Shomron Center for Economic Policy Research

In Search for an efficient Institutions

Should Retirement Security Funds Invest in Chinese Active Assets?

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In Chapter 8 of our book    Authoritarianism and Chinese Success Story, we tried to provide grounds for China’s inability to sustain high growth rates for any extended period of time.

The quality of China’s economic growth is worsened by the intimidation of local and foreign investors. The absence of guarantees of the inviolability of the individual person makes business in PRC increasingly dangerous. Problems in reproducing a quality workforce (the struggle against the high birthrate, affecting primarily the urban centers), incitement of anti-entrepreneurial attitudes, instigated by the authorities themselves, and other negative elements pose the threat of substantial obstacles to long-term stable growth.

Finally, profound economic reforms directed at easing the burden of heavy and unfair taxation (of the “progressive” type, for instance) and demented regulations (“green” ones, gender ones, and many others) upon the economy in any large market democracy immediately leads to the drain of capital from China’s real sector into the real sector of the country in question.

More and more consumers note with annoyance the general lowering in quality of technically complex products, something that has become widespread since the time when all large companies moved primary production activities to China. This means that the demand for more expensive, as well as more reliable US, Canada or European products is in evidence, and will most probably remain on the rise.

In other words, long-term (more than 10 years) investments in Chinese active assets and holdings appear to us to be an unwise and risky undertaking.

P.S. January 2022

Some observers point out the Chinese debt bubble (obligations of provincial and municipal authorities out of control). Some observers warn the readers about the dangerous real estate market bubble in Chine (here and here).

The majority of people writing on Chinese economic perspectives ignore the root of the problem. The collapse of weak guarantees for private owners and for a private property built under Deng Xiaoping rule causes a lack of good (normally, private) projects to invest in. Substitution of the good private projects by the governmental initiatives leaves less and fewer opportunities for the small private investors (so real estate could be heavily ‘overinvested’). The private property’s protection has become even worse since 2017 power consolidation.

See also readers’ reaction on the forecast

English version –  by Elen Rochlin

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