Xi ‘Relents’ As Economy on ‘Brink of Collapse’ | Pakistan-China Security Woes

Some Pakistani commentators fear that increased intelligence and counterterrorism cooperation between Pakistan and China risks undermining Pakistan's sovereignty and places it further under Beijing's control.

“some Pakistani commentators fear however that such a move especially coinciding with Pakistan's increasing indebtedness to China risks undermining its sovereignty and places it even more under beijing's thumb”

China has seen a spike in immigration by affluent citizens, with more than 1.2 million people leaving the country since 2021.

“China has also seen a spike in Immigration by affluent citizens with more than 1.2 million people leaving the country since 201 21”

Bloomberg reports that China has begun enforcing a previously overlooked tax on overseas investment gains by wealthy individuals, with some facing up to 20% levies and penalties, marking a shift from historical non-enforcement.

“China has begun enforcing a long overlooked tax on overseas investment gains by the country's Ultra Rich some wealthy individuals in major Chinese cities were told in recent months to conduct self assessments or summoned by tax authorities for meetings to evaluate potential payments including those in areas from past years... individuals contacted are facing up to 20% levies on investment gains and some are also subject to penalties on overdue payments”

According to Minxin Pei (editor of China Leadership Monitor), the Chinese leadership believes the long-term solution lies with developing new 'high-quality productive forces' rather than addressing demand-side consumption weakness.

“Minin editor of the China leadership monitor agrees that the Chinese leadership believes that the long-term solution lies with new highquality productive forces”

Xi Jinping's multi-year crackdown has targeted the consumer internet, finance, and property sectors, denting confidence among wealthy individuals in China at a time when billionaires were being minted every few days in 2018.

“China's wealthy have been under the spotlight since president shei Unleashed a multi-year Crackdown that ens snared the consumer internet finance and property sectors the campaign dented the confidence of the richest individuals in the country where a billionaire was being mined every few days in 2018”

According to Logan Wright's analysis cited in the China Leadership Monitor, property construction represented 23-27% of GDP from 2011-2021 and absorbed about half of China's savings.

“according to a recent paper the China leadership monitor by Logan Wright of rodium group property construction represented around 23 to 27% of GDP from 2011 to 2021 if so it absorbed about half of China's savings”

China's high savings rate of 45% of GDP averaged over 2000-2024 enabled rapid growth when investment opportunities were superb, but this high savings became a structural weakness once the supply of high-return investments declined.

“between 2000 and 2024 China's gross national savings averaged 45% of GDP and Japan's averaged 28% meanwhile those of the US averaged only 18% when investment opportunities are superb these high savings rates can Finance super fast growth in China as with Japan the high savings rate financed incredibly fast growth until the early 2000s yet after a long period of such growth the supply of high return Investments inevitably declines so investment weakens as does demand what was a strength turns into a weakness”

Both Japan in the 1980s and China in the 2010s responded to high savings and declining investment returns by running huge current account surpluses alongside high domestic investment, which encountered external resistance from the US and triggered monetary easing and massive real estate booms.

“one solution taken by both Japan and China was to run a huge current account Surplus alongside the high investment but in both cases this ENC counted external resistance notably from the US in the 1980s for Japan and in the 2010s for China in both cases monetary policy was loosened credit exploded and a huge boom in real estate was Unleashed again in the 1980s in Japan and the 2010s in China”

Martin Wolf argues that the bursting of China's real estate bubble leaves a residue of falling asset prices, unpayable debt, damaged finance, and unhappy people; moreover it further weakens demand by reducing investment, thereby exacerbating the underlying excess savings problem.

“the huge deficit of the let us have a real estate bubble solution to excess savings is that its bursting leaves a residue of falling asset prices unpayable debt damaged finance and unhappy people worse it also leaves still weaker demand as the impact of the collapse further under mins investment and so exacerbates excess savings”

China cannot replace its past decade of gigantic real estate investment with new manufacturing investment (much of which would export) because China is too big and the world will not accept such market flooding.

“China is far too big to hope that investment in brand new manufacturers a significant part of which would then pour onto World Markets can or will be allowed to replace the gigantic investments in real estate of the past decade”

According to Wright's analysis, China's household income share of GDP is only 61%, resulting in a low consumption share that is too small to absorb China's potential output, while the rest of the world will not make up the difference.

“according to Wright the share of household income and GDP is only 61% the resulting low share of consumption is too small to absorb China's potential output but the rest of the world will not make up the difference”

Martin Wolf argues that Chinese leaders feel investment and production are virtuous while consumption and income redistribution are frivolous, creating a fundamental ideological obstacle to the demand-side reforms China structurally requires.

“they seem to feel that investment and production are virtuous while consumption and income redistribution are frivolous yet as Adam Smith wrote consumption is the sole end and purpose of all production Xi Jinping needs to embrace the truth”

Martin Wolf argues that Chinese policymakers have not recognized the nature of China's disease and therefore cannot cure it; instead, they have made it worse over time by resorting to temporary measures, repeating the pattern Japan experienced in the 1980s and 1990s.

“it is vital to distinguish causes from symptoms before seeking The Cure because Chinese policymakers have refused to recognize the nature of the disease they do not cure it over time they have made it worse by resorting to Temporary measures that happened in Japan in the 1980s and 1990s and has been happening in China in the past two decades”

According to Logan Wright's analysis, the real estate boom was the 'last throw of the dice' of an ultra-high savings economy, and that economy is now going to deliver chronically weak demand.

“the real estate boom was quite simply the last throw of the dice of the ultra high savings economy that economy is now going to deliver chronically weak demand according to Wright”

China's Ministry of State Security has called for increased protection of overseas citizens and projects, signaling a more proactive stance in regions like Pakistan, in response to rising militant activities especially following the 2021 Afghanistan withdrawal.

“militants including the Pakistani Taliban have increased their activities across the country particularly after the 2021 withdrawal of us and NATO troops from Afghanistan in response to the rise in violence China's Ministry of State security has called for increased protection of its overseas citizens and projects signaling a more proactive stance in regions like Pakistan”

Martin Wolf identifies three analytical solutions to China's excess savings problem: (1) temporary boosts to demand to stave off depression, (2) cleaning up the financial system including local government debt, and (3) developing a new potent and long-term source of demand.

“analytically the solutions are threefold temporary boosts to demand to Stave off the depression cleaning up the financial system which in the case of china includes local governments and above all a new potent and long-term source of demand”

Martin Wolf argues that the big problem is not China's supply-side potential but the weakness of the demand side; an economy with 5% maximum growth potential cannot productively invest more than 40% of GDP, and growth per unit of investment/credit has already collapsed.

“the big problem is not the potential on the supply side it is the weakness of the demand side an economy whose potential growth rate is 5% at most will not invest more than 40% of GDP productively already the growth generated by a given level of investment or credit expansion has collapsed”

Martin Wolf predicts that Chinese authorities will implement temporary demand stimulus and financial cleanup (parking debt on the government balance sheet) despite disliking this approach, but they will reject the third solution of creating new sources of demand through consumption and redistribution.

“The Chinese authorities will do the first two in the end even though it will mean parking a lot of debt on the government's balance sheet which they will hate but they are alas wrong-headed on the third”

China's Ministry of State Security calling for increased protection of overseas citizens signals a shift from previous non-intervention to a more proactive intelligence and security role abroad.

“China's Ministry of State security has called for increased protection of its overseas citizens and projects signaling a more proactive stance in regions like Pakistan”

Martin Wolf argues that attempting to invest 40% of GDP when demand can only support 5% growth is certain to lead to waste and bigger mountains of bad debt, making China's necessary solution to raise the household income and consumption share of GDP.

“trying instead to invest 40% of GDP is sure to lead to waste and yet bigger mountains of bad debt China needs higher consumption but that reality creates a challenge to Chinese leaders”