport Route is ramping up.
The expected economic impact of these initiatives is substantial, with freight traffic projected to increase by an estimated 50 million tons annually. These efforts aim to transform Kazakhstan Temir Zholy, Kazakhstan’s national railway company, into a comprehensive transport and logistics enterprise.
Top of Form
Economic development on horizon
Kazakhstan is at a historically significant crossroads. The President’s address underlines a multitude of opportunities that we are keen to seize. For decades, Samruk-Kazyna has collaborated with international entities, and we firmly believe that collective business efforts are the most effective approach for the 21st century.
To attract major long-term investors, stability and clear profit plans are essential. In line with the President’s recommendations, we are refining our tax policy to make it more investor-friendly, among other initiatives. These comprehensive efforts not only offer us a robust toolkit for economic development but are already yielding tangible results. I have immense faith in Kazakhstan’s economic potential and am confident that the global business community will recognize and appreciate the favorable conditions being nurtured in our nation.
World News2 days ago
Seymour Hersh: “Zelensky’s army no longer has any chance of a victory”
Eastern Europe4 days ago
How is Iran’s growing paranoia affect its relations with Azerbaijan?
World News3 days ago
Is America in decline?
Defense4 days ago
U.S. Sanctions and Russia’s Weapon Systems: A New Game in the Quest of High-Tech Microchip
Eastern Europe4 days ago
The Solution to Ending the War in Ukraine Lies in the Ability to Get the Other Side’s Point of View
Defense3 days ago
Weaponizing Intelligence: How AI is Revolutionizing Warfare, Ethics, and Global Defense
Economy3 days ago
A New Horizon for Kazakhstan’s Economy
Finance3 days ago
U.S. companies are barreling towards a $1.8 trillion corporate debt