How Liquidity Helps to Explain ‘The End of China’

Think Liquidity, Think Cycle

It’s Basic Supply and Demand?

Falling high street prices and the failure of China to recover rapidly from the COVID lockdowns have spurred many to argue that her economy is structurally broken. Some claim she is suffering Japanification, evidenced by the challenge of ageing demographics, falling high street prices and a property bubble. Others suggest a ‘middle income trap’ because of a failure to foster consumer spending.

Our take is different. Without entirely dismissing her structural challenges, we figure that China’s current problems are largely cyclical and are best explained by capital flows. We often describe the World as being driven by ‘Capital Wars’ or struggles for the international domination of a nation’s economy. (see Capital Wars, Palgrave Macmillan, 2020). To attain supremacy, China has been trying to emulate the powerful US dollar by keeping the Yuan closely tied to it.