China has declared economic war (but doesn't say it): why Xi is more dangerous than Trump on cars, steel and chemicals
Where has Gao Shanwen gone? Gao disappeared a few months ago. He lost his license to practice as chief economist of Sdic Securities in Hong Kong, a state-owned financial company. Nothing has been heard of him since. Yet he was a man of the system and enjoyed the respect of all. He had worked at the central bank of Beijing, he had been an advisor to very high officials. He had never objected to the dynamics of Xi Jinping's power, but he was silenced anyway. His crime was having told the truth, for a few fleeting moments, about the real data on growth (less than half the official figure, he said) and youth unemployment (more than double the official figure).
The era of economic warfare
Gao's story concerns us, because it brings us back to our problems in Europe and Italy. Warren Buffett, the legendary investor, observed that the tariffs announced by Donald Trump are an act of economic warfare. They are certainly the way in which America unloads its internal contradictions – tensions over growing inequality, tax inequity, debt – onto the rest of the world, blaming it for its own ills. But there is another economic war being waged, this one without anyone ever even declaring it. It is Xi Jinping’s China, which in this respect acts in the same and opposite way to Trump. China is also making the rest of the world pay the immense cost of its contradictions. Not through tariffs, but their opposite: the most extensive and aggressive mercantilism in economic history. The result is excess production capacity on the planet in all the most labor-intensive industrial sectors. The trade wars of our time can also be read, from this perspective, as a conflict between large economic areas over the allocation of losses – losses of jobs, purchasing power, social and political stability – that all this excess production capacity will impose in the long run. Someone, somewhere, will lose out. And of course Italy is among the candidates, if we don’t react.
The dark evil of young people (and not only)
Gao Shanwen is a reserved man. Last December, suddenly, at a conference he uttered a phrase that immediately went viral on Chinese social media before censorship managed to remove it: “Younger people in China are lifeless and middle-aged people have nothing to live for.” Only older people, he added, are “full of vitality.”
The reason is the incredible level of youth unemployment, which was also discussed on Friday at an Aspen Institute conference in Milan on “The Future of Capitalism.” Yasheng Huang, another Chinese economist at the Massachusetts Institute of Technology in Boston, writes that the real unemployment rate in the People’s Republic is not at all around 17% (Beijing resumed publishing data in December, after two years of silence). Rather, it is at an astronomical 40% or above. For example, official data do not include unemployment outside the cities and unemployment among those who have just finished school but have not yet found their first job.
Then Gao flew to Washington and in another meeting he added an observation that sealed his fate. "We do not know the true number of real growth in China," he said. "My speculation is that in the last two or three years the true figure of the gross domestic product is around 2%, even if the official number is close to 5%." Disciplinary measures were taken against him in the space of a few days, and understandably so. For three years, the second largest economy in the world - first in terms of production volumes - had grossly falsified its data. The gross product would be about 10% lower than the official declarations, as if a mass of turnover more or less equal to Italy had disappeared from the planet.
An exaggeration? Probably not. Rhodium Group, an independent analysis company, has similar estimates based on investments, household consumption or the real estate market. Because what happened in China is there for all to see. For years, a myriad of provincial authorities supported local growth by selling building permits for ever more buildings, until the real estate bubble burst disastrously. The builders went bankrupt, tens of millions of apartments remained empty, unsold, or sold but never built due to the bankruptcy of the developers. The Wall Street Journal reports estimates according to which the destruction of value was 18 trillion dollars, a figure three times greater than that of the subprime crisis in America and equal to the entire economy of China itself. Each family in the People's Republic seems to have lost on average 60 thousand dollars.
Absent Consumption
Above all, the regime does not know how or does not want to react to this catastrophe. For mainly political reasons, linked to Xi Jinping's personalistic and authoritarian drift, it is not helping the Chinese enough to emancipate themselves economically. As Yasheng Huang of MIT in Boston (who no longer dares to set foot in his native country) recalls, consumption in China is a ridiculously low share of the economy: just 39% of turnover and even declining since the beginning of the century, while it is 49% in austere South Korea, 56% in rigid Japan, 58% in depressed Italy, as well as 68% in America.
The immense population of the Chinese countryside (without rights)
Xi does not want a consumer economy; it is alien to his severe Maoist vision. He wants a production economy, which exploits not internal demand but that of the rest of the world. Above all, Xi does not want to move to a social model that grants more freedom of movement and therefore more self-determination to ordinary people. The hukou system (a mechanism for authorizing migration from the countryside to the cities) effectively relegates 700-800 million Chinese, a tenth of humanity, to the status of second-class citizens: they have no right to move to the cities, so they live there illegally, work there illegally and are underpaid; they have no right to send their children to school in the city, nor to subsidies on public transport. Even Vietnam, also a “communist” one-party state, has gradually opened up to this.
Beijing’s former finance minister Lou Jiwei has estimated that eliminating the hukou system in itself would increase domestic consumption by a third, but that will not happen. He is against Xi’s vertical vision. Instead, it continues to focus everything on a vast system of more or less visible subsidies - often granted at the local level - to mechanically push growth rates by installing ever greater production capacity for export: steel, aluminum, cars, solar panels and wind turbines, chemicals, pharmaceuticals, consumer electronics, machine tools, household appliances, cement, soon also trains and small and large-bodied airplanes. Everything that humanity can use.
One of the results, as can be seen below, is a constant increase in total debt in China, both public and private, often held by opaque special purpose vehicles controlled by provincial governments. The growth is such that in the fall of 2022, total debt in the People's Republic, in proportion to the economy, exceeded that of the equivalent debt of the very indebted United States (data from the Bank for International Settlements). Meanwhile, families pay almost a fifth of their income in mortgage interest - more than Americans in the subprime era - for homes worth well below their purchase price.
Global aggression: cars, steel and chemicals
Another result is that Chinese production capacity has exploded, at the unbeatable prices typical of that system. Above all for this reason today most of the main product categories have an excess of factories and workers in the world compared to international demand.
Last year the People's Republic produced 33.7% of the cars that came out of the gates of the factories of the planet, whose activity on the international average is close to the breaking point: just 60-65% of the capacity used, with a third of the plants inactive.
In steel, China last year covered 54.6% of the world supply, seven times more than India which follows as the second competitor; McKinsey underlines that the market remains fragile, with an excess of production of 50 million tons compared to demand in 2024 alone: as if practically all the activity of the plants in Italy and Germany were too much.
In chemicals, Chinese production has grown by 40.9% in the last five years – often from plants fueled by highly polluting coal – and now dominates 43% of the world market, while in the same period Italian production has fallen by 11.6% and German by 15.3%.
In foundries, China has more than tripled volumes since the beginning of the century, with India second in the market that is barely worth a fifth and Italy at its lowest since 1980.
Above all, the Chinese race is all aimed at exports (as seen below) and is effectively creating unemployment all over the world.
