Most rational Western analysis agrees that economic engagement with the PRC is unavoidable. China’s economy is locked in a population doom spiral, loaded with bad debts. But as bad as the economic situation is, the political risks should weigh even heavier.
China’s national strategy under Xi is driven by a political, military and economic contest with the West. The autocrat has staked his reputation on hard, exclusive Chinese nationalism and independence from the Western-led rules-based order. He has already shown in Hong Kong something of his intentions for Taiwan.
Last year, it was reported that 68pc of major corporations bought political risk insurance in 2022, compared with 25pc in 2019. China, where firms are subject to sudden expropriation, and operate at the whim of political overlords, was seen as a particular risk factor, and one it was increasingly hard to insure.
The US investment bank chief executive who last September said he was “highly cautious” about Chinese risk in late November stated bluntly that if there was war in Taiwan, all bets would be off; his bank would exit China if the US government ordered him to.
Economists and business analysts focusing on the prospects for a rise in GDP or a fall in unemployment are focusing on entirely the wrong issues. Our understanding of the Chinese economy was flawed, failing to see how much was built on debt and thin air.
The next thing to unravel could be our last, treasured illusions about how Xi will react to his country sinking into an economic mire, with a falling population. It’s time to prepare for a new cold war.
Robert Johnson is a UK-based business writer specializing in finance and entrepreneurship. With an eye for market trends and a keen interest in the corporate world, he offers readers valuable insights into business developments.
