- China looks unstable right now.
China is experiencing
a significant energy crisis at present.
It has continued to escalate
and we now face a situation
where 20 out of China's 31 provinces
are experiencing either some form of shut down,
of factories, because of lack of power
or reduced hours of operation,
so some form of power shortage.
We now have China's power shortages
potentially creating big problems in the part of the world
that is the world's manufacturing powerhouse and exports.
A lot of the manufacturing goods that we consume.
Severe sustained power shortages in China,
which is the world's manufacturing powerhouse,
are clearly not good news for the upcoming Christmas season
and the ability of the rest of the world
to get supplied with those manufacturing goods.
And the difficulty is that this is coming on top
of already existing severe dislocations
across the world economy.
They are looking elsewhere for their production
for a variety of reasons,
not necessarily obviously
because of this power shortage by itself
but COVID has really brought to the forefront
a number of issues with global supply chains
that they are not built with any resilience in mind.
The world is de-globalizing, localizing,
and that would require either to move production
or to double production in order to be able to supply
different parts of this bifurcated future world
from different locations.
So, these are very deep-seated developments
that are only just beginning.
They're only just beginning.
So, we are at the start of what will be
a major supply site transformation
across the global economy.
In the past China was, let's say, exporting deflation.
Now, China is set to export inflation.
Gone are the days of goods produced cheaply in China
for a variety of reasons.
And then you have the very difficult decision
of how you're going to address
administered electricity prices.
Are you going to let that increase in the price of coal
be translated into higher electricity prices
for industrial and residential users or not?
Politically, China is, and the leaders are petrified
by the potential of high inflation.
It has always been associated in the past
with political upheaval.
So, the one economic force that they cannot hide
is inflation because it impacts absolutely everyone,
and you just can't hide it
with information control and propaganda.
This is a serious issue they're grappling with.
China has managed numerous times
to pull away from the brink of disaster.
So, it is too early to lose faith, so to speak,
in the abilities of the central authorities
to come up with a solution.
But this is an extremely dangerous period.
What worked for 40 years in terms of producing
extremely supersonic growth and development
has stopped working for a variety of reasons.
And they're trying to find a new way
to place their economy on a more sustainable growth path.
But it is far from clear that they found the right path,
and certainly, any such massive transformation
will be extremely difficult and volatile.
So, it's a time to be worried
about how China will emerge from what is a difficult period.